Xcel Ch.3 Legal Concepts

Intentional withholding of material facts that would affect an insurance policy's validity is called a(n)

Concealment

In an insurance contract, the element that shows each party is giving something of value is called

Consideration

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 or insurer Insurers are required to accurately explain the policys features, benefits, advantages, and possible disadvantages to an applicant

Who is responsible for assembling the policy forms for insureds?

Insurance carriers

Which of the following present when an applicant stands tp lose value if the insured dies?

Insured interest

Unilateral Contract

One sided agreement where the insurers legally bound, In an insurance contract only the insurance company is legally bound ti do anything (pay claims). Uni=one Lateral=side, one side - the insurance company is legally bound. Insurer does not make a promise to pay premiums, however, if premiums are not paid the insurer has the right to cancel the contract

When an applicant is looking for consideration with an insurer in the contract he is most likely to say

Please consider me for insurance, heres my initial premium, my completed application, as well as how much and how often I agree to pay

What are an applicant's statements concerning occupation, hobbies, and personal health history regarded as?

Representation

Estoppel

The legal process of preventing one party from reclaiming a right that was waived.

Legal Purpose

The purpose of the contract must be legal and not against public policy. If an insurance contract has insurable interest and the insured has provided written consent , it has legal purpose. Contract can not be for illegal purpose

Agent Authority: Implied

The unwritten authority of a producer to perform incidental acts necessary to fulfill the purpose of the agency agreement (otherwise unwritten in the contract). Ex: solicit applications , collect premiums, and set appointments

Agent or producer will always be deemed to represent the insurance company and not the applicants

True

In an insurance contract, the insurer is the only party legally obligated to perform. Because of this, an insurance contract is considered

Unilateral

Concealment

Withholding information or facts by the applicant (smoker, diabetes)

Which of the following is an example of the insured's consideration

a paid premium

Authorized agent

a person who acts for another person or entity and has the power to bind the principal to contracts.

Void/Voidable Contract

agreement the does not have legal effect, and therefore is not a contract. Void contracts are not enforceable by either party. Unlike a void contract, a voidable contract is a valid binding contract which can be voided at the request of a party with the right reject

The term which describes the fact that both parties of a contract may not receive the same value referred to as

aleatory

Principle of Indemnity

an insurance principle stating that an insured may not be compensated by the insurance company in an amount exceeding the insured's economic loss

According to life insurance contract law, insurable interest exists

at the time of the application

All of the following are elements of an insurance policy EXCEPT

claim forms

Agent Authority: Apparent

deals with the relationship between the insurer, the agent, and the customer. It is the appearance of authority based on the agent-insurer relationship. Apparent authority is a situation in which the insurer gives the customer reasonable belief that an agent has the power and authority to bind the principal.

Brokers

independent agent may represent a number of insurance company under a separate contractual agreement

What makes insurance policy a unilateral contract

only the INSURER is legally bond

According to the principle of Utmost Good Faith, the insured will answer questions on the application to the best of their knowledge and pay the required premium, while the insurer will deal fairly with the insured and it's

promises made

Warranties

statement made by the applicants guaranteed to be true (Name, DOB) becomes part of the contract and if found to be untrue, can be ground for revoking a contract

Agent Authority (Express)

the explicit authority granted to the agent by the insurer as written in the agency contract. Ex: solicit applications and collect premiums

Subrogation

the right for an insurer to pursue a third party that caused an insurance loss to the insured. This is done as a means of recovering the amount of claim paid to the insured for the loss. Ex: If insured driver's car totaled through fault of another driver; the insurance carrier will reimburse the covered driver as described in the policy and take legal action against the driver-at-fault in an attempt to recuperate the cost of the claim

Under a contract of adhesion,

the terms must be accepted or rejected in full

Reasonable Expectations

A concept which states that the insured is entitled to coverage under a policy that a sensible and prudent person would expect it to provide. Reinforces the rule that ambiguities in insurance contracts should be interpreted in favor of the policyholder.

Personal contract

An agreement between an insurance company and an individual that states that insurance policies cover the individual's insurable interest. most insurance contracts are this and are Not transferable to another person without the insurers consent

What is implied authority defined as?

Authority that is not specifically given to an agent in the agency contract, but that an agent can reasonably assume to carry out his/her duties

Four elements must be present in every contract to be valid and legally enforceable. These elements include:

1. Consideration 2.Legal Purpose 3.Offer and Acceptance 4.Competent parties

Which of the following best describes a conditional insurance contract?

A contract that requires certain conditions or acts by the insured individual

Agent Authority

A relationship in which one person is authorized to represent and act for another person or company is established through the law of agency. In applying the law if agency, the insurance company (insurer) is the principal. Insurance company is fully responsible of the agent if he or she is working within the conditions of his/her contract

Competent Parties

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.

