license for insurance ch 2

principles of agency law

- The acts of the agents are the acts of the principal - Contract completed by the agent on behalf of the principal is a contract of the principal - Payment made to an agent on behalf of the principal are payments to the principal - Knowledge of the agent regarding business of the principal is presumed to be knowledge of the principal

Voidable Contract

A contract that can be made void at the option of one or more parties to the agreement.

reasonable expectations

A legal principle that reinforces the rule that ambiguities in insurance contracts should be interpreted in favor of the policyholder, also states that an insured is entitled to coverage under a policy that a sensible and prudent person would expect it to provide

waiver

Agreement waiving the company's liability for a certain type or types of risk ordinarily covered in the policy; a voluntary giving up of a legal, given right. if an ensurer fails to enforce a provision of a contract it cannot later deny a claim based on a violation of that provision

agent authority

Authority is what's given by an insurer to a licensee to transact insurance on their behalf, only those actions for which an agent is actually authorized can bind a principal, relationship in which one person is authorized to present and act for another person or company is established through the law of agency, the ins comp is the principal, three types: express, implied, and apparent

implied authority

Authority not specifically granted to the agent in the contract of agency, but which common sense dictates the agent has. It enables the agent to carry out routine responsibilities, unwritten authority of a producer to perform incidental acts necessary to fulfill the purpose of the agency agreement

apparent authority

Deals with the relationship between the insurer, the agent and the customer. appearance of authority based on the agent-insurer relationship. a situation which the insurer gives the customer reasonable belief that an agent has the power and authority to bind the principal The appearance or the assumption of authority based on the actions, words, or deeds of the principal or because of circumstances the principal created, by providing an individual with a rate book/sales lit a company creates the impression that the agency relationship exists between itself and the individual

concealment

Failure of the insured to disclose to the company a fact material to the acceptance of the risk at the time application is made, withholding of info by the applicant

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. ins app are required to make full fair and honest disclosure of the risk to the agent and insurer. agents and insurers are req to accurately explain the policys features benefits adv and possible disadv to the app

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. owner and insurer must know all the facts and info, agents required to make full disclosure of policies

Stranger-Originated Life Insurance (STOLI)

Life insurance arrangements where investors persuade consumers (typically seniors) to take out new life insurance, naming the investors as beneficiary; investors loan money to the insured to pay the premiums for a defined period- insured ultimately assigns ownership of the policy to investors who receive death benefit when insured dies, insured receives additional financial benefits such as an upfront payment or loan, 3rd party owner will be benefiting from the death of insured

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.) You cannot profit from an indemnity contract. principle of indemnity is to restore the insured to the same financial condition as that which existed prior to the loss

warranties

Statements made by the applicant guaranteed to be true - (name, DOB) becomes part of the contract and if found to be untrue can be grounds for revoking the contract

representations

Statements made by the applicants on their insurance application that they represent as being substantially true to the best of their knowledge and belief but that are not warranted as exact in every detail, statements made by the applicant believed to be true are not part of the contract and need to be true only to the extent that they are material and related to the risk

Implied Authority

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, its incidental to express authority because not every single detail of an agents authority can be spelled out in the agents contract

cancellation

The voluntary act of terminating an insurance contract,

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 insurer; insurer is considered competent if it has been licensed by the state where it conducts business; the applicant is presumed to be competent with three exceptions: minors, mentally infirm, and those under the influence

authorized agent

a person who acts for another person or entity and has the power to bind the principal to contracts. agents granted authority by insurer through agency contract to transact ins or adjust claims on their behalf, common tasks include solicit app, collect premiums, render services to prospects, and describe ins policies

policy

a policy is a written contract in which one party promises to indemnify another against loss that arises from an unknown event

Law of Agency

agents roles include: describing company's insurance policies to prospective buyers and explain the conditions under which the policies may be obtained soliciting applications for ins collecting premiums from policyowners rendering service to prospects and to those who have purchased policies from the company

void contract

an agreement without legal effect (invalid contract) Fraud: insurance contracts are unique in that they run counter to a basic rule of contract law. under most contracts fraud can be a reason to void a contract but with life insurance contracts an insurer has only a limited period of time (2 years) to challenge the validity of a contract but after that the insurer cannot contest the policy or deny benefits based on material misrepresentations/concealment/fraud, forms: insurance carrier is responsible for assembling the policy forms for insured, warranties: statements made on an application for insurance that are warranted to be true so they are exact in every detailed

Brokers vs Agents

brokers legally represent the insured (unlike agents), a broker/ind agent may represent multiple insurance companies under separate agreements, broker solicits and accepts applications for ins and then places the coverage with an insurer

insurable interest

component of legal purpose meaning that the person acquiring the contract (applicant) must be subject to loss upon the death/ illness/ disability of the insured, to have insurable interest in the life of another person an individual must have reasonable expectation of benefiting from the other persons continued life, insurable interest exists at the time of the application of a contract

estoppel

concepts of waiver and estoppel are closely related; estoppel is the legal impediment to one party denying the consequences of its own actions or deeds if such actions or deeds result in another party acting in a specific manner or if certain conclusions are drawn (loss of defense)

