Chapter 3 Video Overview + Quiz Questions (Legal concepts of the insurance contract)
(Express authority) Express power give to an agent in an agency agreement is?
(granted by means of agent contract, which is the insurer's appointment of the agent to act on its behalf.) The authority to represent the insurer.
Aleatory
(insurance contracts,gambling contracts, legal bet) There is not an equal exchange of value
Adhesion
(known as "take it or leave it" agreements); prepared by only 1 party, the insurance company.
Insurance contract
(personal contracts)between an individual & the insurance company, & cannot transfer ownership without the insurance company's written consent.
Unilateral contract
1 sided agreement.
Contract law
A contract as a legally binding agreement between 2 or more parties, where a promise of benefit is exchanged for a consideration
Concealment
A legal term for the intentional withholding of info., which is crucial in making a decision.
An agent
A licensed insurance producer, whose been appointed to represent an insurance company.
What is the consideration on the part of the insurance company?
A promise to pay in the event of loss.
What is concealment with insurance?
A withholding of info. by the applicant that results in an inaccurate underwriting decision & can void the policy.
A waiver
Act of voluntarily giving up a legal right, claim or privilege
When is the offer accepted?
After it has been approved by the insurance company's underwriters
What are some special features of insurance contracts?
Aleatory,
In the insurance business, what is the authority of an agent?
An agent is always considered to be acting on the behalf of the insurance company (referred to as principle)
An agent that acts in a fiduciary capacity when handling premiums or return premiums for an insured happens when?
An agent who is acting as an insurance agent, broker, solicitor, life agent accidental & health, or bail agent.
Indemnity contract pays?
An amount equal to the loss
Health insurance
An indemnity contract
What does the insurance term "indemnity" refer to?
Attempt to return the insured to their original financial position, or "made whole"
Implied authority
Authority not expressed or written into the agent contract, but the agent is assumed to have in order to transact the business of insurance for the principle.
Why are insurance contract conditional?
Because certain conditions must be met by all parties when a loss occurs, otherwise the contract would not be legally enforceable.
What must the insurable interest do in life insurance?
It must exist between the policy owner & the person being insured at the time of application
When does the insurable interest needs to exist and when does it not needs to exist?
It only needs to exist at the time of the original application, but does not need to exist throughout the remainder of the policy.
Parol Evidence Rule prevents what?
It prevents parties from changing the meaning of a written contract by trying to introduce oral or written statements made before the formation of the contract.
What is used to determine the importance of representation?
Materiality of concealment
All parties must be what?
Of legal competence
What must a legal contract have?
Offer & Acceptance, considerations, competent parties
In order for an insurance contract to be legally binding it must have 4 essential elements; What are the 4 essential elements?
Offer & acceptance, consideration, legal purpose, competent parties (C, O & A, L.P., C.P.)
What is a required content of a policy?
Parties involved in the contract, period to which the coverage exists, risk insured against.
What is not a required content of a policy?
Probability of loss
What is the policy owner expected to do in the Utmost good faith?
Provide accurate info. on the application for insurance
What must the insurance company described in the utmost good faith and what must they not do?
They must clearly & truthfully describe policy features & benefits, & they must not conceal or mislead the insurer.
Insurable interest
To purchase insurance, the policy owner must face the possibility of losing money or something of value when a loss happens.
Is it true or false that if an insurance contract has an insurable interest & the insured has provided written consent, it has legal purpose?
True
Is it true that a health insurance only pays the amount to the loss?
True
Is it true that with health insurance your are not allowed to make a profit?
True
When is an offer made?
When the applicant submits an application for insurance to the insurance company
The premiums paid are different to what the insurance company pays in an event of loss; An example is if you purchase a life insurance policy worth $100,000 & your payment were $50/month, you die 3 months, how much will you pay?
You will only have paid the insurance company $150, but they will give your beneficiary $100,000.
Insurance policies are
legal contracts
Warranties
statements that are guaranteed to be true & are a part of the legal contract
Apparent authority
the appearance or the assumption of authority given based on the actions or words of the principal
Is it true or false an insurance contract must be legal & not against public policy ?
true
Is it true or false that adhesions are accepted or rejected by the other party, the applicant with no negotiations or changes?
true
Is it true or false that representations are the answers the applicant for insurance gives to the questions on the insurance application?
true
Is true or false that the premiums paid by the insured are small in relation to the amount that will be paid by the insurance company, in the event of a loss?
true
Implied authority-
unwritten authority that is not expressly granted, but which the agent is assumed to have in order to transact the business of the insurer
Life insurance
valued contract, pays a stated amount, regardless of the actual loss incurred
Express authority
The authority granted to the agent by the principle, which is the insurance company.
Where does implied come from?
The express authority
What are the 3 types of agent authority?
Express, Implied, Apparent
A unilateral contract is one in which?
The contract has been prepared by one party (the insurance company) w/th no negotiation between the applicant and insurer (insurer makes any kind of legally enforceable promise- the insurer)
When handling premiums for an insured, an agent is acting in which capacity?
Fiduciary
Why does both insurance company & the policy owner must be able to rely on the other?
For relevant & accurate info.
Utmost good faith
Implies there'll be no fraud, misrepresentation or concealment, between the parties as it pertains to insurance policies
What is the most important aspect for establishing a legal insurance contract?
Insurable interest
Consideration
Something of value that each party gives to the other. (may be unequal)
Representations
Statements believed to be true, to the best of one's knowledge, but they are not guaranteed to be true for insurance purposes
What is one party legally bound to do anything in a unilateral contract?
The insurance company
Who is legally bound to pay losses covered by the policy?
The insurance company
(conditional) What happens if the policy owner is past due on his payments & the insured dies?
The insurance company does not have to pay the death benefit because a condition was not met.
What happens if the policy owners do not pay their premiums?
The insurance company has the right to terminate the insurance policy.
Estoppel
The legal process used to prevent a party from reclaiming a right or privilege that was already waived
What is the consideration on the part of the insured?
The payment of premium
Who is under no legally binding promise to pay premiums?
The policy owner
What are untrue statements on the application considered?
They are considered misrepresentations & could void the contact.
What are some requirements for competent parties?
They must be of legal age, mentally capable of understanding the terms, & not under the influence of drugs or alcohol.