Chapter 5

After policy is delivered, when does it go into effect?

Policy is signed Statement of continued good health is signed (if applicable) Premium paid

The insured gives the insurer two items of consideration

Premium Statements in the application These are given in return for the insurance companies issuance of policy

Insured gives what to considerations ?

Premium and statements in the application

Who can change the policy?

(before it is actually delivered) The company officers

In most states "legally competent" means age

15 - age of majority for insurance law

Two types of ownership

1st party ownership: you own a policy on yourself 3rd party ownership: someone else owns a policy on you.

Signatures required

1st party: applicant 3rd party: applicant and insured If minor...parent may have to sign Agent signs all the applicants.

Policies sold to the elderly (Medicare supplement or long term care)...have an extended free look provision. How many days?

30 days

If the client files a claim. The client has to wait how many days to file a lawsuit?

60 days - gives the insurance company time to pay. After 60 days the client has to sue within 3 years. (can vary)

Misrepresentation

A flat out lie - grounds for denying the claim

Insurance policies are conditional

Certain conditions have to be met

An insurance policy will lead to the payment of a claim only if the Insured pays the premium and notifies the Insurer of the loss. This relates to the contract concept of?

Conditional

Legally Enforcable agreement

Contract

Policy does not go into effect when there's a counter offer until when?

Counter offer is accepted.

When is a policy offer accepted? When the policy is issued or delivered?

Delivered. Issuance is when it goes from underwriter to agent.

Incontestable or contestable clause

Details the statues of limitations

A warranty is a bad thing that insurance companies try to do.

Fill out this 200 page application...and guarantee that it's all right! A warranty is a guarantee forcing the applicant to guarantee everything to be true or policy is voided. Courts have prevented insurance companies from doing this.

If the application is incomplete, what should the agent do?

Have the applicant make the changes and sign or initial them or do a new application.

Conditional receipt promises what?

IF the policy WOULD HAVE been issued, coverage will be effective from the date you apply or date of medical exam, whichever is later, assuming that you meet the company's underwriting requirements. This only applies when you submit an application with a PREMIUM.

Insurable Interest

IOT be insurable the loss has to be economic. You have to show that you would lose money if this person died.

Agent must explain that conditional receipt until premium payment is actually made (in case of bounced check)

If the agent collects premium payment while out of the office... a temp receipt should be issued (even if it's on a napkin)

Statue of Limitations of 2 years

If the applicant lies...the insurance company has two years to catch them.

Provision and Clause are interchangeable

Ifit's in the polcy or clause Not tacked on to the policy like a rider.

Do beneficiaries have to sign the application?

No

Entire Contract Clause

Protects the insurance company by saying that all that counts is the contract (not advertising, statements made by agent, etc)

99& of the time an application is submitted with premium...this is an offer. What can the company do?

Reject offer - you get a refund of premium (no interest) Counter offer - almost always at a higher rate. "rated policy" or same rate that covers less. Accept offer

Statements made in the application and proof of loss form are presumed to be what?

Representations

Grace Period Clause

Required by all life and health policies. Delays the termination (lapsation) to 31 days. Exact time depends on state: ranges from 28 to 31 days.

When does an application rise to the level of an "offer"?

Signed application sent in with premium payment

These folks are always deemed to have insurable interest in each other (based on state law)

Spouses Close relatives (state law determines how close) Creditors in debtors Employers can ensure employees

Rider

Tacked on to policy. A rider can increase or decrease coverage.

Consideration clause

The considerations given by the insured.

Can a first party owner be the beneficiary?

Yes

When the agent delivers a policy, is that an offer?

Yes

What if you get sick or die duing the grace period?

You are still insured. They will deduct amount of premium plus interest

Usually a policy delivered will be delivered with...

a statement of continued good health.

Representation

a statement regarding a material fact that the applicant believes to be true to the best of his or her knowledge. the closest thing to a warranty...but not the same.

Conditional receipt

better than an ordinary receipt from premium application. Is a conditional receipt might allow coverage to become effective even if you die or get sick before policy is issued. The only catch is that you have to meet the underwriting requirements for the policy.

