2 - Legal Concepts

When third-party ownership is involved, applicants who also happen to be the stated primary beneficiary are required to have

Correct. An applicant who is also the designated primary beneficiary must have an insurable interest in the proposed insured.

When must insurable interest be present in order for a life insurance policy to be valid?

When the application is made

Which of these is NOT a type of agent authority?

"Principal". Agent authority is what an agent is authorized to do on behalf of his company. The three types of agent authority include express, implied, and apparent authority.

Stranger Originated Life Insurance (STOLI) has been found to be in violation of which of the following contractual elements?

Legal Purpose (Insurable Interest) A STOLI arrangement is used to circumvent state insurable interest statutes.

What is the consideration given by an insurer in the Consideration clause of a life policy?

Promise to pay a death benefit to a named beneficiary

A policy of adhesion can only be modified by whom?

The insurance company. A policy of adhesion is best described as a policy which only the insurance company can modify.

Insurance contracts are known as ____ because certain future conditions or acts must occur before any claims can be paid.

conditional

A warranty

A warranty is a statement guaranteed to be true.

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

In a contract of adhesion, any confusing language would be interpreted in the favor of the insured.

The part of a life insurance policy guaranteed to be true is called a(n)

warranty. Warranties are statements that are considered literally true. A warranty that is not literally true in every detail, even if made in error, is sufficient to render a policy void.

Which of these require an offer, acceptance, and consideration?

Contract

Which of these arrangements allows one to bypass insurable interest laws?

Investor-Originated Life Insurance. Investor-originated life insurance (or IOLI), sometimes called stranger-originated life insurance (or STOLI) is used to circumvent state insurable interest statutes. This is done when an investor (or stranger) persuades an individual to take out life insurance specifically for the purpose of selling the policy to the investor. The investor compensates the insured and makes the premiums, then collects the death benefit when the insured dies.

Insurance policies are considered aleatory contracts because

performance is conditioned upon a future occurrence Insurance contracts are aleatory. This means there is an element of chance and potential for unequal exchange of value or consideration for both parties. An aleatory contract is conditioned upon the occurrence of an event.

Who makes the legally enforceable promises in a unilateral insurance policy?

Insurance company. Under a unilateral insurance policy, the insurance company makes the legally enforceable promises.

Life and health insurance policies are

Life and health insurance policies are considered unilateral contracts because one party makes a promise, and the other party can only accept by performa

A life insurance policy would be considered a wagering contract WITHOUT

insurable interest. Without insurable interest, a life insurance policy would be considered a wagering contract.

Which of the following consists of an offer, acceptance, and consideration?

Contract

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

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

When must insurable interest exist for a life insurance contract to be valid?

Inception of the contract. Insurable interest must only exist at the inception of the contract.

A life insurance arrangement which circumvents insurable interest statutes is called

Investor-Originated Life Insurance Investor-originated life insurance (or IOLI) is used to circumvent state insurable interest statutes. This is done when an investor (or stranger) persuades an individual to take out life insurance specifically for the purpose of selling the policy to the investor. The investor compensates the insured and makes the premiums, then collects the death benefit when the insured dies.

In an insurance contract, the insurer is the only party who makes a legally enforceable promise. What kind of contract is this?

Unilateral Insurance contracts are unilateral. This means that only one party (the insurer) makes any kind of enforceable promise.

E and F are business partners. Each takes out a $500,000 life insurance policy on the other, naming himself as primary beneficiary. E and F eventually terminate their business, and four months later E dies. Although E was married with three children at the time of death, the primary beneficiary is still F. However, an insurable interest no longer exists. Where will the proceeds from E's life insurance policy be directed to?

F. In this situation, the proceeds from E's life insurance policy will go to F. Insurable interest only needs to exist at the time of application.

Q purchases a $500,000 life insurance policy and pays $900 in premiums over the first six months. Q dies suddenly and the beneficiary is paid $500,000. This exchange of unequal values reflects which of the following insurance contract features?

Insurance contracts are aleatory in that the amount the insured will pay in premiums is unequal to the amount that the insurer will pay in the event of a loss

Taking receipt of premiums and holding them for the insurance company is an example of

Fiduciary responsibility. Taking receipt of premiums and holding them for the insurance company is an example of fiduciary responsibility.

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

Bilateral Unilateral, aleatory, and adhesion are all special features of insurance contracts. Bilateral is not.

The Consideration clause of an insurance contract includes

the schedule and amount of premium payments

In regards to representations or warranties, which of these statements is TRUE?

In insurance, false representations will void a policy if they are material to the risk.

Which of these is considered a statement that is assured to be true in every respect?

A warranty is a statement that is considered guaranteed to be true.

Insurance policies are offered on a "take it or leave it" basis, which make them

Contracts of Adhesion. Because insurance policies are offered on a "take it or leave it" basis, they are referred to as Contracts of Adhesion.

Which of these is NOT considered to be an element of an insurance contract?

negotiating The elements of an insurance contract do not include negotiating.

At what point does an informal contract become binding?

An informal contract becomes binding when one party makes an offer and the other party accepts that offer.