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