Contract Law (chapter 2)

The key factor of representation that allows the injured party to rescind the contract is

If the representation is false in a material point. - If a representation is false in a material point the injured party is entitled to rescind the contract from the time the representation becomes false.

All of the following are true regarding representations EXCEPT

They may be altered or withdrawn after the issuance of the policy. - According to CIC 355, a representation may be altered or withdrawn before the insurance is affected, but not afterwards.

Which of the following best defines an insurance policy?

A contract between an insured and an insurer that guarantees payment for loss caused by a specific event. - A policy is a contract between an insured and an insurance company which agrees to pay the insured for loss caused by specific events.

A contract between an insured and an insurance company which agrees to pay the insured for loss caused by specific events is

A policy. - A contract between an insured and an insurance company which agrees to pay the insured for loss caused by specific events is a policy.

When an insured makes truthful statements on the application for insurance and pays the required premium, it is known as which of the following?

Consideration - Consideration is something of value that each party gives to the other. The consideration on the part of the insured is the payment of premium and the representations made in the application.

Contracts that are prepared by one party and submitted to the other party on a take-it-or-leave-it basis are classified as

Contracts of Adhesion. - Insurance policies are written by the insurer and submitted to the insured on a take- it-or-leave-it basis. The insured does not have any input into the contract, but simply adheres to the contract.

An agreement that is enforceable by law is known as a/an

Contract. - Contracts than contain all of the essential elements required by the state are enforceable in a court of law. Because insurance policies meet these requirements, they are enforceable as legal contracts.

All of the following must be specified in an insurance policy EXCEPT

The financial rating of the insurer - An insurance policy has 6 requirements: it identifies the parties to the contract; the life or property of the insured; insurable interest; the risks insured against; the period during which the insurance is to continue; and the amount of premium. The insurer's financial rating is not required to be specified in the insurance policy.

When both parties to a contract must perform certain duties and follow rules of conduct to make the contract enforceable, the contract is

Conditional. - The contract is formed on the basis that certain conditions are met.

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?

Conditional - A conditional contract requires both the insurer and policyowner to meet certain conditions before the contract can be executed, unlike other types of policies which put the burden of condition on either the insurer or the policyowner.

Which of the following would qualify as a competent party in an insurance contract?

The applicant has a prior felony conviction. - When an insurer and insured enter into a contract, both parties must be of legal age and mentally competent. It is legal for a person convicted of a felony to buy an insurance contract. An intoxicated person, however, may not be mentally competent, a 12-year-old student is considered to be underage in most states and a person under mind-impairing medication most likely would not be mentally competent.

Insurance policies are not drawn up through negotiations, and an insured has little to say about its provisions. What contract characteristic does this describe?

Adhesion - A contract of adhesion is prepared by only the insurer; the insured's only option is to accept or reject the policy as it is written.