Contract Law

An insured stated on her application for life insurance that she had never had a heart attack, when in fact she had a series of minor heart attacks last year for which she sought medical attention. Which of the following will explain the reason a death benefit claim is denied? a. Material misrepresentation b. Waiver c. Utmost Good Faith d. Estoppel

Matieral Misrepresentation

Insurance policy is a. A written instrument in which a contract of insurance is set forth. b. A statement of insurable interest. c. A verbal or written agreement between two parties to transfer risk. d. Any method used to transfer or avoid catastrophic risk.

A written instrument in which a contract of insurance is set forth.

Insurance policies are not drawn up through negotiations, and an insured has little to say about its provisions. What contract characteristic does this describe? a. Unilateral b. Conditional c. Personal d. Adhesion

Adhesion

In insurance, an offer is usually made when a. An agent explains a polict to a potential applicant b. An applicant submits an application to the insurer c. The insurer approves the application and receives the intial premium d. The agent hands the policy to the policyholder

An applicant submits an application to the insurer

If found material for underwriting, a misrepresntation a. May be withdrawn b. Does not affect either of the parties c. Must have been in writing to affect a contract d. Can void a contract

Can void a contract

Which of the follwoing is NOT a required element of an insurance contract? a. Consideration b. Counteroffer c. Acceptance d. Competent parties

Counteroffer

Which of the following ebst describes the policy nonrenewal a. Discontinuance of an insurance policy by the insured on the policy anniversary date. b. Return of the policy after a 10-day free look. c. Voiding of a policy due to a misrepresentation on the application. d. Revocation of one's insurance policy by the insurer.

Discontinuance of an insurance policy by the insured on the policy anniversary date.

What other term is used to rfer to unintentional torts? a. Negligence b. Hazard c. Peril d. Breach of contract

Negliegence

An intentional or unintentional concealment entitles the affected party to which of the following? a. Estoppel b. Waiver of concealed conditions c. Subrogation of a contract d. Rescission of a contract

Rescission of a contract

A life insurance policy has a legal purpose if both of which of the following elements exist? a. Underwriting and reciprocity b. Offer and counteroffer c. Policyowners and named beneficiares d. Insurable interest and consent

Insurable interest and consent

The act of revoking or terminating an insurance policy is called A. Nonrenewal b. Lapse c. Cancellation d. Forfeiture

Cancellation

Factual statements about the insured or the risk in an insurance policy are considered a. Material representations b. Express warranty c. Representations d. Implied warranty

Express warranty

Which of the following is NOT the consideration in a policy? a. Something of value exchanged between parties b. The premium amount paid at the time of application c. The promise to pay covered losses d. The application given to a prosepctive insured

The application given to a prospective insured

A person caught violating provisions regarding mispresentation could be subject to a. A written warning from the Commissioner. b. A permanent suspension of license. c. A fine up to $25,000. d. Imprisonment in a county jail for up to 3 years.

A fine up to $25,000.

What is material misrepresentation a. Any misstatement made by an applicant for insurance b. Any misstatement by the producer c. Concealment d. A statement by the applicant that, upon discovery, would affect the underwriting decision of the insurance company

A statement by the applicant that, upon discovery, would affect the underwriting decision of the insurance company

Which of the following best describres a misrepresentation? a. A failure to disclose known facts b. An intentional omission of material information on the part of the insured c. A statement that is not guaranteed to be true d. A statement intended to distract, mislead, or deceive a party to a contract

A statement intended to distract, mislead, or deceive a party to a contract

What is a wrongful act or the violation fo someone's rights that leads to legal liability called? a. Tort b. Hazard c. Peril d. Loss

Tort

Contracts that are prepared by one party and submitted to the other party on a take-it-or-leave-it basis are classified as a. Binding Contracts b. Contracts of adhesion c. Unilateral contracts d. Aleatory contracts

Contracts of adhesion

The price of insurance for each exposure unit is known as a. Consideration b. Insurbale interest c. Premium d. Rate

Rate

When applying for an indiviudal life insurance policy, an applicant states that he wen to the doctor for nausea, but fails to mention that he was also having severe chest pains. This is an example of a. Misrepresentation b. Fraud c. Warranty d. Concealment

Concealment

An insurance contract requires that both the insured and the insurer meet certain conditions in order for the contract to be enforceable. What contract characteristic does this describe? a. Conditional b. Contingent c. Aleatory d. Unilateral

Conditional

The proposed insured makes the premium payment on a new insurance policy. If the insured should die, the insurer will pay the death benefit to the beneficiary if the policy is approved. This is an example of what kind of contract? a. Unilateral b. Conditional c. Adhesion d. Personal

Conditional

Because of insurance policy is a contract between the insurer and the insured, it must confirm to the state laws governing contracts which require all of the following elements EXCEPT a. Offer and acceptance b. Conditions c. Competent parties d. Legal purpose

Conditions

An insurer neglects to pay a legitimate claim that is covered under the terms of the policy. Which of the following insurance principles has the insurer violated? a. Consideration b. Good Faith c. Represenatation d. Adhesion

Consideration

The key factor of representation that allows the injured party to rescind the contract is a. If the representation is false in a material point b. That any misrepresentation is considered fraud c. Representations are statements believed to be true and hold no legal consequences. d. The promise or assurance of the representation.

