Chapter 2 - Legal Concepts
Q purchases a $500,000 life insurance policy and pays $900 in premiums over the first six months. Q dies suddenly and the beneficiary is paid $500,000. This exchange of unequal values reflects which of the following insurance contract features?
Aleatory
Insurance policies are offered on a "take it or leave it" basis, which make them
Contracts of Adhesion
E and F are business partners. Each takes out a $500,000 life insurance policy on the other, naming himself as primary beneficiary. E and F eventually terminate their business, and four months later E dies. Although E was married with three children at the time of death, the primary beneficiary is still F. However, an insurable interest no longer exists. Where will the proceeds from E's life insurance policy be directed to?
F
Taking receipt of premiums and holding them for the insurance company is an example of
Fiduciary responsibility
In regards to representations or warranties, which of these statements is TRUE? Warranties are statements considered to be true to the best of the applicant's belief If material to the risk, false representations will void a policy Representations are statements guaranteed to be true in every respect If material to the risk, false representations will NOT void a policy
If material to the risk, false representations will void a policy
Who makes the legally enforceable promises in a unilateral insurance policy?
Insurance company
If a contract of adhesion contains complicated language, to whom would the interpretation be in favor of?
Insured
A life insurance arrangement which circumvents insurable interest statutes is called
Investor-Originated Life Insurance
Which of these arrangements allows one to bypass insurable interest laws?
Investor-Originated Life Insurance
Stranger Originated Life Insurance (STOLI) has been found to be in violation of which of the following contractual elements?
Legal Purpose (Insurable Interest)
Which of these is NOT a type of agent authority? Express, Implied, Principal, or Apparent
Principal
What is the consideration given by an insurer in the Consideration clause of a life policy?
Promise to pay a death benefit to a named beneficiary
Statements made on an insurance application that are believed to be true to the best of the applicant's knowledge are called
Representations
A policy of adhesion can only be modified by whom?
The insurance company
In an insurance contract, the insurer is the only party who makes a legally enforceable promise. What kind of contract is this?
Unilateral
Life and health insurance policies are ____ contracts
Unilateral
What is a statement that is assured to be true in every respect?
Warranty
A life insurance policy would be considered a wagering contract WITHOUT
insurable interest
When third-party ownership is involved, applicants who also happen to be the stated primary beneficiary are required to have
insurable interest in the proposed insured
Insurance policies are considered aleatory contracts because
performance is conditioned upon a future occurrence
Insurance contracts are known as ____ because certain future conditions or acts must occur before any claims can be paid.
conditional
At what point does an informal contract become binding?
When one party makes an offer and the other party accepts that offer
When must insurable interest be present in order for a life insurance policy to be valid?
When the application is made
The Consideration clause of an insurance contract includes
the schedule and amount of premium payments
Which of these is NOT considered to be an element of an insurance contract? the offer, acceptance, negotiating, or consideration
Negotiating
What consists of an offer, acceptance, and consideration?
A contract
