Life Insurance chapter 2

Waiver

A waiver is the voluntary giving up of a legal, given right. If an insurer fails to enforce (waives) a provision of a contract, it cannot later deny a claim based on a violation of that provision.

Warranty

A warranty in insurance is a statement made by the applicant that is guaranteed to be true in every respect. It becomes part of the contract and, if found to be untrue, can be grounds for revoking the contract. Warranties are presumed to be material because they affect the insurer's decision to accept or reject an applicant.

Insurable Interest

Another element of a valid insurance contract is insurable interest. Insurable interest is a component of legal purpose. This means that the person acquiring the contract (the applicant) must be subject to loss upon the death, illness, or disability of the person being insured. To have "an insurable interest" in the life of another person, an individual must have a reasonable expectation of benefiting from the other person's continued life.

Apparent Authority

Apparent authority is the appearance or assumption of authority based on the actions, words, or deeds of the principal. It can also exist because of circumstances the principal created.

Concealment

Concealment is defined as the failure by the applicant to disclose a known material fact when applying for insurance.

Representation

Consider to be true and accurate to the best of the applicant's belief. It is used by the insurer to evaluate whether or not to issue a policy.

Express Authority

Express authority is the authority a principal deliberately gives to its agent.

Implied Authority

Implied authority is the unwritten authority that is not expressly granted, but which the agent is assumed to have in order to transact the business of the principal.

Aleatory

Insurance contracts are aleatory. This means there is an element of chance and potential for unequal exchange of value or consideration for both parties. Both insurance and gambling contracts are typically considered aleatory contracts.

Adhesion

Insurance contracts are contracts of adhesion. This means that the contract has been prepared by one party (the insurance company) with no negotiation between the applicant and insurer. In effect, the applicant "adheres" to the terms of the contract on a "take it or leave it" basis when accepted. Any confusing language in a contract of adhesion would be interpreted in favor of the insured. The purpose is to correct any advantage that may result for the party who prepared the contract. A policy of adhesion can also be described as one which the insurance company can modify.

Estoppel

Legal process used to prevent a party from reclaiming a right or privilege that was already waived. legal consequence of the waiver.

Parol evidence

Prevents parties from changing the meaning of a written contract by trying to introduce oral or written statements made before the formation of the contract.

Utmost Good Faith

This means both the policy owner and the insurer must know all material facts and relevant information. There can be no attempt by either party to conceal, disguise, or deceive. A consumer purchases a policy based largely on the insurer and agent's explanation of the policy's features, benefits, and advantages. Insurance applicants are required to make a full, fair and honest disclosure of the risk to the agent and insurer.

Unilateral

This means that only one party (the insurer) makes any kind of enforceable promise.

Conditional

This means that the insurer's promise to pay benefits depends on the occurrence of an event covered by the contract. If the event does not materialize, no benefits are paid. Furthermore, the insurer's obligations under the contract are conditioned on the performance of certain acts by the insured or the beneficiary. For example, the timely payment of premiums is a condition for keeping the contract in force. If premiums are not paid, the company is relieved of its obligation to pay a death benefit.

Competent Parties

To be enforceable, a contract must be entered into by competent parties. With a contract of insurance, the parties to the contract are the applicant and the insurer. The insurer is considered competent if it has been licensed or authorized by the state(s) in which it conducts business. The applicant, unless proven otherwise, is presumed to be competent with three possible exceptions: ► Minors ► The mentally infirm ► Those under the influence of alcohol or narcotics

Legal Purpose

To be legal, a contract must have a legal purpose. This means that the object of the contract and the reason the parties enter into the agreement must be legal.

Void/Voidable Contract

Void The terms void and voidable are often incorrectly used interchangeably. A void contract is simply an agreement without legal effect. Voidable voidable contract is an agreement which, for a reason satisfactory to the court, may be set aside by one of the parties to the contract.

Offer & Acceptance

a definite, unqualified proposal (offer) by one party and the acceptance of its exact terms by the other.

Consideration

consideration is given by the applicant in exchange for the insurer's promise to pay benefits

STOLI (Stranger-Originated Life Insurance)

life insurance arrangements where investors persuade individuals (typically seniors) to take out new life insurance, naming the investors as beneficiary. This is sometimes called Investor-Originated Life Insurance (IOLI). These arrangements are used to circumvent state insurable interest statutes.