Which of these require an offer, acceptance, and consideration? warranty estoppel contract representation

contract

contract of adhesion

contract has been prepared by an ins comp with no negotiation, has only 1 author (ins comp), ins carriers also responsible for assembling the policy forms for insureds, if any ambiguity the courts favor insured over insurer

insurance policies are offered on a "take it or leave it" basis which make them conditional contracts aleatory contracts unilateral contracts contracts of adhesion

contracts of adhesion

Fiduciary Responsibility

describes the relationship between agent and client, b/c the agent handles money of the insured and insurer they have a fiduciary responsibility, fiduciary is someone in a position of trust- with insurance it is illegal for agent to mix premiums collected from applicants with their own personal funds (commingling)

law of agency

establishes a relationship in which one person is authorized to represent and act for another person or company, in applying the law of agency the insurer is the principal, an agent or producer will always be deemed to represent the insurance company and not the applicant, in regard to the insurance contract any knowledge of the agent is considered to be the knowledge of the insurance company- if the agent is working within the conditions of their contract the ins company is responsible

conditional contract

ex- ins contracts, means certain conditions must be met by all parties in the contract, needed when a loss occurs in order for the contract to be legally enforceable; all insurance contracts are conditional

express authority

explicit authority granted to the agent by the insurer as written in the agency contract

aleatory

feature of insurance contracts that there is an element of chance for both parties and that the dollar given by the policyholder (premiums) and the insurer (benefits) may not be equal, premiums paid by applicant is small in relation to amount that will by paid by insurance; element of chance and potential for unequal exchange of value or consideration for both parties, conditioned upon the occurrence of an event, consequently the benefits provided by an insurance policy may or may not exceed the premiums paid (if someone has disability ins they can't collect unless disabled)

taking receipt of premiums and holding them for the insurance company is an example of commingling misappropriation theft fiduciary responsibility

fiduciary responsibility

Agent as a Fiduciary

governs the activity of an agent, person who holds a position of financial trust and confidence, agents act in a fiduciary capacity when they accept premiums on behalf of the insurer or offer advice that affects a persons financial security

when must insurable interest exist for a life insurance contract to be valid? inception of the contract throughout length of contract when insured dies during contestable period

inception of the contract

health insurance contracts

indemnity contracts and will only reimburse the actual cost of the loss- no profit

Professional Liability Insurance (E&O)

ins agents need errors and omissions (E&O) ins, with this the insurer agrees to pay sums that the agent legally is obligated to pay for injuries resulting from professional services he rendered or failed to render, producers can be sued for mistakes of putting a policy into effect

health insurance

ins company agrees to pay a percentage of insureds medical bills (benefit) in exchange for consideration (premiums)

adhesion

ins contracts are contracts of adhesion- means that the contract has been prepared by one party (the ins company) with no negotiation between applicant and insurer, can have someone interpret what the contract means, ins company can modify

a life insurance policy would be considered a wagering contract without: insurable interest premium payment agent solicitation constructive delivery

insurable interest

When third-party ownership is involved, applicants who also happen to be the stated primary beneficiary are required to have all statements be warranties insurable interest in the proposed insured the agent complete a third party application all those involved be family related

insurable interest in the proposed insured

Who makes the legally enforceable promises in a unilateral insurance policy? beneficiary ins company insured applicant

insurance company

legal purpose

insurance contract must be legal and not in opposition of public policy, if an ins contract has insurable interest and the insured has provided written consent it has legal purpose: without legal effect the contract would be void

If a contract of adhesion contains complicated language, to whom would the interpretation be in favor of? insurer beneficiary reinsurer insured

insured

conditional

insurers promise to pay benefits depends on occurrence of an event covered by the contract, if event doesn't materialize then no benefits are paid and the insurers obligations under the contract are conditioned on the performance of certain acts by the insured, if premiums are not paid the company doesn't have to pay death benefit

fraud

intentional misrepresentation or concealment of material fact made by one party to cheat another party of something that has economic value, insurance contracts are unique in that they run counter to a basic rule of contract law, with most contracts fraud can be a reason to void a contract but with life ins contracts an insurer has a limited amount of time (usually 2 yrs) to challenge the validity of a contract and after that the insurer cannot contest the policy or deny benefits based on misrepresentations/concealment/fraud

which of these arrangements allows one to bypass insurable interest laws concealment indemnity contract contract of adhesion investor originated life ins

investor originated life insurance

policy rider

legal attachment amending a policy, additional benefits or a reduction in benefits are often incorporated in policies by the attachment of either a benefit or an exclusion rider

offer and acceptance

offer made when applicant submits an application and initial premium for ins to the ins comp, offer is accepted by insurer after it has been approved by the companies underwriter and a policy is issued, if no money is given the app is making an invitation but if an offer is answered by a counteroffer the first offer is void

