Legal Concepts (chapter 2)

Warranties:

statements made by the applicant guaranteed to be true (name, DOB) becomes part of the contract and if found to be untrue, can be ground for revoking the contract.

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

Ans: Inception of the contract

Which of these arrangements allows one to bypass insurable interest laws?

Ans: Investor-Originated Life Insurance

Insurable Interest

Insurable interest only needs to exist at the tiem of the application ( the inception of the cotnract.

Valued vs Indemnity

Life insurance contracts are valued contracts, which means it will pay a stated amount., Health insurance contracts are indemnity contracts and will only reimburse the actual cost of the loss (pay medical Bills)

insurance policies are offered on a take it or leave it basis which make them

ans: Contracts of Adhesion

when third party ownership is involved applicants who also happen top be the stated primary beneficiary are required to have

ans: Insurable interest in the proposed insured

Who makes the legally enforceable promises in a unilateral insurance policy?

ans: Insurance Company

Health insurance

is the insurance company agrees to pay a percentage of the insured's medical bills (or benefit in exchange for consideration (premiums)

Life Insurance

is the insurance company agrees to pay a predetermined amount - the face amount (or benefit), in exchange for the insured's consideration (premium)

Principle of Indemnity

is to restore the insured to the same financial condition as that which existed prior to the loss. -you cannot profit from an indemnity contract

4 elements must be present in every contract to be vaild and legally enforceable. These elements include:

1. Consideration: which is something of value that each interested party gives to each other. -The insured provides consideration with payment of premium. -The insurer provides consideration by promising to pay the insurance benefit. 2. Legal Purpose: is an insurance contract must be legal and not in opposition of public policy. -If an insurance contract has insurable interest and the insured has provided written consent, it has legal purpose. 3. Offer and Acceptance: is an offer that is made when the applicant submits an application and initial premium for insurance to the insurance company. -The offer is accepted by the insurer after it has been approved by the insurance company's underwriter and a policy is issued. 4. Competent Parties: is all parties must be of legal competence, meaning they must be of legal age, mentally capable of understanding the terms, and not influenced by drugs or alcohol.

Stranger Originated Life Insurance (STOLI) has been found to be in violation of which of the following contractual elements?

Ans: legal purpose (insurable interest)

Unilateral Contract:

one sided agreement, where only the insurer is legally bound. -in an insurance contract, only the insurance company is legally bound to do anything (pay claims). -If premiums are not paid the insurer has the right to cancel the contract.

Concealment:

withholding of information or facts by the applicant (smoker, diabetes)

when must insurable interest be present in order for a life insurance policy to be valid

ans: When the application is made

which of these require an offer acceptance and consideration

ans: contract

the consideration clause of an insurance contract includes:

ans: the schedule and amount of premium payments

Insurance policies

are legal contracts where a promise of benefits is exchanged for valuable consideration (Premiums). -Contracts of insurance are binding and enforceable.

Utmost Good Faith:

implies that there will be no attempt by either party to misrepresent, conceal or commit fraud as it pertains to insurance policies. -Insurance applicants are required to make full, fair, and honest disclosure of the risk to the agent and insurer.

Aleatory Contract:

insurance contracts are aleatory, which means there is an unequal exchange. -The premiums paid by the applicant is small in relation to the amount that will be paid by the insurance company in the event of a loss.

Conditional Contract:

insurance contracts are conditional because certain conditions must be met by all parties in the contract. -this is needed when a loss occurs for the contract to be legally enforceable.

Contract of Adhesion:

is an insurance contract has been prepared by an insurance company with no negotiation, it is considered a contract of adhesion. -In a contract of adhesion there is only one author - the insurance company. -Insurance carriers are also responsible for assembling the policy forms for insureds.

Personal Contract:

most insurance contracts are personal contracts between the insurance company and the insured individual and are not transferable to another person without the insurer's consent.

Representations:

statements made by the applicant believed to be true (height, weight) are not part of the contract and need to be true only to be the extent that they are material and related to the risk