If the representation is false in a material point

During the grace period, the policyowner can a. Add riders to the existing policy b. Renew the policy withouit proof of insurability c. Pay a late premium without penalty d. Reutrn the policy to the insurer for a full refund

Pay a late premium without penalty

Accorind to the Codem how many separate requirements should an insurance policy have? a. 4 b. 6 c. 8 d. 10

6

An insured pays a $100 premium every month for his insurance coverage, yet the insurer promises to pay $10,000 for a covered loss. What characteristic of an insurance contract does this describe? a. Aleatory b. Good Health c. Adhesion d. Conditional

Aleatory

Which of the following best describes the concept that the insured pays a small amount of premium for a large amount of risk on the part of the insuracne company a. Aleatory b. Adhesion c. Subrogation d. Warranty

Aleatory

The violation of a material warrarnty or other matieral provision of a policy allows a. Only the insured to rescind. b. Only the insurer to rescind. c. Both the insurer and the insured to rescind. d. Neither the insurer nor the insured to rescind.

Both the insurer and the insured to rescind.

How is the premiumin an insurance policy determined? a. According to the number of dependents b. By dividing life expectancy by premium mode c. By subtracting interest from mortality d. By multiplying the rate by the number of units of insurance purchased

By multiplying the rate by the number of units of insurance purchased

Representations in insurance contracts qualify as a. Facts b. Implied warranties c. Express warranties d. Misrepresentations

Implied Warranties

In determining how material a piece of information is to each party of a contract, the value is not determined by the event itself, but solely by which of the following a. Interpretation that the seller places on such information in the agreement. b. Amount of information that has been previously disclosed through the inquiry process. c. Truthfulness of such statements being made. d. Influence this information would have in forming an estimate of the advantages or the disadvantages of the contract.

Influence this information would have in forming an estimate of the advantages or the disadvantages of the contract.

When may a representation be withdrawn? a. At any time b. After the policy is issued c. Within the first 2 years of the policy d. Priot to the issuance of the policy

Prior to the issuance of the policy

In insurance policies, the insured is not legally bound to any particular action in the insurance contract, but the insurer is legally obligated to pay losses covered by the policy. What contract element does this describe? a. Aleatory b. Conditional c. Unilateral d. Unidirectional

Unilateral

Which of the following best defines an insurance policy? a. An endorsement or a modifying provision b. An agreement between an insurer and the Department of Insurance c. A written request to an insurance company for insurance coverage d. A contract between an insured and an insurer that guarantees for loss caused by a specific event.

A contract between an insured and an insurer that guarantees for loss caused by a specific event.

Which of the following would qualify as a competent party in an insurance contract? a. The applicant is under the influence of a mind-impairing medication at the time of application. b. The applicant has a prior felony conviction. c. The applicant is intoxicated at the time of application. d. The applicant is a 12-year-old student.

The applicant has a prior felony conviction.

All of the following must be specified in an insurance policy EXCECPT a. The financial rating of the insurer b. The parties between whom the contract is made c. The risks insured against d. The period during which the insurance is in force

The financial rating of the insurer

All of the following information must be communicated in an insurance contract EXCEPT a. Information the other party already knows. b. Information that is material to the contract. c. Information that is material even though it cannot be proven. d. Information not requested by an agent and company, even if it's considered relevant.

Information the other party already knows.

The written instrument, in which a contract is set forth, is known as the a. Insuring clause b. Right of agency c. Policy d. Binding clause

Policy

What is an injured party entitled to receive if an intentional concealment is discovered? a. Nothing. Only intentional concealment is punishable. b. No less than $500 and no more than $5,000 for compensatory damages c. $1,000 for any compensatory damages d. Rescission of the policy

Rescission of the policy

When both parties to a contract must perform certain duties and follow rules of conduct to make the contract enforceable, the contract is a. Personal b. Unilateral c. Conditional d. Aleatory

Conditonal

Representations are written or oral statements made by the applicant that are a. Guarentted to be true b. Found to be false after further investigation. c Immaterial to the actual acceptability of the insurance contract. d. Considered true to the best of the applicant's knowledge.

Considered true to the best of the applicant's knowledge.

In addition to penalties, fines, and possible imprisonment relating to misrepresentation, the Commissioner may suspend the license of such person for a period up to a. 6 months b. 1 year c. 3 years d. 5 years

3 years

The failure to disclose known facts is a. Concealment b. Fraud c. Warranty d. Misstatement

Concealment

What term best describes the act of withholding material infomration that would be crucial to an underwriting decision? a. Breach of warranty b. Concealment c. Withholding d. Leading

Concealment

When an insured makes truthful statements on the application for insurance and pays the required premium, it is known as which of the following? a. Consideration b. Legal Purpose c. Contract of adhesion d. Acceptance

Consideration

Every expressed warranty made at or before the execution of a policy must be a. Considered accepted by the insured upon delivery of the policy. b. Binding and specific for the initial policy period. c. Contained in and referred to in the policy or other document and signed by the insured. d. Considered implied by the insurer and covered in the policy.

