Xcel Chapter 3 Legal Concepts of the Insurance Contract

With life and health contracts, when must an insurable interest exist? After the policy is issued Before the beneficiary is named While the policy is in force At the inception of the policy

At the inception of the policy

Which of the following is NOT a requirement of a contract? Parties involved must be competent Equal consideration is required between the involved parties Contract must have a legal purpose Offer and acceptance must be involved

Equal consideration is required between the involved parties

An agreement without legal effect is estoppel parole evidence fraudulent void

void

All of the following are considered to be typical characteristics describing the nature of an insurance contract EXCEPT Bilateral Unilateral Aleatory Adhesion

Bilateral

Which of the following is a unique characteristic of an insurance contract? Offer and Acceptance Conditional Consideration Competent Parties

Conditional Conditional. An insurance contract is conditional in that certain conditions must be met before the contract can be legally enforced.

In insurance, an offer is usually made when The agents hands the policy to the policyholder An agent explains a policy to a potental applicant The application is submitted The insurer approves the application and receives initial premium

The application is submitted In insurance, the offer is usually made by the applicant in the form of the application. Acceptance takes place when an insurer's underwriter approves the application and issues a policy.

All are competent parties who can enter into insurance contracts EXCEPT Applicants Trusts and estates Business entities Those under influence of alcohol

Those under influence of alcohol

Krissa and Janet enter into a contract in which Krissa agrees to fraudulently induce sick people to sell their insurance contracts to Janet's company. Krissa and Janet's contract can best be described as Void Competitive Voidable Conditional

Void

Which of the following terms is used for the voluntary relinquishment of a known right? Estoppel Adhesion Waiver Unilateral

Waiver

Because an insurance contract has been prepared by an insurance company with no negotiation it is considered a unilateral contract a contract of adhesion an aleatory contract a commutative contract

a contract of adhesion

A contract requires implied authority only an offer negotiation between the involved parties an offer and acceptance of the contract terms

an offer and acceptance of the contract terms

The authority given by an insurer or employer to a licensee to transact insurance or adjust claims on their behalf is called authorization appointment certification representation

authorization

Special features of insurance contracts include all of the following EXCEPT conditional aleatory unilateral estoppel

estoppel

The authority of an agent which is spelled out in the written words of the agency contract between the agent and the insurer is called implied authority apparent authority presumed authority expressed authority

expressed authority

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

insurable interest

Insurable interest must exist at what time? At the time of application At the time of delivery At the time of death At all times

At the time of application

Which characteristic of an insurance contract means there is a potential for unequal exchange of value for both parties Aleatory Adhesion Unilateral Conditional

Aleatory

An insurance company has how many years to challenge the validity of a life insurance contract? One Two Three Four

Two After two years, the insurer cannot contest the policy or deny benefits based on any incorrect information in the insurance policy, this is called the Incontestable Clause.

Which of the following statements regarding utmost good faith in insurance contracts is CORRECT? The concept of utmost good faith (that there is no attempt to conceal, disguise, or deceive) applies only to the insurer. Although a warranty is a statement, it is not technically part of the contract. A representation is a statement that the applicant guarantees to be true. Most state insurance laws consider statements made in an application for an insurance policy to be representations, not warranties.

Most state insurance laws consider statements made in an application for an insurance policy to be representations, not warranties.

A unilateral contract is one in which there is an element of chance and potential for unequal exchange of value or consideration for both parties only one party (the insurer) makes any kind of legally enforceable promise the contract has been prepared by one party (the insurance company) with no negotiation between the applicant and insurer both the policyowner and the insurer must know all material facts and relevant information

only one party (the insurer) makes any kind of legally enforceable promise

All of the following would be considered non-competent parties in an insurance contract EXCEPT minors the disabled the mentally infirm those under the influence of drugs or alcohol Submit Reset

the disabled

Which of the following statements describes the parol evidence rule? A written contract cannot be changed once it is signed. An oral contract cannot be modified by written evidence. A written contract cannot be changed by oral evidence. An oral contract takes preference over any earlier written contracts.

A written contract cannot be changed by oral evidence. Parol evidence rule basically states that you cannot use oral testimony to contradict the terms of a signed document.

When an agent is provided the materials from his/her company, which category of authority is the one which allows those items to be used? Intended Implied Apparent Obvious

Apparent Apparent authority is the appearance or assumption of authority based on the actions, words, or deeds of the principal, or because of circumstances the principal created. For example, providing an individual with a rate book, application forms, and sales literature creates the impression that an agency relationship exists between the insurer and the individual.

Which of the following best describes the concept that the consideration is not equal in contract law? Adhesion Warranty Subrogation Aleatory

Aleatory Insurance contracts are aleatory. This means there is an element of chance and potential for unequal exchange of value for both parties. An aleatory contract is conditioned upon the occurrence of an event. Consequently, the benefits provided by an insurance policy may or may not exceed the premiums paid.

