Policy Provisions And Contract Law

Question 1

Appraisal

Answer 1

a professional assessment to determine extent of damage

Question 2

Earned premium

Answer 2

— the portion of premium paid in advance that now belongs to the insurer because it applies to the elapsed part of the policy

Question 3

Liberalization

Answer 3

the removal or loosening of restrictions

Question 4

Negligence

Answer 4

the failure to use the care that a reasonable, prudent person would under the same or similar circumstances

Question 5

Policyowner

Answer 5

the person entitled to exercise the rights and privileges in the policy

Question 6

Third party

Answer 6

an individual or an entity other than the two parties involved in an insurance contract (insured and insurer)

Question 7

Underwriting

Answer 7

risk selection; the process of reviewing applications for insurance to determine eligibility for coverage

Question 8

Name the 4 Elements of a Contract required to make the contract legally binding

Answer 8

1. Agreement — offer and acceptance;
2. Consideration;
3. Competent parties; and
4. Legal purpose.

Question 9

In regards to insurance which party usually makes the offer and which party usually accepts the offer.

Answer 9

Offer is made by the applicant when they submit an application for insurance. The Insurer “accepts” the offer when the underwriter approves the application and issues a policy.

Question 10

What is the binding force in any contract?

Answer 10

Consideration

Question 11

Define “Consideration” in terms of insurance contracting

Answer 11

it is something of value that each party gives the other.
The Insured: pays a premium and makes representations on an application
The Insurer: promises to pay in the event of loss

Question 12

Define REPRESENTATIONS in insurance

Answer 12

These are statements believed to be true but no guaranteed to be true
(these are the responses given on an insurance application)

Question 13

What are the possible consequences of a MATERIAL MISREPRESENTATION

Answer 13

1. if discovered it could alter the underwriting decision making process of the insurer
2. if intentional, it is considered fraud

Question 14

a WARRANTY is what type of statement

Answer 14

an absolutely true statement. the validity of the insurance policy depends on this.

Question 15

In what type of insurance are applicant’s statements not considered warranties?

Answer 15

Health and Life insurance

Question 16

Define binder and its implications

Answer 16

A binder is a temporary agreement issued by an agent/insurer that provides temporary coverage until a policy can be issues. The binder expires when the policy is issued but policy effective date would be the same as when the policy is bound.
If an insurance policy is not issued, then the binder expires on the date after receipt fo notice of cancellation

Question 17

Name the 8 major components of of every PROPERTY & CASUALTY POLICY

Answer 17

1. Declarations
2. Definitions
3. Insuring Agreement
4. Additional Coverage
5. Conditions
6. Endorsements
7. Exclusions
8. Policy Limits

Question 18

DECLARATIONS contain which basic underwriting information

Answer 18

Name and address of insured
Amount of coverage
Premiums
Description of Insured Locations
Any supplemental representations by insured

Question 19

What is 5 things are generally listed in the INSURING AGREEMENT section of Property and Casualty Policies

Answer 19

-Obligation of the insurer to provide the coverages as stated in the policy
-Lists the parties to the contract
-Effective and renewal dates
-Description of coverages
-Perils

Question 20

What is the purpose of Addition (aka supplementary) coverage and give examples

Answer 20

Provides additional coverage for specific loss expense at no additional premium
Ex: reasonable expenses incurred by insured to protect damaged property from further loss and defense expenses

Question 21

Give examples that may be listed in the CONDITIONS section of a Property and Casualty Policy

Answer 21

1. Inspections-insurer can inspect property or business books to determine the exact exposure for the purpose of underwriting and rating
2. Chages to policy- must be in writing
3. Liberalization Clause - if insurer introduces improved coverage free of charge, the insured will get the benefit immediately
4. Return of Premium - method by which the return of premium is calculated if policy is cancelled prior to expiration date

Question 22

What are ENDORSEMENTS

Answer 22

Printed addendums to a contract used to change the policy’s original terms, conditions or coverages.
(they can add/delete coverage or correct items)

Question 23

When can endorsement be added to a policy

Answer 23

At the time the policy is issued or during the policy term

Question 24

In order for an ENDORSEMENT to be valid it must contain what 3 components

Answer 24

1. must be in writing
2. must be attached to the policy
3. must be signed by an executive officer of the insurer

Question 25

What details are in the EXCLUSIONS section of a Property and Casualty policy

Answer 25

Which perils and people are excluded (cannot exclude a spouse)

Question 26

Define POLICY LIMITS

Answer 26

Maximum amount an insured may collect under the terms of their policy

Question 27

T/F An INSURED is anyoone who is covered under the policy whether named or not

Answer 27

True

Question 28

What are ADDITIONAL INSUREDS

Answer 28

They are people or businesses not named on a policy but are protected by the policy due to a specific interest, usually added as an endorsement