Quick Study (Legal Concepts of the Insurance contract)

Question 1

insurance Contract

Answer 1

Contract law defines a contact as a legally binding agreement between two or more parties, where a promise of benefits is exchanged for a consideration.

Question 2

Four essential elements for the contract to be legally binding are:

Answer 2

• Offer and Acceptance
• Consideration
• Legal purpose
• Competent Parties

Question 3

Offer and Acceptance

Answer 3

• An offer is made when the applicant submits an application for insurance to the insurance company.
• the offer is accepted after is has been approved by the insurance company’s underwriters.

Question 4

Consideration

Answer 4

• A consideration is something of value that each party gives to the other.
• The considerations on the part of the insured is the payments of premium.
• The consideration on the part of the insurance company is a promise to pay in the event of a loss.

Question 5

Legal Purpose

Answer 5

• An insurance contract must be legal and not against public policy.
• if an insurance contract has an insurable interest and the insured has provided written consent, it has legal purpose.

Question 6

Competent Parties

Answer 6

All parties must be of legal competence.

• They must be of legal age
• Mentally capable of understanding the terms
• Not under the influence of drug or alcohol.

Question 7

Aleatory

Answer 7

• Insurance contracts are aleatory, which means that there is not an equal exchange of value.
• The premiums paid by the insured are small in relation to the amount that will be pad by the insurance company, in the event of a loss.

Example: if you purchased a life insurance policy worth $100,000 and your payments were $50 per month, and you die 3 months later. yo have only paid your insurance company $150, but they will give your beneficiary $100,000.

Question 8

Adhesion

Answer 8

Also known as “take it or leave it” agreements because they’re prepared by only one party, the insurance company.
- They are accepted or rejected by the other party, the applicant, with no negotiations or changes.

Question 9

Unilateral

Answer 9

Is a one sided agreement. In which only one party, the insurance company is legally bound to do anything.

• The policy owner is under no legally binding promise to pay premiums. However, the insurance company is legally bound to pay losses covered by the policy.
• If the policy owner foes not pay their premiums, the insurance company does not have the right to terminate the insurance policy.

Question 10

Personal OCntract

Answer 10

Insurance contracts are personal contracts between an individual and the insurance company and cannot transfer ownership without the insurance company;s written consent.

Question 11

Conditional

Answer 11

• Insurance contacts are conditional, because certain conditions must be met by all parties when a loss occurs, otherwise the contact would not be legally enforceable.
• If the policy owner is past due on his payments and the insured dies. The insurance company does not have to pay the death benefit because a condition was not met.

Question 12

Valued Contract

Answer 12

Life insurance is a valued contract, which pays a stated amount, regardless of the actual loss incurred.

Question 13

Indemnity

Answer 13

Health Insurance is an indemnity contract.

• It only pays the amount equal to the loss.
• Not allowed to make a profit.

Question 14

Utmost good faith

Answer 14

Implies that there’ll be no fraud, misrepresentation or concealment, between the parties as it pertains to insurance policies.

• Both the insurance company and the policy owner must be able to rely on the other for relevant and accurate information.
• The policy owner is expected to provide accurate information on the application for insurance.
• The insurance company must clearly and truthfully describe policy features and benefits, and they must not conceal or mislead the insured.

Question 15

Warranties

Answer 15

Are statements that are guaranteed to be true and are a part of the legal contract.

Question 16

Representation

Answer 16

Are statements believed to be true, to the best of one’s knowledge, but they are not guaranteed to be true for insurance purposes.

• Are the answers the applicant for insurance gives to the questions on the insurance application.
• Untrue statements on the application are considered misrepresentations and could void the contract. One

Question 17

Concealment

Answer 17

Is a legal term for the intentional withholding of information, which is crucial in making a decision.
-Insurance-concealment is a withholding of information by the applicant that results in an inaccurate underwriting decision and can void the policy.

Question 18

Insurable Interest

Answer 18

• The most important aspect for establishing a legal insurance contact.
• To purchase, the policy owner must face the possibility of losing money or something of value when a loss happens.

Question 19

Insurable Interest with Life Inaurance

Answer 19

• Insurable interest must exist between the policy owner and the person being insured at the time of the application.
• Only needs to exist at the time of the original application, but does not need to exist throughout the remainder of the policy.

Question 20

Agent

Answer 20

• Is a licensed insurance producer, whose been appointed to represent an insurance company.
• Are given certain authority to perform acts on behalf of the insurance company.
• Is always considered to be acting on the behalf of the insurance company, also referred to as the principal.

Question 21

Three types of Agent authority

Answer 21

• Express
• ## Implied

Question 22

Express

Answer 22

• Is the authority granted to the agent by the principal, which is the insurance company, as written in the agency contract.

Question 23

Implied

Answer 23

• Is the authority not expressed or written into the agent contract, but which the agent is assumed to have in order to transact the business of the insurance for the principal.
• It comes from the express authority, since not every single detail of an agent’s authority can be spelled out in the agent’s written contract.

Question 24

Apparent

Answer 24

• Is the appearance or the assumption of authority given based on the actions or words of the principal.
• For example, when an insurance company furnishes an agent with a rate book, applications and sales literature, the insurance company cannot later deny that a relationship existed.

Question 25

Waiver

Answer 25

• The act of voluntarily giving up a legal right, claim or privilege.

Question 26

Estoppel

Answer 26

• The legal process used to prevent a party from reclaiming a right or privilege that was already waived.
• A legal consequence of the waiver.

Question 27

Parole Evidence Rule

Answer 27

• Prevents parties from changing the meaning of a written contract by trying to introduce oral or written statements made before the formation of the contract.