Chapter 3: Legal Concepts

What does the insurance term "indemnity" refer to? A) Make whole B) Unequal consideration C) Law of large numbers D) Competent parties

A) Make whole

Which course of action is the insurer entitled to when deliberate concealment is committed by the insured? A) Rescinding the contract B) Charge a higher premium C) Charge a penalty D) Nothing

A) Rescinding the contract

When the principal gives the agent authority in writing, it's referred to as A) express authority B) implied authority C) apparent authority D) imposed authority

A) express authority

Which of the following is an example of the insured's consideration? A) Insurer's promise to pay benefits B) A paid premium C) Legal purpose D) Intent

B) A paid premium

Intentional withholding of material facts that would affect an insurance policy's validity is called a(n) A) estoppel B) concealment C) adhesion D) misrepresentation

B) concealment

A professional liability for which producers can be sued for mistakes of putting a policy into effect is called A) fiduciary bond B) errors and omissions C) fiduciary trust D) errors and oversights

B) errors and omissions

The authority granted to a licensed producer is provided via the A) producer's apparent authority B) written contract C) Law of Agency D) Principal Capacity

C) Law of Agency

Which of the following statements about aleatory contracts is NOT true? A) Insurance contracts are considered aleatory B) The insured and the insurer have the potential for unequal contributions C) The insured and the insurer contribute equally to the contract D) Aleatory contracts are conditioned upon the occurrence of an event

C) The insured and the insurer contribute equally to the contract

All of the following are elements of an insurance policy EXCEPT A) definitions B) other insurance C) claim forms D) conditions

C) claim forms

In an insurance contract, the element that shows each party is giving something of value is called A) offer B) acceptance C) consideration D) purpose

C) consideration

The power given to an individual producer that is not specifically addressed in his/her contract is considered what type of authority? A) discreet B) apparent C) implied D) express

C) implied

According to the principle of Utmost Good Faith, the insured will answer questions on the application to the best of their knowledge and pay the required premium, while the insurer will deal fairly with the insured and it's A) underwriting B) issuance of the policy C) promises made D) legal reserve

C) promises made

What are an applicant's statements concerning occupation, hobbies, and personal health history regarded as? A) warranty B) guarantee C) representation D) collateral

C) representation

In an insurance contract, the applicant's "consideration" is the A) offer and acceptance B) premium only C) statements made in the application and the premium D) statements made in the application only

C) statements made in the application and the premium

If a material warranty violation on the part of the insured is found, what recourse does an insurer have? A) Sue the insured B) Rescind the policy C) Charge more premium D) Terminate the agent

B) Rescind the policy

Which of the following is present when an applicant stands to lose value if the insured dies? A) Insurability B) Offer and acceptance C) Insurable interest D) Consideration

C) Insurable interest

The importance of a representation is demonstrated in what rule? A) Insurable interest B) Law of adhesion C) Materiality of concealment D) Consideration clause

C) Materiality of concealment

In an insurance contract, the insurer is the only party legally obligated to perform. Because of this, an insurance contract is considered A) voidable B) conditional C) aleatory D) unilateral

D) unilateral

What is implied authority defined as? A) Authority given in writing to an agent in the agency agreement B) Authority that is not specifically given to an agent in the agency contract, but that an agent can reasonably assume to carry out his/her duties C) Authority given to handle claims and process payments D) Authority given to an agent to act outside the scope of the agency agreement

B) Authority that is not specifically given to an agent in the agency contract, but that an agent can reasonably assume to carry out his/her duties

According to life insurance contract law, insurable interest exists A) when any business relationship exists B) at the time of application C) at the time of death D) only when determined by a judge

B) at the time of application

A unilateral contract is one in which A) there is an element of chance and potential for unequal exchange of value or consideration for both parties B) only one party (the insurer) makes any kind of legally enforceable promise C) the contract has been prepared by one party (the insurance company) with no negotiation between the applicant and the insurer D) both the policyowner and the insurer must know all material facts and relevant information

B) only one party (the insurer) makes any kind of legally enforceable promise

The term which describes the fact that both parties of a contract may NOT receive the same value is referred to as A) Apparent B) Estoppel C) Aleatory D) Unilateral

C) Aleatory

Which of the following contracts is defined as "one that restores an injured party to the condition that was present before the loss"? A) Unilateral contract B) Contract of adhesion C) Indemnity contract D) Personal contract

C) Indemnity contract

Who is responsible for assembling the policy forms for insureds? A) State Insurance Departments B) NAIC C) Insurance carriers D) Insurance producers

