Insurance contracts and regulations

variable annuities

- Payments fluctuate according to the value of an account invested primarily in common stocks - provides conservative to aggressive investments that are not guaranteed

Offer

1st step in formation of a legal contract. To be considered valid, the offereror must express a willingness to enter into an agreement in a way that the offer understands that saying yes to the offer will result in an agreement. Can be written or verbal

offeror

A person who makes an offer.

Ambiguities in a contract of adhesion:

Any doubt or ambiguity found in an insurance policy will be found in favor of the party that did not draw up the contract-the insured.

aleatory contracts

Insurance policies are these kind of contracts. one party may receive a benefit that is entirely out of proportion to the consideration given. receiving the large benefit depends on whether a chance event occurs.

Jana applied for a life insurance policy and submitted the initial premium with her application. When Acme Insurers reviewed Jana's application, it decided to offer her a modified policy at a higher premium. In this case, what has Acme Insurers done? made an offer to Jana accepted an offer from Jana accepted a counteroffer from Jana made a counteroffer to Jana

Made a counteroffer to jana

valued contract

a life or health insurance policy that pays a stipulated sum as set in the contract. All life insurance policies are valued contracts, as are accidental death and dismemberment health policies. a valued contract is the opposite of a reimbursement contract.

Personal contracts

agreement cannot be transferred to another party (health insurance)

indemnity contract

an insurance contract in which the payment of a loss is limited to the insured's actual loss. Benefits can not exceed amount of loss

National conference of insurance legislators

comprised of state legislators from every state, works with NAIC to help state legislators understand the regulations

Steven is filling out an application for life insurance. The application asked whether he had ever had heart problems. Steven intentionally skips this question even though he had heart surgery three years ago because he is afraid his application will be denied. What is the term for Steven's failure to give his entire medical history? concealment waiver estoppel breach of contract

concealment If the concealed facts would have changed the insurer's decision to offer the insurance policy, then the insurer can void the insurance contract.

concealment

deliberate withholding of material facts when applying for insurance.

Contract of adhesion

drafted by one party and is offered on a take-it or leave-it basis. The other party has little chance to bargain terms, price or other elements. He or she must "adhere" to its provisions

Commutative

each party to the contract can expect to receive something of equal value from the other party

consideration

given by each party to demonstrate commitment its "good faith promise to pay benefits as defined in the policy"

Medical expense insurance policies are what type of contract? commutative contract indemnity contract bilateral contract valued contract

indemnity contract A medical expense insurance contract is an indemnity contract. This means that the benefit cannot exceed the contract owner's actual loss (or the policy's maximum benefit amount, if less).

Conditional policies

insurers promise to pay benefits is conditional on the events occurring: •With life insurance, payment of the face amount is conditional on the insured's death •With health insurance, benefits are conditional on the insured incurring covered medical expenses or suffering a covered loss.

variable life insurance

life insurance in which the benefits are a function of the returns being generated on the investments selected by the policyholder

legal purpose

must be legal reasoning to be enforceable

acceptance

offer must accept the offer for it to result in a contract. After review from the insurance company, if it is accepted, they will issue a policy.

counteroffer

offeree fails to accept even one term of an offer, even if all of the other terms are accepted, this action is considered a rejection of the offer.

unilateral contract

one party (the insurer) makes a legally enforceable promise

national association of insurance commissioners

represents insurance department in every state. it meets to promote uniformity through development of model insurance regulations.

insurance department

responsible for regulating all aspects of insurance transacted in that state

warranty

statement that is an absolute truth

representation

statement that is believed to be true to the best of the applicant's knowledge (marie not knowing of her heart disease but answering that she didn't have it because she believed she did not)

estoppel

the legal inability to impose a right once it has been waived

Offeree

the party to whom the offer is made

competent parties

those legally qualified to enter into contracts •Mentally sound •of legal age •not under the influence of drugs or alcohol

insurance commissioner

ultimate regulatory authority over all -insurance companies doing business in that state -insurance producers licensed in that state -insurance products sold in that state -insurance transactions (claims as well as sales) occurring in that state

Statements that are guaranteed to be true, such as an insurer's promise in the policy, are called: representations petitions warranties declarations

warranties If a warranty is found false, the other party has the right to end the contract, even if the statement was not important to the contract's formation. However, statements made by insurance applicants on the application are deemed to be representations, not warranties.

waiver

when one party to a contract knowingly gives up a right, either by actions or inactions

fraud

willful deception with the intent to gain something of value. it is a reason for voiding a contract at any time.