Offer and Acceptance

An offer is made when the applicant submits an application and initial premium for insurance company. Offer is accepted by the insurer after it has been approved by the insurance company's underwriter and a policy is issued If no money is given to the applicant, the applicant is making an invitation If offer is answered by counteroffer the first offer is void

Contract of Adhesion

Because 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. If there is an ambiguity in the contract, the courts always favor the insured over the insurer. Insurance carriers are responsible for assembling the policy forms for insureds Under this contract terms must be accepted or rejected in full Customers must adhere to the contract without any opinion of their own

Fiduciary Responsibility

Because the agent handles money of the insured and insurer, he/she has a fiduciary responsibility. A fiduciary is someone in a position of trust. With insurance, for example, it is illegal for agents to mix premiums collected from applicants with their own personal funds. This is called commingling.

Which type of clause describes the following statement: "We have issued the policy in consideration of the representations in your applications and payment of the first-term premium".

Consideration clause

Three things that go with Aleatory contract

Consideration may be unequal The outcome depends on chance or uncertain event A legal bet is considered an aleatory contract

__________________ is NOT an element of valid contract.

Countersignature

How Personal Contract's deal with Life Insurance

Exception to the standard of personal contracts as the owner of the policy has no bearing on the insurer's assumed risk. Therefore, people who own life insurance are called policy owners rather then policyholders and may transfer or assign ownership by notifying the company

When the principal gives the agent authority in writing, it's referred to as

Express Authority

health insurance

Insurance company agrees to pay a percentage of the insureds medical bills (or benefit) in exchange for consideration (premium)

life insurance

Insurance company agrees to pay a predetermined amount- The Face amount (or Benefit), In exchange for insured's consideration (Premium)

Aleatory Contract

Insurance contracts are aleatory, which means there is an exchange of unequal amounts or values. The premium paid by the insured is small in relation to the amount that will be paid by the insurer in the event of loss. Ex: Tory paid one months premium of $50 dollars, when she died on month later, her beneficiary received the whole $50,000 face value of Torys policy

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 in order for the contract to be legally enforceable.

The authority granted to a licensed producer is provided via the

Law of agency

Which contract is insurable interest a component of?

Legal Purpose

What are insurance policies?

Legal contracts where a promise of benefits is exchanged for valuable consideration (Premiums). These contracts are both BINDING and ENFORCEABLE

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, etc.) The Principle of Indemnity is to restore the insured to. the same financial conditions a which existed prior to the loss. You cannot profit from an indemnity contract.

Parol Evidence Rule

Rule that prevents parties in a contract from changing the meaning of a written contract by introducing oral or written evidence made prior to the formation of the contract but are not part of the contract.

Representations

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

cancellation

The voluntary act of terminating an insurance contract

Stranger-Originated Life Insurance (STOLI)

a consumer purchases a life insurance policy with the agreement that a third party agent/broker or investor will purchase the consumer's policy and receive the proceeds as a profit upon the consumer's death This differs from standard insurance policys because a 3rd party OWNER will be the one benefiting from the death of the insured. These polices are typically illegal as they violate insurable interest

A professional liability for which producers can be sued for mistakes of putting a policy into effect is called

errors and omission

Types of Agent authority:

express (binding authority) implied (collecting premiums, etc.) apparent (coverage determinations)

The power given to an individual producer that is not specifically addressed in his/her contract is considered what type of authority?

implied

Fraud

intentional misrepresentation or concealment of material fact made by one party in order to cheat another party out of something that has economic value. An insurer may void an insurance policy if misrepresentation on the application is proven to be material

Professional Liability Insurance (Errors and omission)

professional liability for which producers can be sued for mistakes of putting a policy into effect. under the insurance, the insurer agrees to pay sums that the agent legally is obligated to pay for injuries resulting from professional services that he rendered or failed to render

Insurable Interest

requires that an individual have a valid concern for the continuation of the life or well-being of the person insured. Without this , and insurance contract is not legally enforceable and would be considered a wagering contract. This only needs to exist at the time of of the application (the inception of the contract). Ex: Spouses would typically have insurable interest on each others life childhood friends typically would not have insurable interest on each others life. An employer may have insurable interest on a key employees life.

What are common tasks agents are authorized to preform?

solicit applications, collect premiums , render services to prospects, and describe company's insurance policy Agents are granted the authority transact insurance or adjust claims on their behalf

Consideration

something of value that each interested party gives to each other Insurers provides consideration with payment of premium. The insurer provides consideration by promising to pay the insurance benefit

In an insurance contract, the applicants "consideration" is

statements made in the application and the premium

Legal purpose is a term used in contract law meaning

there must be legal reasons for entering into the contract

Bob and Tom start a business. Since each partner contributes an important element to the success of the business, they decide to take life insurance policies out on each other, and name each other as beneficiaries. Eventually, they retire and dissolve the business. Bob dies 12 months later. The policies continue in force with no change. Both partners are still married at the time of Bob's death. In this situation, who will receive Bob's policy proceeds?

tom

Waiver

voluntarily giving up of a known right Ex: If an insurer chose to approve an application issue a policy without requesting a medical exam they cannot late request a medical exam for that policy in the future

Endorsement

written form attached to an insurance policy that alters the policy's coverage, terms or conditions