Contained in and referred to in the policy or other document and signed by the insured.

An agreement that is enforcable by law is known an a/an a. Policy b. Contract c. Conditional receipt d. Adhesion

Contract

Which of the following best describes the aleatory nature of an insurance contract? a. Exchange of unequal values b. Only one of the parties being legally bound by the contract c. Ambiguities are interpreted in favor of the insured d. Policies are submitted to the insurer on a take-it-or-leave-it basis

Exchange of unequal values

When would a misrepresentation on the insurance application be considered fraud? a. When the application is incomplete b. Any misrepresentation is considered fraud. c. If it is intentional and material d. Never: statements by the applicant are only representations.

If it is intentional and material

According to the California Insurance Code, any agent violating the regulations realting to misrepresentation will charged with a a. Felony, a fine not to exceed $2,000, and a possible 2-5 year imprisonment. b. Felony, a fine not to exceed $5,000, and a possible 2 year imprisonment. c. Misdemeanor, a fine not to exceed $25,000, and/or a possible 1-year imprisonment. d. Misdemeanor, a fine not to exceed $500, and a possible 1-year imprisonment.

Misdemeanor, a fine not to exceed $25,000, and/or a possible 1-year imprisonment.

Concealment as defined by the California Insurance Code is a. Failure to communicate information that should be known. b. Statement based on the best knowledge and belief of the person giving the information. c. Neglect on the part of insured to communicate the information waived by the other party. d. Neglect on the part of insured to communicate all information known to be material to the insurer.

Neglect on the part of insured to communicate all information known to be material to the insurer.

What is a definition of a unilateral contract? a. One sided: only one party makes an enforceable promise b. Two or more parties go into a contract understand there may be an unequal exchange of value c. One author: the company wrote the contract; the insured must accept it as written d. If one party makes a condition, the other party can counteroffer.

One sided: only one party makes an enforceable promise

What is a definition of a unilateral contract? a. Two or more parties go into contract understanding there may be an unequal exchange of values. b. One author: the company wrote the contract; the insured must accept it as written. c. If one party makes a condition, the other party can counteroffer. d. One-sided: only one party makes an enforceable promise.

One-sided: only one party makes an enforceable promise.

All of the following are reasons an insurer or insured would have the right to rescind a policy EXCEPT a. An intentional omission in determining if a warrantly is false b. The amount of paid claims exceeds the premiums paid c. The violation of a material warranty d. When concealment is unintentional

The amount of paid claims exceeds the premiums paid

An insured wants to transfer his personal insurance policy to a friend. Under what conditions would this be possible? a. The insured will need a written consent of the insurer b. It is impossible to trasnfer a policy c. The insured would have to surrender his policy to the insurer, and his friend could then ask to buy it d. The insured can transfer the policy to his friend and then notify the insurer of the change

The insured will need a written consent of the insurer

An insured wants to transfer his personal insurance policy to a friend. Under what conditions would be possible? a. The insured would have to surrender his policy to the insurer, and his friend could then ask to buy it. b. The insured can transfer the policy to his friend and then notify the insurer of the change. c. The insured will need a written consent of the insurer. d. It is impossible to transfer a policy.

The insured will need a written consent of the insurer.

The importance of a misrepresentation is determined by a. Whether or not the policy is already issued. b. The materiality of a given concealment. c. The amount of money potentially lost. d. The cost of investigation.

The materiality of a given concealment.

All of the following are true regarding representations EXCEPT a. They may be made before or at the time of policy issue b. They may be oral or written c. They may be altered or withdrawn after the issuance of the policy d. They are statements believed to be true

They may be altered or withdrawn after the issuance of the policy

If only one party to an insurance contract has made a legally enforceable prmoise, what kind of contract is it? a. A legal(but unethical) contract b. Unilateral c. Adhesion d. Conditional

Unilateral

In forming an insurance contract, when does acceptance usually occur? a. When an insurer receives an application b. When an insured submits an application c. When an insurer;s underwriter approves coverage d. When an insurer delivers the policy

When an insurer's underwriter approves coverage

In forming an insurance contract, when does acceptance ususally occur? a. When an insured submits an application b. When an insurer's underwriter approves coverage c. When an insurer delivers the policy d. When an insurer receives an application

When an ninsurer's underwriter approves coverage

A contract between an insured and an insurance company which agrees to apy the insured for loss caused by specific events is a. A premium b. A guarenteed benefit c. A policy d. A rider

A policy

Which of the following would be covered by contract law a. An insured suing the insurer for failure to provide promised benefits b. A consumer suing the manufacturer for a defective product c. Neighbors suing each other for trespassing d. An employer suing an employee for spreading damaging rumors

An insured suing the insurer for failure to provide promised benefits

Which of the following would qualify as an implied warranty in an insurance contract> a. Statements in the policy b. An oral representation by the applicant c. The applicant's signature d. Contract's legal purpose

An oral representation by the applicant