P & C Unit 2 check point

Which of the following elements consists of an offer and an acceptance?

Agreement Reason - An agreement cannot be reached unless an offer is made by one party and accepted by another party. For example, the insured makes the offer by paying a premium (consideration) and the insurance company accepts the contract. This is an agreement.

Mr, and Mrs. Smith meet their insurance agent at a restaurant after work to purchase a new dwelling policy. Both have had several cocktails by the time the agent arrives. Which of the elements of a legal contract is missing?

Competent parties Reason - Both parties must be competent for a contract to be binding. The term competent means that the insured must be of legal age, sane, and sober for the contract to be valid.

Intentional misrepresentation and withholding material information is known as

Fraud Reason - Fraud is an intentional act designed to deceive and induce another party to part with something of value.

Which of the following statements best describes the principle of indemnity?

The insured is restored to her pre-loss financial condition Reason - Insurance policies are contracts of indemnity, meaning that the contract is intended to restore the insured to the financial state she enjoyed prior to the occurrence of a loss-no more, no less.

Holly visits her insurance agent's office to discuss coverage for her new condo. They complete the insurance application and Holly gives the agent a check for $500 for the premium. A month later, the agent calls Holly to tell her the policy arrived at his office. At what point did consideration take place?

When Holly gave the check to the agent Reason - Consideration refers to an exchange of value from both the insurer and the insured. The insured pays a premium, and in turn, the insurer provides a promise to pay of a loss occurs. In this scenario, consideration took place when Holly wrote the check.

A statement that is guaranteed to be true is

a warranty Reason - A warranty is a statement that is guaranteed to be true. If a warranty is not kept, there is a breach of warranty that voids the contract. Typically, warranties are made by the insurance company. The warranty is made in the form of a promise.

Edward is applying for an auto insurance policy for him and his son Bradley. Edward knows that Bradley has had three speeding tickets in the past year, but he did not tell the agent this while filling out the application. This is an example of

concealment Reason - Concealment is the failure to disclose known facts. An insurer may be able to void the insurance contract if the insurer can prove that an applicant or insured intentionally concealed a material fact. A material fact is one that should have been voluntarily revealed even if not directly addressed at the time of the application.

All of the following statements about waiver and estoppel are true EXCEPT

once a wavier has been created, it can be changed Reason - Waiver is defined as the intentional and voluntary giving up of a known right. Estoppel means that once a right has been waived, it cannot be reinserted and used against the insured.

Statements provided by an insurance applicant, that the applicant believes are true, are considered

representations Reason - A representation is a statement that the applicant believes to be true. Statements made on an application by the insured are representations. A misrepresentation is a representation that is actually false.

All of the following statements about unilateral contracts are true EXCEPT

the insured cannot stop paying premiums or abandon the insurance without approval from the insurer Reason - In a unilateral contract the insurance can stop paying premiums and abandon an insurance contract at any time. The insurer does not have this flexibility.

All of the following are requirements of a legal contract EXCEPT

waiver and estoppel Reason - There are five elements of a legal contract: consideration, legal purpose, offer, acceptance, and competent parties.

Information that is given on an insurance application that is not true and would affect the insurer's decision to accept the contract is known as

a material misrepresentation Reason - Misrepresentations do not necessarily void insurance contracts. In order to void a contract, they must be material misrepresentations-that is, the false information must have been a determining (or material) factor in the insurer's decision to accept the risk.

An insurance policy between the insurance company and an insured, which cannot be assigned to another person without the insurer's consent, is a characteristic of

a personal contract Reason - Insurance policies, such as auto and homeowners insurance, are personal contracts. They are contracts between the insurance company and the applicant or insured; in most case, they are nontransferable.

All of the following statements about aleatory contracts are true EXCEPT

aleatory contracts have an equal value Reason - Insurance contracts are aleatory contracts, meaning that the value received from the contract by each party is unequal.

An applicant for insurance must accept or reject a contract as written. For this reason insurance policies are

contracts of adhesion Reason - An insurance policy is bought on a "take-it-or-leave-it" basis. The language is not subject to negotiation. The insured has little or no input into the wording of the contract.