ExamFX Chapter 2

What are the four major elements of a contract?

1. Agreement 2. Competent parties 3. Legal purpose 4. Consideration

What 6 specific elements are insurance contracts required to identify?

1. The parties to the contract 2. The persons or property being insured 3. A statement of insurable interest that exists if the insured is not the owner 4. The risks insured against 5. The time period during which the policy will be in force or continue 6. The stated regular premium or a statement of the manner in which a premium rate and total premium will later be calculated (if it can only be determined at the termination/expiration of the contract)

What is a "contract of adhesion?"

A contract of adhesion is prepared by one of the parties (insurer) and accepted or rejected by the other party (insured).

What is a "material misrepresentation?"

A material misrepresentation is a statement that, if discovered, would alter the underwriting decision of the insurance company.

What is a "tort?"

A tort is a private, civil non-contractual wrong for which a remedy through legal action may be sought.

What is a "unilateral contract?"

A unilateral contract requires that only one of the parties to the contract is legally bound to do anything.

How is "aleatory" defined?

Aleatory means there is an exchange of unequal amounts or values.

What is an "agreement" in regards to a contract?

An agreement is the offer and acceptance of a contract.

How is "concealment" defined?

Concealment is the legal term for the intentional withholding of information of a material fact that is crucial in making a decision; concealment may void a policy.

How is the premium determined?

Rate x Units of Insurance = Premium

How is "recision" defined?

Recision is the revocation of a contract.

How is a "representation" defined?

Representations are statements believed to be true to the best of one's knowledge, but they are to guaranteed to be true.

What is a "rider?"

Riders are added to a policy to modify provisions that already exist.

What is the "consideration" in regards to a contract?

The binding force, something of value that each party gives to the other, is the consideration.

What is the "legal purpose" in regards to a contract?

The purpose of the contract must be legal and not against any public policy, lest it be considered void.

Are intentional material misrepresentations considered fraud?

Yes; this is considered a misdemeanor.

What is an "earned premium?"

An earned premium is the portion of a premium that belongs to an insurance company for providing coverage for a specified period of time.

What is an "endorsement?"

Endorsements are printed addendums to a contract that are used to change the policy's original terms, conditions, or coverages.

How is "materiality" defined?

Materiality is the concept that both contractual parties are entitled to all information necessary to make an informed decision.