Which statement is CORRECT when describing a contract of adhesion? Contract may be accepted or rejected by the insured Contract involves negotiation between insurer and insured Any confusing language in the contract would be interpreted in favor of the insurer Contract cannot be modified by the insurer

Contract may be accepted or rejected by the insured

Which of the following statements about authority is NOT correct? Express authority is granted by means of the agent's contract. Express authority is determined by a principal's conduct. Implied authority is not overtly extended in the agent's contract but does permit many of the agent's operations. Apparent authority can be assumed from the actions of the principal.

Express authority is determined by a principal's conduct.

An insurance contract is prepared by one party, the insurer, rather than by negotiation between the contracting parties. Which of the following statements explains this characteristic of insurance contracts? The insurance contract is an aleatory contract. The insurance contract is a contract of acceptance. The insurance contract is a contract of adhesion. The insurance contract names only the insurer as the competent party. Submit Reset

The insurance contract is a contract of adhesion. Contracts of adhesion are written by the insurance company and offered as a "take-it-or-leave-it" basis to the applicant.

Which of the following is an example of legal consideration? Politeness Application and initial premium Legal purpose Offer and acceptance

Application and initial premium Consideration can be defined as something of value given in exchange for the promises sought. In an insurance contract, consideration is given by the applicant in the form of paying premiums in exchange for the insurer's promise to pay benefits.

Doug approaches Ed about purchasing term life insurance. Ed has access to many different life insurance companies to get the best quote for Doug. In this situation, Ed would best be described as a(an) Agent Fiduciary Contractor Broker

Broker Unlike agents, brokers legally represent the insured. A broker solicits and accepts applications for insurance and then places the coverage with an insurer.

Which principle is accurately described with the statement "Insureds are entitled to recover an amount NOT greater than the amount of their loss"? Unilateral Indemnity Aleatory Utmost good faith

Indemnity

Which of the following contracts is defined as "one that restores an injured party to the condition that was present before the loss"? Unilateral contract Contract of adhesion Indemnity contract Personal contract

Indemnity contract

An agent is an individual that represents whom? Insurer Insured Broker Himself/Herself

Insurer

The importance of a representation is demonstrated in what rule? Insurable interest Law of adhesion Materiality of concealment Consideration clause

Materiality of concealment The materiality of concealment is used to determine the importance of a representation.

An insurer is considered authorized if it is registered with the NAIC. is licensed or admitted by the state. follows the Code of Ethics of the state Office of Insurance Regulation. is registered with the Securities and Exchange Commission.

is licensed or admitted by the state.

The following are all characteristics of insurance contracts EXCEPT insurable interest unilateral valued or indemnity unconditional

unconditional

Which of the following statements correctly describes a contract of indemnity? One party is restored to the same financial position the party was in before the loss occurred The unequal exchange of value or consideration for both parties One party (the insurance company) prepares the contract with no negotiation between the applicant and insurer Only one party (the insurer) makes any kind of enforceable promise

One party is restored to the same financial position the party was in before the loss occurred

Which is considered a statement made by an applicant that he/she believes to be true? Warranty Concealment Representation Good Faith

Representation Representations are statements made by applicants to which they believe are true. They are used by insurers to evaluate whether or not to issue a policy.

An agent is an individual who has been authorized by an insurer to be its representative and to perform all of the following acts EXCEPT solicit applications for insurance collect premiums from policyowners authorize payment of certain claims render services to prospects

authorize payment of certain claims

Which of the following statements regarding insurable interest is NOT correct? Insurable interest exists when the applicant is the insured. A policy obtained by a person without an insurable interest in the insured can be enforced. The applicant must be subject to loss upon the death, illness,or disability of the insured. Generally, the person to be insured must give consent before a policy is issued, even if the applicant has an insurable interest.

A policy obtained by a person without an insurable interest in the insured can be enforced. Insurable interest occurs when the policy owner faces the possibility of losing money or something of value in the event of loss.

Which of the following is NOT required in the content of a policy? Parties involved in the contract Period to which the coverage exists Probability of loss Risk insured against

Probability of loss

Which course of action is the insurer entitled to when deliberate concealment is committed by the insured? Rescinding the contract Charge a higher premium Charge a penalty Nothing

Rescinding the contract

Which of the following statements describes an insurable interest? The policyowner must expect to benefit from the insured's death. The policyowner must expect to suffer a loss when the insured dies or becomes disabled. The beneficiary, by definition, has an insurable interest in the insured. The insured must have a personal or business relationship with the beneficiary.

The policyowner must expect to suffer a loss when the insured dies or becomes disabled. The policyowner must face the possibility of losing money or something of value in the event of the death or disability of the insured.