CH 3. Legal concepts

Contestable period

A period during which an insurer can challenge the validity of a life insurance policy. a short window in which insurance companies can investigate and deny claims. The period is two years in most states and one year in others, and it begins as soon as a policy goes into effect

plan administrator

A plan administrator is the person or company your employer selects to manage its retirement savings plan. The administrator works with the plan provider to ensure that the plan meets government regulations.

Which situation would NOT require the insureds consent when a life insurance policy is issued

A policy is purchased by a parent for a minior child

Insurers obligation to pay a claim depends on whether the insured or beneficiary has complied with all policy conditions. This makes the policy an

Conditional contract- insurance contract is conditional. Means insurers promise to pay benefits depends on the occurrence of an event covered by the contract. If event does not materialize no benefits are paid Conditional contract is an agreement that is enforceable only if another agreement is performed or if another specific condition is satisfied. For ex. The timeout payment of premiums is a condition for keeping the contract in force. If premiums are not paid the company is relieved of its obligation to pay a death benefit

An appointed producers implied authority is derived from

Express authority. By the very nature of what producers are authorized to do (express authority) producers have the implied authority to act on behalf of the principal (insurer)

The powers directly given to a producer in an agency contract are called

Express powers

The unwritten authority given to a producer to carry out necessary incidental acts of the agency agreement are called

Implied authority

Waiver

Insurance company's failure to enforce a contracts provision Giving up a known right on a voluntary basis

Which of these is true regarding the exchange of consideration among parties involved in an insurance contract

It can be unequal

Greg applies for insurance and makes a false statement in the application that will influence whether or not the insurer will accept the risk. Greg's false statement is called a

Material misrepresentation— a false statement made by an applicant that would influence an insurer in determining whether or not to accept the risk

An insured is entitled to coverage under a policy that a prudent person would expect it to provide. This principal is called

Reasonable expectations- concept that states the insured is entitled to coverage under a policy that a sensible and prudent person would expect it to provide

Statements made by an insured on an accident and health insurance app are considered to be

Representations

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

Inception of the contract-The initial premium is the amount paid at the inception (start) of an insurance contract, usually subject to adjustment at the end of the policy period.

For a contract to be legally valid and binding it must contain

Offer and acceptance Consideration Legal purpose And competent parties

Representation

Statement made by applicant that they consider to be true and accurate to the best of the applicants belief. Used by the insurer to evaluate whether or not they should issue a policy.

Warranty contract

Statement made by the applicant that is guaranteed to be true in every aspect. Becomes part of contract and, if found to be untrue can be grounds for revoking the contract. Affect insurers decision to accept or reject an application In contract law, a warranty has various meanings but generally means a guarantee or promise which provides assurance by one party to the other party that specific facts or conditions are true or will happen.

Warranty

Statement made by the applicant that's guaranteed to be true in every respect and becomes part of the contract

An insurance company can be liable for a producers unauthorized acts

When the agency contract is unclear/vague concerning the authority given.

Extension

an extension of a current insurance plan that provides for losses outside of the normal circumstances that the original insurance plan covers. .

Substandard representation

health coverage for policyholders who have a serious illness, medical condition, past medical history, or an unhealthy background and whose mental and physical condition result in the insurer rating them below standard due to the higher risk they represent.

Implied Authority

the authority that the agent has that is not specifically listed in their contract, but which the agency is assumed to have in order to transact the business of the principal.

Aleatory Contract

the parties involved do NOT have to perform a particular action until a specific event occurs Insurance contracts are aleatory, meaning there is an unequal exchange. Premiums paid by the applicants are small in relation to the Amt that will be paid by the insurance company in the event of a loss. Conditioned upon occurrence of event. For ex. an individual who has a disability insurance policy will collect benefits if she becomes disabled.,However, if no disability strikes benefits are not paid.

Under the law of agency the principal is considered to be

The insurer

Estoppel

is meant to prevent people from being unjustly wronged by the inconsistencies of another person's words or actions When a fact has been determined by a court or agreed on by the parties to litigation, from then on, neither of the parties can call it in question.

Insurers certificate of authority

issued by the commissioner evidencing the authority of an insurer to transact insurance in this state.

