Chapter3-Legal Concepts of the Insurance Contract

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

Inception of the contract

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

Contract utmost of good faith

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

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

Initial offer is void

In what way are insurance policies said to be aleatory?

Involves the potential for the unequal exchange of value

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

Marriage partners

Insurable interest involves what assumption?

One person benefits from another person's continued life

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

Waiver-When an insurance company does not enforce a contract's provision

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 authority only

Written evidence-elements of a valid contract TRUE OR FALSE

False

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

Which element of a contract constitutes a definite and unqualified

Offer

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

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

Offer

What qualifies as acceptance of an insurance contract offer?

An issued policy- An issued policy signifies acceptance of an offer of an insurance contract.

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

Material- An insurer can void an insurance policy if a misrepresentation on the application is found to be material.

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

Reasonable expectations

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

Apparent authority- Apparent authority is what a third party (such as a member of the public) assumes an agent has, based on the actions or words of the principal. By supplying the agent with business cards, brochures, and rating guides, the insurance company has given the impression that it supports the words and actions of its agent.

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- An insurance agent needs to guard against liability for professional errors and omissions particularly when recommending replacement coverage to a potential insured.

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

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

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

Reasonable expectations

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

Small employer

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- In a case where the meaning of an insurance policy is not clear, a court of law will usually interpret the policy in favor of the insured because an insurance contract is a contract of adhesion.

An agent whose actions exceed the authority granted by contract is

not backed by the insurer