Legal Concepts of the Insurance Contract Questions

Kathy applies for a preferred rate on an insurance application. The insurance company responds by classifying her as a standard risk. The insurers response is called a(n): A. Solicitation B. Offer C. Counter Offer D. Decline

Counteroffer-- In this situation, the insurance company's response is best characterized as a counteroffer.

How is consideration characterized in contract law? A. Intent B. Reasonable Expectations C. Offer and Acceptance D. Something of value

Something of value-- consideration is regarded as something of value in contract law.

The legal term that applies to a contract where one party may receive more benefits than the other is called: A. Speculative B. Aleatory C. Adhesion D. Conditional

Aleatory-- Insurance contracts are aleatory. This means that there is an element of chance and potential for unequal exchange of value for both parties.

P died five years after purchasing a life policy. While investigating the claim, the insurer discovered material misrepresentations made by P during the application process. Which of these actions will the insurer take? A. Beneficiary will be denied the claim B. Beneficiary will be denied the claim and refunded all paid premiums. C. Beneficiary will be paid the Death Benefit. D. Beneficiary will be paid a partial Death Benefit.

Beneficiary will be paid the Death Benefit-- The incontestable clause prevents the insurer from canceling the contract even for a material misrepresentation.

Making a statement on an insurance application that only reveals part of the truth is called: A. Defamation B. Concealment C. Coercion D. Misrepresentation

Concealment-- is defined as the failure by the application to disclose a known material fact when applying for insurance.

An insurance company is required to provide coverage so long as the policy owner is current on the premium payments. This characteristic makes the contract: A. Aleatory B. Unilateral C. Optional D. Conditional

Conditional

In order for a misrepresentation or concealment on an application to void a life insurance policy, it has to be: A. material B. intentional C. Material and intentional D. None of these

material and intentional

When an application for insurance is taken, the statements made by the application are true and accurate to the best of the applicant's knowledge. These statements are considered to be: a. adhesion b. representations c. guaranties d. warranties

representations

An application submitted to an insurer that includes the initial premium is considered a(n): A. Solicitation B. Consideration C. Offer D. Accepted Offer

Offer-- An application submitted to an insurer that includes the initial premium is considered an offer. The insurance company accepts the offer when it issues the policy as applied for.

Which of these is NOT a type of agent authority? A. Express B. Implied C. Principal D. Apparent

Principal

What is the insurance company's consideration in an insurance contract? A. Buyer's Guide B. Conditional Receipt C. Policy Summary D. Promises found in the policy

Promises found in the policy-- The promises contained in the policy are considered the insurance company's consideration.

According to the principal 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

Promises made-- without good faith, it would be difficult to reach agreement. without agreement, there would be no valid contract.

When an application for insurance is taken, the statements made by the applicant are true and accurate to the best of the applicant's knowledge. These statements are considered to be: A. adhesion B. representations C. Guaranties D. Warranties

Representations

When must insurable interest exist for a life insurance contract to be valid. A. Time of application B. Throughout the entire length of the contract. C. When the insured dies D. During the contestable peroid

Time of application

In an insurance contract, the insurer is the only party who makes a legally enforceable promise. What kind of contract is this? A. Estoppel B. Aleatory C. Adhesion D. Unilateral

Unilateral

The only party in an insurance contract that makes a legally enforceable promise is the insurance company. Because of this insurance contracts are considered to be: A. Conditional B. Aleatory C. Unilateral D. Contracts of Adhesion

Unilateral

When a misrepresentation on a life insurance policy is discovered, what action may an insurance company take? A. Void the policy if found during a contestable period B. Void the policy, no matter when it was discovered. C. Void the policy at any time only if it is found to be material. D. Void the policy only if it is discoverable during contestable period and proven to be material

Void the policy only if it is discoverable during the contestable period and proven to be material-- an insurer may void the policy only if the misrepresentation is discovered during the contestable period and proven to be material.

The part of a life insurance policy guaranteed to be true is called an: A. Representation B. Exclusion C. Warranty D. Waiver

Warranty

The consideration clause of an insurance contract includes: A. The buyer's guide B. A summary of the coverage provided. C. The named beneficiaries D. The schedule and amount of premium payments

The Schedule and amount of premium payments-- the consideration clause of a life or health policy includes the schedule and amount of premium payments.