Offer and Acceptance

offer that may be made by the applicant by signing the application, paying the first premium, and if necessary, submitting to a physical exam- policy issuance as applied for constitutes acceptance by the company; or no offer may be made when no premium payment is submitted with application; premium payment on the offered policy then constitutes acceptance by the applicant

unilateral

one party (insurer) makes any kind of enforceable promise, insurers promise to pay benefits upon the occurrence of a specific event such as death or disability- applicant makes no such promise or even promises to pay premiums, insurer cannot require premiums to be paid, insurer has right to cancel contract if premiums are not paid

unilateral contract

one sided agreement where only the insurer is legally bound; in an insurance contract only the insurance company is legally bound to do anything, if insured doesn't pay premiums the insurer can cancel the contract

competent party

one who is capable of understanding the contract being agreed to, all parties must be of legal age, mentally capable of understanding the terms, and not influenced by drugs or alcohol

Contract of Adhesion

only one author- the ins comp- if there is an ambiguity in the contract, the courts always favor the insured over insurer, b/c an ins contract has been prepared by an ins comp with no negotiation, it is considered a contract of adhesion

Parol Evidence Rule

oral or verbal evidence or that which is given verbally in a court of law, states that when parties put their agreement in writing all previous verbal statements come together in the writing and a written contract cannot be chanced or modified by oral evidence, 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 aren't part of the contract

personal contract

personal contract between insurer and insured, owner of policy has no bearing on the risk the insurer has assumed, for this reason people who buy life ins policies are called owners not holders, policyowners own their policies and can give them away which is called assignment, to assign a policy an owner notifies the insurer

which of these is not a type of agent authority express implied principal apparent

principal

what is the consideration given by an insurer in the consideration clause of a life policy promise to never cancel coverage promise to pay a death benefit to a named beneficiary promise to not raise premiums promise to accept an insureds assignment or benefits

promise to pay a death benefit to a named beneficiary

Statements made on an insurance application that are believed to be true to the best of the applicant's knowledge are called representations consideration warranties guarantees

representations

Insurable Interest

requires that an individual have a valid concern for the continuation of life or well being of person insured, w/o this an insurance contract is not legally enforceable and would be considered a wagering contract

Subgrogation

right for an insurer to pursue a third party that caused an ins loss to the insured, this is done as a means of recovering the amount of the claim paid to the insured for the loss,

consideration

something of value that each interested party gives to each other, the insured provides consideration with payment to premium, the insurer provides consideration by promising to pay the insured benefit- also consists of the application and initial premium, also contains schedule and amount of premium payments

warranty

statement made by the applicant that is guaranteed to be true in every respect, becomes part of the contract and if found to be untrue can be grounds for revoking, warranties presumed to be material b/c they affect the insurers decision to accept or reject applicant

representation

statement made by the applicant that they consider to be true and accurate to the best of the applicants belief, used by insurer to evaluate whether or not to issue a policy, representations not a part of the contract and need be true only to the extent that they are material and related to the risk,

Stranger Originated Life Insurance (STOLI)

stoli transactions are life ins arrangements where investors persuade individuals (seniors) to take out new life ins naming the investors as beneficiaries - sometmes called IOLI (investor)

Express Authority

the authority a principal deliberately gives to its agent, it's granted by means of the agents contract which is the principals appointment of the agent to act on their behalf,

forms

the ins carrier is responsible for assembling the policy forms for the insured persons

life insurance

the ins company agrees to pay a predetermined amount (face amount/benefit) in exchange for insureds consideration (premium)

a policy of adhesion can only be modified by whom agent applicant primary beneficiary insurance company

the insurance company

aleatory contract

unequal exchange like in ins contracts, premiums paid by app is small in relation to the amount that will be paid by the ins cop in the event of a loss (if tory paid $50 for life ins and died a month later her beneficiary gets $50,000)

life and health insurance policies are multilateral contracts bilateral contracts unilateral contracts nonlateral contracts

unilateral contracts

life ins contracts

valued contracts which means it will pay a stated amount

Valued or Indemnity contract

valued- pays a stated sum regardless of loss incured, life ins contracts are vauled, if an idv get a life ins policy for $500,000 that is payable at death indemnity: pays amount equal to loss, contracts attempt to return the insured to their original financial position, fire and health ins are examples of indemnity; loss of $5000=$5000 not more

void vs voidable contracts

void contract- simply an agreement without legal effect, not a contract at all b/c it lacks one of the elements specified by law for a valid contract, void contract cannot be enforced by either party, insurer may also void an ins policy if misrepresentation on the app is proven voidable contract- agreement may be set aside by one of the parties to the contract, it is binding unless the party with the right to reject it wishes to do so, if the policyholder has failed to comply with a condition of the contract the policyholder ceased paying the premium and the contract is voidable and the company can cancel the policy

which of these is considered a statement that is assured to be true in every aspect estoppel warranty guarantee representation

warranty

endorsement

written form attached to an insurance policy that alters the policys coverage, terms and conditions