True/False Flashcards
Case law is flexible in application - L1
True
In contrast, legislative law is rigid in application
The supremacy clause says that only in those areas where the U.S. Constitution is silent will state laws be supreme - L1
True
American case law is derived from community property law - L1
False
It is derived from English common law
All states have appellate state courts - L1
True
While there may not be an appellate court domiciled in a given state, that state is included in a group of states served by one of the 13 appellate courts
The center-of-gravity theory states that the laws of the state having the most significant connections w/ the matter in dispute will apply - L1
True
The promise an insurer makes in a life insurance contract is to pay the death benefit and other benefits set out in the policy if certain conditions are met - L1
True
The policyowner makes promises in a life insurance contract - L1
False
A policyowner makes no promises in a life insurance contract
An agreement where both parties expect to receive approximately equal value is called an aleatory contract - L1
False
An agreement where both parties expect to receive approximately equal value is called a commutative contract. An aleatory contract is an agreement that refers to unequal value
An agreement in which only one party makes a promise is called a unilateral agreement - L1
True
A life insurance policy is a contract of adhesion. It is not negotiated nor amended by the non-drafting party - L1
True
The legal parties to a contract are the insurer and the beneficiary - L2
False
Insurer and the policyowner
In most states, life insurance policies can be backdated up to 9 months - L2
False
6 months
The parol evidence rule states that once a life insurance policy is issued, previous written or oral communications cannot be used to add any additional terms to the contract - L2
True
The insurer is the only party to a life insurance contract that makes an offer - L2
True
The policyowner accepts or rejects the offer
The delivery-in-good-health clause indicates that when an applicant’s health status is disputed, the insured usually has the burden of proof with regard to proving that they were in good health at the time of policy delivery - L2
False
Insurer has burden of proof and must prove insured was not in good health at the time of policy delivery
A life insurance company’s consideration includes a promise to pay the face amount of the policy at maturity plus any other promises in the policy - L2
True
Most states allow the acceptance of services for payment of premiums - L2
False
Most states do not allow services as payment for premiums. It is discriminatory and may be viewed as rebating
Life insurance contracts are recognized as having a purpose highly beneficial to society, and they are deemed worthy of favorable treatment under the law - L2
True
Even if a divorced spouse who is the beneficiary listed in a policy no longer has an insurable interest in their former spouse, the beneficiary’s right to proceeds may be unaffected by the divorce - L2
True
Insurers agree with the view that an applicant has an unlimited insurable interest in their own life - L2
False
Insurers disagree on this view
An insurance company may be subject to a bad faith suit if it creates unfair claim processing procedures, uses abusive tactics, improperly delays, or fails to investigate - L3
True
These are the four commonly recognized reasons for supporting a claim of bad faith
A representation must be absolutely true at the time it is made - L3
False
A representation only has to be substantially true when it is made
Usually, an applicant’s statements about their habits are treated as facts - L3
False
Usually treated as opinions
Concealment is an acceptable form of representation - L3
False
Concealment is defined as misrepresentation by silence
Either the policyowner or the insurer can make the offer to contract - L3
False
Only an insurer can make the offer
A waiver is a voluntary and intentional giving up of a known right, and it is always permanent - L3
False
Waiver is a voluntary and intentional giving up of a known right but it is not always permanent
Equitable estoppel usually keeps a person from denying the truth of some previously made representation on which a party relied - L3
True
Equitable estoppel refers to statements or promises made in the past
Election can occur when an insurer discovers the insured made a material misrepresentation during the contestable period, but the insurer continues collecting premiums after the contestable period and keeps the policy in force - L3
True
Judy told her best friend, Alicia, that she wanted to rent her beautiful southern mansion for her wedding upon her return from 6 months in Europe. Alicia and her husband spent a lot of money to spruce up the mansion inside and out. Judy came home and announced she and her future husband have changed their minds and decided to go to Las Vegas to get married there. The legal doctrine that can be used to uphold Judy’s oral promises to Alicia if Alicia wants reimbursement for the spruce up is legal, or promissory, estoppel - L3
True
Legal, or promissory, estoppel refers to promises relating to the future
The concept of estoppel indicates that an individual loses their right to defense due to prior actions inconsistent with that defense - L3
True
The incontestable clause, which limits the time an insurer has to rescind a policy based on material misrepresentations, is now included in all life insurance policies per statute in every state - L4
True
A life insurance policy likely will not be valid if it is discovered that an impersonator took the medical exam or if the applicant lacked insurable interest in the continued life of the insured - L4
True
Generally, an insurance company does not have a right to limit coverage with respect to military or naval service in wartime and/or piloting aircrafts as a hobby - L4
False
Insurers do retain these rights
A policy cannot be reformed if there were simple clerical errors in the policy when it was printed - L4
False
A policy with clerical errors can be and often is easily reformed
