Life Insurance: Contract Law

A contract between an insured and an insurance company which agrees to pay the insured for loss caused by specific events is

A policy

What is a material misrepresentation?

A statement by the applicant that, upon discovery, would affect the underwriting decision of the insurance company

In insurance policies, the insured is not legally bound to any particular action in the insurance contract, but the insurer is legally obligated to pay losses covered by the policy. What contract element does this describe?

Unilateral

Contracts of adhesion are

contracts that are prepared by one party and submitted to the other party on a take-it-or-leave-it basis.

An insurance contract is an aleatory contract because...

it requires a relatively small amount of premium for a large risk.

Consideration on the part of the insurer is

a promise to pay in the event of loss.

Misrepresentation is

a written or oral statement that is intended to distract, mislead, or deceive a party to a contract.

A conditional contract requires

both the insurer and policyowner to meet certain conditions before the contract can be executed, unlike other types of policies which put the burden of condition on either the insurer or the policyowner.

Representations in insurance contracts qualify as

implied warranties.

According to CIC 443, every express warranty made at or before the execution of a policy must be...

Contained in the policy itself, or in another instrument signed by the insured and referred to in the policy.

An agreement that is enforceable by law is known as a/an

Contract

The failure to disclose known facts is known as

Concealment

What term best describes the act of withholding material information that would be crucial to an underwriting decision?

Concealment

What other term is used to refer to unintentional torts?

Negligence

Each contract must have the following 4 elements:

1. agreement (offer and acceptance) 2. legal purpose 3. competent parties 4. consideration.

Competent Party

Both parties be of legal age, mentally competent to understand the contract, and not under the influence of drugs or alcohol.

The violation of a material warranty or other material provision of a policy allows

Both the insurer and the insured to rescind.

If found material for underwriting, a misrepresentation

Can void a contract.

The act of revoking or terminating an insurance policy is called

Cancellation

Every expressed warranty made at or before the execution of a policy must be

Contained in and referred to in the policy or other document and signed by the insured.

Representations in insurance contracts qualify as

Implied warranties.

Concealment

Occurs when a person withholds a material fact that is crucial to making a decision. In insurance, this involves withholding information that would be crucial to underwriting decisions.

What is a definition of a unilateral contract?

One-sided: only one party makes an enforceable promise.

Unilateral Contract

Only one of the parties to the contract is legally bound to do anything.

In insurance, an offer is usually made when

The completed application is submitted.

An insured wants to transfer his personal insurance policy to a friend. Under what conditions would this be possible?

The insured will need a written consent of the insurer. A personal insurance contract is written between an insurance company and an individual, and the company has a right to decide with whom it will and will not do business. An insured can transfer an insurance contract to another person, but he or she must first obtain the written consent of the insurer.

Concealment

The withholding of information that will result in an imprecise underwriting decision.

What is a wrongful act or the violation of someone's rights that leads to legal liability called?

Tort

If only one party to an insurance contract has made a legally enforceable promise, what kind of contract is it?

Unilateral

The binding force in any contract is

consideration.

In addition to penalties, fines, and possible imprisonment for violating the provision relating to misrepresentation, the Commissioner may suspend the license of such person for a period up to

3 years

According to the Code, how many separate requirements should an insurance policy have?

6

Factual statements about the insured or the risk in an insurance policy are considered

Express warranty. Warranties can either be expressed or implied. Statements in a policy are considered express warranty. Every express warranty becomes part of the insurance contract. Implied warranty is an unwritten or unspoken guarantee presumed to be made based on the circumstances of a transaction.

A life insurance policy has a legal purpose if both of which of the following elements exist?

Insurable interest and consent

Agents in violation of provision on misrepresentation may be punished by...

A fine up to $25,000, imprisonment in a county jail for a period no longer than 1 year, or by both a fine and imprisonment. The Commissioner may also suspend the agent's license for a maximum of 3 years.

When applying for an individual life insurance policy, an applicant states that he went to the doctor for nausea, but fails to mention that he was also having severe chest pains. This is an example of

Concealment

The importance of a misrepresentation is determined by

The materiality of a given concealment.

Insurance Requirements (6)

1. the parties to the contract; 2. the property or persons being insured; 3. a statement of the insurable interest that exists if the insured is not the owner; 4.the risk(s) being covered; 5.the time period during which the policy will be in force or continue; 6. the stated premium or manner to calculate premium.

Contracts that are prepared by one party and submitted to the other party on a take-it-or-leave-it basis are classified as

Contracts of adhesion.

Tort Law

Law that defines and enforces duties and rights among private individuals that are not based on contractual agreements

The price of insurance for each exposure unit is known as

Rate

An insurance contract requires that both the insured and the insurer meet certain conditions in order for the contract to be enforceable. What contract characteristic does this describe?

Conditional

Concealment as defined by the California Insurance Code is

Neglect on the part of insured to communicate all information known to be material to the insurer.

Contract

An agreement that is enforceable by law is known as a/an

A person caught violating provisions regarding misrepresentation could be subject to

A fine up to $25,000. Agents in violation of provision on misrepresentation may be punished by a fine up to $25,000, imprisonment in a county jail for a period no longer than 1 year, or by both a fine and imprisonment. The Commissioner may also suspend the agent's license for a maximum of 3 years.

The proposed insured makes the premium payment on a new insurance policy. If the insured should die, the insurer will pay the death benefit to the beneficiary if the policy is approved. This is an example of what kind of contract?

Conditional

Representations are written or oral statements made by the applicant which

Are considered true to the best of the applicant's knowledge.

How is the premium in an insurance policy determined?

By multiplying the rate by the number of units of insurance purchased

An insurer neglects to pay a legitimate claim that is covered under the terms of the policy. Which of the following insurance principles has the insurer violated?

Consideration The binding force in any contract is consideration. Consideration on the part of the insured is the payment of premiums and the health representations made in the application. Consideration on the part of the insurer is the promise to pay in the event of loss.

When would a misrepresentation on the insurance application be considered fraud?

If it is intentional and material

The injured party has the right to rescind the contract whenever there is...

A violation of a material warranty, intentional or unintentional concealment, or intentional or fraudulent omissions.

Insurance policy is

A written instrument in which a contract of insurance is set forth.

An insured pays a $100 premium every month for his insurance coverage, yet the insurer promises to pay $10,000 for a covered loss. What characteristic of an insurance contract does this describe?

Aleatory

According to CIC 355, a representation may be...

Altered or withdrawn before the insurance is affected, but not afterwards.

Rate helps...

Determine the premium by multiplying it by the number of units of insurance purchased.

Which of the following best describes the aleatory nature of an insurance contract?

Exchange of unequal values An aleatory contract is a contract in which unequal amounts or values are exchanged. The amount of premium the insured pays is much less than the potential loss assumed by the insurer.

The key factor of representation that allows the injured party to rescind the contract is

If the representation is false in a material point.

Contract law

Law that refers to agreements between individuals and entities that are binding

Grace Period

Period of time specified in the policy that allows the policyowner to pay a premium after due date without penalty, or without policy lapsing.

The written instrument, in which a contract of insurance is set forth, is known as the

Policy

Contract of Adhesion

Prepared by only the insurer; the insured's only option is to accept or reject the policy as it is written.

When may a representation be withdrawn?

Prior to the issuance of the policy

Consideration is

something of value that each party gives to the other.

he consideration on the part of the insured is

the payment of premium and the representations made in the application.

Consideration on the part of the insured is

the payment of premiums and the health representations made in the application.