Chapter 3 - Legal Concepts of the Insurance Contract

Which of the following would NOT have a restricted ability to enter into a contract?

Small employer

An appointed producer's implied authority is derived from

Express Authority

What qualifies as acceptance of an insurance contract offer?

An issued policy

Which situation would not require the insured's consent when a life insurance policy is issued?

A policy is purchased by a parent for a minor child

Use of XYZ Insurance Company brochures, business cards, and rating guides is an example of

Apparent Authority

Voluntarily terminating an insurance policy is also known as

Cancellation

The insurer's obligation to pay a claim depends on whether the insured or beneficiary has complied with all policy conditions. This makes the policy a(n)

Conditional Contract

The unwritten authority given to a producer to carry out necessary incidental acts of the agency agreement is called

Implied

When must insurable interest exist for a life insurance contract to be valid?

Inception of the contract

Which of these do NOT indicate the presence of insurable interest in a life insurance contract?

Lifelong friendship

An insurance contract may be voided if a misrepresentation found on the application is determined to be

Material

An agent whose actions exceed the authority granted in the contract is

Not backed by the insurer

Which element of a contract constitutes a definite and unqualified proposal by one party to another?

Offer

All of these statements correctly describe an aleatory contract EXCEPT

Only one party makes any kind of legally enforceable offer

Ambiguities in insurance contracts are typically interpreted in favor of the insured. This rule is referred to as

Reasonable Expectations

An insured is entitled to coverage under a policy that a prudent person would expect it to provide. This principle is called

Reasonable Expectations

An arrangement where an individual is authorized to act on behalf of another person or company is established through

The Law of Agency

What happens when an initial offer is answered with a counteroffer?

The initial offer is void

An insurance company's voluntary refusal to enforce a contract's provision is called a(n)

Waiver

During the application process, a statement made by an applicant that becomes part of the contract is considered to be a(n)

Waiver

Giving up a known right on a voluntary basis is called a(n)

Waiver

The following are all elements of a valid contract EXCEPT

Written Evidence

A producer working for an insurance company may be personally liable for

Acts performed which are prohibited in the agency contract

Which of these is true regarding the exchange of consideration among parties involved in an insurance contract?

Can be unequal

The payment of the first premium, the promise to pay a covered loss, and the agreement to abide by policy conditions are all examples of

Consideration

The courts will normally interpret a policy in favor of the insured when the meaning of the policy is not clear. This is because an insurance policy is a(n)

Contract of Adhesion

An insurance application requires an applicant to make a full, accurate disclosure of the risk factor involves. Using this criteria, an insurance policy is considered what type of contract?

Contract of utmost good faith

Christopher is issued an insurance policy that contains an attached agreement which alters the terms of the policy. This attached agreement is called a(n)

Endorsement

An agreement is reached when an insurance contract is formed. Which of the following is NOT considered to be an element of an agreement?

Equity

The powers directly given to a producer in an agency contract are called

Express

XYZ Insurance Company gives direct authority to its producers to sell insurance through an agency contract, but nothing is stated regarding the collection of premiums. Which authority grants the producer the right to collect premiums?

Implied Authority

In what way are insurance policies said to be aleatory

Involves the potential for the unequal exchange of value

Which of the following situations would an insurance agent need to guard against liability for professional errors and omissions?

Making a recommendation to a potential insured to replace existing coverage

Which of the following relationships demonstrates insurable interest in the absence of economic interest?

Marriage Partners - Insurable interest may exist in marriage partners while absent of an economic interest

Greg applies for insurance and makes a false statement on the application that will influence whether or not the insurer will accept the risk. Greg's false statement is called a(n)

Material Misrepresentation

Insurable interest involves what assumption?

One person benefits from another person's continued life

Statements made by an insured on an accident and health insurance application are considered to be

Representations

What is the insurer responsible for when a producer is acting within the scope of authority granted in the agency contract?

Responsible for acts by the producer that are

Under the Law of Agency, the principal is considered to be

The insurer

A contract is considered void in all of the following situations EXCEPT

When consideration is unequal

An insurance company can be liable for a producer's unauthorized acts

When the agency contract is unclear concerning the authority given