The incontestable clause may benefit dishonest individuals, but insurers believe the benefits to honest policyholders are worth the cost - L4
True
A contract of adhesion is one in which one party (the insurer) chooses the contract wording and any ambiguities in the contract must favor the non-drafting party (the policyowner) - L4
True
The free-look provision is stated on the face page of a life insurance policy - L4
True
If a life policy generates cash value, the law does not require that the contract permit policy loans - L4
False
A policy that generates CV must permit policy loans by law
The suicide provision is not a required life insurance policy provision; it is an optional provision in a life policy - L4
True
Many think it is required, but it is actually optional
Situations not protected by the incontestable clause include lack of insurable interest, impersonation at the physical exam, and cases in which an applicant intended to murder the insured - L4
True
These could be instances of fraud
The legal parties to a life insurance contract are the owner and the insurer - L5
True
Renewal premiums may have a direct impact on the continuation of the contract - L5
True
Renewal premiums have an impact on the creation of the contract - L5
False
Renewal premiums do not have an impact on the creation of a contract; they are however considered conditions precedent
Under the mailbox rule, if a renewal premium is mailed and properly stamped by a date such that the owner could reasonably expect the post office to deliver it before the premium due date, it will not be considered late, even if the post office delivers it late or not at all - L5
True
A policyowner has no obligation to pay renewal premiums - L5
True
Note that if renewal premiums are not paid, the insurer will be released from any promises made in the contract
A property right may be possessed as a result of an oral contract - L5
True
Property law is divided into two major subdivisions: real property law and personal property law - L5
True
The English common law is the basis of the U.S. legal system, and community property laws exist only in the states where they have been enacted by state law - L5
True
If Jill and her spouse live in a common law state and they buy property in a community property state, community property law applies to the property - L5
False
Common law property law applies; Note, the opposite is also true
Exoneration statues exist in community property states, and they exonerate insurance companies from all liability - L5
False
They do not exonerate insurers from all liability; they are however designed so that insurers do not pay claims twice in disputed cases
Suicide of the insured prior to the expiration of the suicide exclusion clause may result in the denial of the death benefit - L6
True
Death within the policy’s contestable period where the insurer discovers a material misrepresentation will not result in the denial of the death benefit - L6
False
It MAY result in a denial of the death benefit
An absolute assignment transfers some of the policyowner’s rights - L6
False
Absolute assignment transfers all of a policyowner’s rights; collateral assignment transfers some of the policyowner’s rights
Sam and Betty were married for 36 years. One day Sam disappeared. Neither he nor his remains could be found for several years, and Betty petitioned the courts to have him declared dead. Then, after 14 years, Sam was found alive. He had suffered from total amnesia for 14 years. Answer questions 4 and 5 based on these facts: If the insurance company has already paid the full death benefit to Betty as beneficiary, they can recover the full death benefit plus interest - L6
True
Sam and Betty were married for 36 years. One day Sam disappeared. Neither he nor his remains could be found for several years, and Betty petitioned the courts to have him declared dead. Then, after 14 years, Sam was found alive. He had suffered from total amnesia for 14 years. If Betty has reached a compromise settlement with the insurance company, then Betty can keep the amount she was paid - L6
True
Insurers generally do not favor or prefer class designations because of the difficulty in discharging the insurer’s responsibilities to locate and pay all class beneficiaries - L6
True
A contingent beneficiary has second-taker rights that arise when the primary beneficiary starts to receive the policy proceeds in installments but dies before the proceeds are fully paid - L6
True
There are circumstances where an insured who has the right to change beneficiary designations is precluded from doing so - L6
True
The most noted example is divorce
An irrevocable beneficiary is conditionally vested and must survive the insured to receive the policy proceeds - L6
True
An irrevocable beneficiary must consent to any changes that affect the death benefit since the policy owner does not have unilateral right to change the irrevocable beneficiary designation - L6
True
Both of theses situations involving an irrevocable beneficiary are true
If the insured and their primary beneficiary died in the same accident and there is no evidence that they died any way other than simultaneously, the proceeds generally would be paid to a contingent beneficiary if one had been designated - L7
True
If a trust is named as a beneficiary, the trust can be created at a later date - L7
False
Trust must be created first
The settlement option that provides the largest amount of policy proceeds to a contingent beneficiary is when the primary beneficiary is holding proceeds under the interest-only settlement option - L7
True
For the purpose of a policyowner making changes in beneficiary designations, most insurance companies require a written request to be received and filed and an endorsement to be added to the policy - L7
False
An endorsement is not required
The delayed-payment clause states that the beneficiary must survive the insured by a specified period of time, such as 10, 14, or 30 days - L7
True
Clause is designed to help alleviate problems associated w/ the short-term survival of the beneficiary following the insured’s death
The collateral assignment of a life insurance policy will terminate when the loan is repaid by the assignor - L7
