2 - Legal Concepts

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

Insurance company

A life insurance arrangement which circumvents insurable interest statutes is called:

Investor-Originated Life Insurance

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.

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

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

Warranty

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

conditional

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

contract

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

contract

A life insurance policy would be considered a wagering contract WITHOUT:

insurable interest

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

insurable interest in the proposed insured

A policy of adhesion can only be modified by whom?

insurance company

what is a warranty?

is a statement guaranteed to be true

Life and health insurance policies are:

unilateral contracts

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

representations

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?

Aleatory".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.

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

Bilateral

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

Insured

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

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.

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

Legal Purpose (Insurable Interest)

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

Unilateral

At what point does an informal contract become binding?

When one party makes an offer and the other party accepts that offer

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

negotiation

Insurance policies are considered aleatory contracts because

performance is conditioned upon a future occurrence

The Consideration clause of an insurance contract includes:

the schedule and amount of premium payments

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.

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

Fiduciary responsibility

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

When the application is made

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

If material to the risk, false representations will void a policy

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.

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

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

Inception of the contract