A rider can also be called a

distinction or endorsement

Intentionally hiding the truth is an example of

fraud

Misrepresentation and concealment are both examples...

fraud

Material fact

if we aren't talking about a material fact...the lie does not matter. Material fact would have changed whether the policy would have been issued or rate of issuance.

After the two year period a policy becomes...

incontestable except for NONPAYMENT of premium or misstatement of age or gender!

Insurance contracts are aleatory contracts

is one where the possibility exists for largely disproportionate payment - one party comes out ahead and the other does not.

Contract needs

legal purpose competent parties consideration for each party an agreement (meeting of the minds) - offer and acceptance

Is there coverage if the agent tries to deliver policy but can't get in touch with the person?

no

If the policy is issued to the agent from the underwriter, does that consitute an offer?

no - only when it is delivered to the client.

Can an insurance company sue the insured for breach of payment?

No

Can there be a conditional receipt when no premium is paid?

No

Does conditional receipt guarantee the policy will be issued?

No

If you submit an application and the agent delivers a policy, do you have to accept the offer?

No

Is there a law requiring a statement of continued good health?

No

Under free look provision...can insurance company keep a portion of the premium if the policy is cancelled in the 10 day period?

No

If you submit an application without a premium, have you made an offer?

No - it's just an invitation to negotiate.

Does the insured promise to make a payment in the future?

No - there are no promises given by the insured but the insurance company is giving a promise

Does insurable interest have to exist at time of death or sickness?

No...as long as it exists at inception of the policy.

Estoppel

Once the company waives the right to deny the policy, the copmany waives the right to "complain" about the consequences.

Insurance contracts are unilateral, meaning what?

Only one promise The insured doesn't make promise. (not even to make premium payments) The Insurer makes a promise. *Most contract as bilateral but insurance contracts are unilateral.

State regulators are members of the NAIC

NAIC proposes model provisions

Ownership Clause

Person who owns the policy controls the policy. Owner can cancel policy, change the beneficiary, etc. Every insurance policy has an ownership clause

If you apply...i you are not leagally bound. An application is an...

Inquiry - an invitation to negotiate

Uniform Policy Provisions required in all policies (life, health)

Insuring Clause: has the insurers promise to pay in it. It also identifies who the parties are. States max amount of policy and exclusions. Company's consideration.

Concealment

Intentionally hiding the truth or intentionally telling a partial truth.

Free Look Provision

Most all life and health policies have these...required by state law Gives insured 10 days after the delivery of the policy to cancel. Don't have to have a reason to cancel. Refund of whole premium. (NO INTEREST)

Reinstatement Clause

Specifics the rules by which a client can reinstate their policy. Differs from health and life insurance. Required to be in policy. Prohibits the insurer from charging a reinstatement fee. Within the time limit set by state law, if the client submits a reinstatement, a new contestable period starts at that day (2 years). Before you can reinstate the client must pay back any loans (life insurance) or any premiums. Proof of insurability is required if the grace period laps and you go through reinstatement.

Where do we find the insurer's consideration?

The insuring clause

Entire Contract

The policy + the attached application

What happens if you fail to make the premium payment after the grace period?

The policy will lapse

Advertisements are NOT offers

They are invitations

Statement of continued good health

Verifies that the insured's health has not changed since time the application was completed. Good idea for an agent to get this signed in between the time the application was submitted and the policy was issued.

Waiver

Voluntarily surrendering a right What does that have to do with insurance? When an application is filled out incomplete and insurance is sold based on incomplete application. Insurance company can't refuse to pay based on incomplete application, if policy is issued.

"The consideration clause of the policy"

outlines the consideration given by the insured to the insurance company

"Insured clause" of contract

outlines the consideration that the insurance company gives to the insured

Physical Exam Autopsy Clause

paid for by insurance company Right to conduct as many physical exams on the dead client as is reasonable. you only get one autopsy but as many physical exams as the insurer wants.

The insurer gives the insured one item of consideration

the promise to indemnify the insured if he/she suffers a loss

Whoever makes the offer must have the intent...

to be leagally bound

Many companies require agents to deliver final polcy in person...

to explain final details of the policy and (potentially) to get a continued statment of good health.

When does a policy issued by an agent become an "offer?"

when the policy is delivered to the client

Insurance contracts of ADHESION

you're stuck with the terms of the contract