True
Rights that pass to the assignee using the American Bankers Association Assignment form include the right to surrender the policy for its cash value and the right to exercise all surrender options - L7
True
If a creditor-assignee has an insurable interest in the life of the debtor, they usually can recover the debt owed plus interest - L7
True
If a collateral assignment of a life insurance policy has been made, the lender must pay the premiums until the loan is paid - L7
False
In the usual arrangement, the policyowner/assignor will continue paying premiums
If a policy is assigned to the creditor in satisfaction of debt (not as security for a debt) the creditor is allowed to keep all the proceeds, even if they exceed the amount of the debt - L7
True
This form of assignment is an absolute assignment, and the lender becomes the new policyowner
If proceeds are paid to the deceased insured’s estate, they will not become available to the deceased insured’s creditors - L8
False
The proceeds will become available to creditors
The New York type of statute protects cash values from the creditors of the insured and the beneficiary - L8
False
Protects cash values from the creditors of the insured but not from the creditors of the beneficiary
Spendthrift statutes are found in most states, and they declare that a spendthrift clause will be enforced if contained in the life insurance policy or in the settlement agreement - L8
True
When an agent agrees to an agency relationship, they become a fiduciary of and for the principal - L8
True
Principals and agents can only be persons (human beings) - L8
False
May also be legal entities (corporations)
Brokers have come to be regarded as the agent of the insurer for certain purposes, such as delivering policies and collecting premiums - L8
True
A broker’s knowledge is deemed to be knowledge of the insurance company - L8
False
A broker’s knowledge is not deemed to be the knowledge of the insurer; an agent’s knowledge is deemed to be the knowledge of the insurer
The levels of duty that insurance producers and brokers could owe to a client/insured include 1) generalist, 2) dual-agency, and 3) expert - L8
True
An agent’s duties to their principal include a duty of loyalty; a duty to obey the principal’s instructions; and a duty to exercise reasonable skill, care, and diligence - L8
True
Actual authority must be intended to be given to an agent, and it is either express or implied authority - L8
True
A prospectus is required to contain specified financial information about the company issuing an investment product - L9
True
The prospectus for an investment product can be delivered up to 90 days after the client agrees to purchase the investment product - L9
False
The prospectus must be delivered prior to or at the time of the investment sale
The Model Fair Trade Practices Act deals with false advertising, unfair claims, unfair settlement practices, and rebating - L9
True
Mary creates a durable power of attorney, and the document gives her younger sister, Barbara, the authority to act on Mary’s behalf. Barbara cannot make decisions about Mary’s finances and property - L9
False
She can
Mary creates a durable power of attorney, and the document gives her younger sister, Barbara, the authority to act on Mary’s behalf. Barbara can create a will for Mary, or she can alter Mary’s will, if one exists - L9
False
These powers do not exist in a durable power of attorney
Mary creates a durable power of attorney, and the document gives her younger sister, Barbara, the authority to act on Mary’s behalf. If Mary is competent, she can terminate the durable power of attorney any time she wishes to do so - L9
True
Intoxication, unconsciousness, and duress are conditions usually associated with temporary incompetency - L9
True
A living will may conform to the applicable law in the creator’s state of residence or domicile, and it will automatically be upheld and honored in any another state - L9
False
A living will may not be upheld, and nor may it be honored, in another state
Continuing education is not an important part of ethics and professionalism - L9
False
Continuing education is very important for agents and advisors in order to provide professional advice and guidance
Ethical codes exist to elevate human behavior above minimal compliance with the law - L9
True
Case Law is flexible in application - L10
True
In contrast, legislative law is rigid in application
All states have appellate state courts - L10
True
While there may not be an appellate court domiciled in a given state, that state is included in a group of states served by one of the 13 appellate courts
The policyowner makes promises in a life insurance contract - L10
False
A policyowner makes no promises in a life insurance contract
An applicant’s statements about their habits usually are treated as facts - L10
False
Usually treated as opinions
The incontestable clause may benefit dishonest individuals, but insurers believe the benefits to honest policyholders are worth the cost - L10
True
The legal parties to a contract are the insurer and the beneficiary - L10
False
The legal parties are the insurer and the policyowner
If Jill and her spouse live in a common law state and they buy property in a community property state, community property law applies to the property - L10
False
Common law property law applies. Note: the opposite is also true
For the purpose of a policyowner making changes in beneficiary designations, most insurance companies require a written request to be received and filed and an endorsement be added to the policy - L10
False
An endorsement is not required; the written notice being received and filed is the only requirement
An absolute assignment transfers some of the policyowner’s rights - L10
False
An absolute assignment transfers all of a policyowner’s rights; a collateral assignment transfers some of the policyowner’s rights
If the insured and their primary beneficiary died in the same accident and there is no evidence that they died any other way than simultaneously, the proceeds generally would be paid to a contingent beneficiary if one had been designated - L10
True