C) Insurance carriers

What makes an insurance policy a unilateral contract? A) Only the insured pays the premium B) Only the insured can change the provisions C) Only the insurer is legally bound D) Only the insured is legally bound

C) Only the insurer is legally bound

Which of the following is NOT required in the content of a policy? A) Parties involved in the contract B) Period to which the coverage exists C) Probability of loss D) Risk insured against

C) Probability of loss

Express power given to an agent in an agency agreement is A) the appearance of authority an insurer gives to its agent B) the unwritten authority that the agent is assumed to have C) the authority to represent the insurer D) the authority to add provisions to a contract

C) the authority to represent the insurer

Under a contract of adhesion, A) there is the potential for an unequal exchange of value B) the insurer's obligations are dependent upon certain acts of the insured individual C) the terms must be accepted or rejected in full D) only one party makes any kind of enforceable promise

C) the terms must be accepted or rejected in full

Legal purpose is a term used in contract law meaning A) there must be an offer and acceptance B) the contract must be aleatory C) there must be legal reasons for entering into the contract D) the contract must be a contract of adhesion

C) there must be legal reasons for entering into the contract

Which contract element is insurable interest a component of? A) Competent parties B) Offer and acceptance C) Consideration D) Legal Purpose

D) Legal purpose

Bob and Tom start a business. Since each partner contributes an important element to the success of the business, they decide to take life insurance policies out on each other, and name each other as beneficiaries. Eventually, they retire and dissolve the business. Bob dies 12 months later. The policies continue in force with no change. Both partners are still married at the time of Bob's death. In this situation, who will receive Bob's policy proceeds? A) Tom's spouse B) Bob's estate C) Bob's spouse D) Tom

D) Tom

A contract requires A) implied authority B) only an offer C) negotiation between the involved parties D) an offer and acceptance of the contract terms

D) an offer and acceptance of the contract terms

In order for a contract to be valid, it must A) be filed with the state B) be signed and witnessed by an attorney C) be in writing D) contain an offer and acceptance

D) contain an offer and acceptance

Reasonably necessary acts that an agent must perform for carrying out his/her expressly authorized duties are covered by an agent's A) Express authority B) Implied authority C) Apparent authority D) Evident authority

B) Implied authority

Ambiguities in an insurance policy are always resolved in favor of the A) insured B) producer C) insurer D) underwriter

A) insured

Insurable interest does NOT occur in which of the following relationships? A) Sister and brother B) Parent and children C) Business partners D) Business owner and business client

D) Business owner and business client

Which type of clause describes the following statement: "We have issued the policy in consideration of the representations in your applications and payment of the first-term premium". A) Premium clause B) Consideration clause C) Adhesion clause D) Contestability clause

B) Consideration clause

Which statement is CORRECT when describing a contract of adhesion? A) Contract may be accepted or rejected by the insured B) Contract involves negotiation between insurer and insured C) Any confusing language in the contract would be interpreted in favor of the insurer D) Contract cannot be modified by the insurer

A) Contract may be accepted or rejected by the insured

______ is NOT an element of a valid contract. A) Legal B) Consideration C) Competent parties D) Countersignature

D) Countersignature

Restoring an insured to the same condition as before a loss is an example of the principle of A) Utmost good faith B) Adhesion C) Legal purpose D) Indemnity

D) Indemnity

Which of the following statements correctly describes a contract of indemnity? A) One party is restored to the same financial position the party was in before the loss occurred B) The unequal exchange of value or consideration for both parties C) One party(the insurance company) prepares the contract with no negotiation between the applicant and insurer D) Only one party(the insurer) makes any kind of enforceable promise

A) One party is restored to the same financial position the party was in before the loss occurred

Which of the following BEST describes a conditional insurance contract? A) A contract that requires certain conditions or acts by the insured individual B) A contract that has the potential for the unequal exchange of consideration for both parties C) A contract where one party "adheres" to the terms of the contract D) A contract where only one party makes any kind of enforceable contract

A) A contract that requires certain conditions or acts by the insured individual

Which principle is accurately described with the statement "Insureds are entitled to recover an amount NOT greater than the amount of their loss"? A) Unilateral B) Indemnity C) Aleatory D) Utmost good faith

B) Indemnity

The deeds and actions of a producer indicate what kind of authority? A) Express B) Apparent C) Implied D) Conditional

B) Apparent

Which of the following is NOT a requirement of a contract? A) Parties involved must be competent B) Equal consideration is required between the involved parties C) Contract must have a legal purpose D) Offer and acceptance must be involved

B) Equal consideration is required between the involved parties

When handling premiums for an insured, an agent is acting in which capacity? A) Adhesion B) Fiduciary C) Conditional D) Aleatory

B) Fiduciary