The insurance contract (p 20-25)

Question 1

Utmost Good Faith

Answer 1

Both parties of the contract (insurer and insured) cannot attempt to conceal or deceive the other party

Question 2

Reasonable Expectations

Answer 2

A policy should accomplish to the policyowner what is reasonably expected

Question 3

Insurable Interest

Answer 3

Characterized by an economic interest, love and affection (a blood relationship), or a creditor-debtor relationship. must exist between the policyowner and the insured

Question 4

Agreement between both parties of the contract

Answer 4

A valid offer and acceptance

Question 5

Consideration

Answer 5

Something of value exchanged between the parties to the contract.

Question 6

Policy Summary

Answer 6

Generally called the outline coverage. Generally an illustration detailing the premium to be paid, guaranteed and non-guaranteed cash values (if any), surrender charges, and the agent’s name, address and contact info.

Question 7

Conditional Contract

Answer 7

Both parties to a contract must fulfill certain duties and follow rules of conduct to make it enforceable. If there is a loss, the insurer (company) must pay.

Question 8

An Aleatory Contract

Answer 8

Equal value is not given by both parties to the contract. The policyowner pays a small premium. The insurer provides a substantial benefit. *They are “one-sided”.

Question 9

A contract of adhesion

Answer 9

The contract and its provisions are prepared by one party- the insurer. If the contract is ambiguous or contradictory, the courts will hold the insurer responsible. Insurer must comply with provisions and there is no opportunity for the them to negotiate.

Question 10

Ambiguities

Answer 10

Vagueness and/or uncertainty

Question 11

Unilateral Contract

Answer 11

Only the insurer must abide by the terms of the contract. The policy owner may or may not pay the premium. Insurer must comply with terms of the contract.

Question 12

Valued or Indemnity

Answer 12

An insurance contract may provide benefits in either a valued or indemnity. A valued contract pays a stated sum, not considering the amount of loss. death cannot be valued

Question 13

Competent Parties

Answer 13

A legal contract requires legal and mental competency of the parties. Each state regulates the legal age- however a contract can be voided due to the young age of an individual

Question 14

Waiver

Answer 14

Giving up of a known or legally enforceable right.

Question 15

Estoppel

Answer 15

One party is prevented or estopped from asserting a right that would be to the detriment of another party. This happens when a right is waived.

Question 16

Parole Evidence

Answer 16

It is assumed all oral agreements are part of the written contract. Oral testimony may not contradict the written contract. In a court of law, only the written contract can be used as evidence.

Question 17

Warranty vs Representation

Answer 17

Warranty is a statement considered and guaranteed to be “true”. Representation is a statement, by the applicant, that is believed to be true. **All statements on the application are representations, not warranties.

Question 18

Concealment

Answer 18

Failing to disclose a known material fact in an application. For the purpose of insurance, this is considered defrauding the insurer.

Question 19

Fraud

Answer 19

In most contracts, in the event of fraud the contract is null and void. The insurer has a limited time, usually two years, to challenge a fraudulent statement. After that time limit, the insurer cannot contest the policy or deny benefits.

Question 20

Classifications of Risk for Underwriting

Answer 20

Standard (average). Substandard (less than average). Preferred risk (exceeds the insurer’s average risk requirements). And uninsurable.

Question 21

Adverse Selection

Answer 21

There are more insurance risks selected that have a possibility of loss than standard risks.