Payment of the first premium, the promise to pay a covered loss, and agreement to abide by policy conditions are all examples of

Consideration—value given in exchange for the promises sought

Courts will normally interpret a policy in favor of the insured when the meaning of the policy is not clear. This is because an insurance policy is an

Contract of adhesion

XYZ insurance company gives direct authority to its producers to sell insurance through an agency contract, but nothing is stated regarding the collection of premiums. Which authority grants the producer the right to collect premiums?

Implied authority

Agency agreement

A written contract stipulating the arrangement between an insurance agency and the insurer it represents. Important details such as ownership of renewals, commission percentages, and duties and responsibilities of each party are usually spelled out in this agreement.

Producer working for an insurance company may be personally liable for

Acts performed which are prohibited in the agency contract. Producer of insurer would be personally liable when the producer performs an act which is prohibited in the agency contract

Exclusion

An exclusion is a policy provision that eliminates coverage for some type of risk.

insurance agent

An individual who is authorized by an insurer to sell its goods and services On its behalf. Agents role involves the following duties: - describing the companies insurance policies to prospective buyers and explain the conditions under which the policies may be obtained -soliciting apps for insurance -collecting premiums from policy owners -rendering services to prospects and to those who have purchased policies from the company

What qualifies as acceptance of an insurance contract offer?

An issued policy

Use of XYZ insurance company brochures, business cards, and rating guides is an example of

Apparent authority— what a third party (such as a member of the public) assumes an agent has, based on the actions or words of the principal. -By supplying the agent with business cards, brochures and rating guides, the insurance company has given the impression that it supports the words and actions of its agent.

Apparent/Assumed/Evident Authority

Appearance or assumption of authority based on the actions words or deeds of the principal. Can also exist because of circumstances the principal created. Apparent authority refers to a situation where a reasonable third party would understand that an agent had authority to act. This means a principal is bound by the agent's actions, even if the agent had no actual authority, whether express or implied. Insurer may be liable to an insured for unauthorized acts of its agent when the agency contract is unclear or vague about the authority granted

Express/acknowledged Authority

Authority a principal deliberately gives to its agent. Granted by means of the agents contract, which is the principals appointment of the agent To act in its behalf. the authority which the principal has expressly given to the agent whether orally or in writing. Ex. Agent has express authority to solicit applications for insurance on behalf of the company

Voluntarily terminating an insurance policy is known as

Cancellation

An insurance application requires an applicant to make a full accurate disclosure of the risk factor involved. Using this criteria an insurance policy is concidered what type of contract

Contract of utmost good faith

Consideration

Defined as the value given in exchange for the promises sought. In an insurance contract, consideration is given by the applicant in exchange for the insurers promise to pay benefits. Consists of application and Initial premium. Offer and acceptance of an insurance contract are NOT complete until insurer receives the app and first premium. For a contract to be enforceable the promise or promises it contains must be supported by consideration.

Christopher is issued an insurance policy that contains an attached agreement which alters the term of the policy. This attaches agreement is called an

Endorsement- written form attached to an insurance policy that alters the policy's coverage terms or conditions. -An insurance endorsement may be used to add, delete, exclude or otherwise alter coverage. -An insurance endorsement may be issued mid-term, at the time of purchase, or at renewal. -The insurance endorsement is a legally binding amendment to the insurance contract. Rider-provision of an insurance policy that adds to or amends the coverage or terms. -Most riders add coverage's for an additional cost. -However, some restrict coverage's for named conditions. -Standard policies usually leave little room for modification or customization beyond choosing deductibles and coverage amounts.

Agreement reached when an insurance contract is formed. Which is NOT considered to be an element of an agreement

Equity

Concealment

Failure by the applicant to disclose a known material fact when applying for insurance. If purpose for concealing info is to defraud the insurer (aka obtain a policy that may otherwise not have been issued if the info was revealed), the insurer may have grounds for voiding the policy

Agent as a fiduciary

Fiduciary is another legal concept which governs the activity of an agent. It's a person who holds a position of financial trust and confidence. Agents act in a fiduciary capacity when they accept premiums in behalf of the insurer or offer advice that affects a persons financial security A legal obligation of one party to act in the best interest of another. The obligated party is typically a fiduciary, that is, someone entrusted with the care of money or property.

Contract of Adhesion

Insurance contracts are contracts of adhesion. Contract has been prepared by one party ( the insurance company) with no negotiation between the applicant and insurer. In effect, the applicant adheres to the terms of contract on a "take it or leave it" basis when accepted. Any confusing language in a contract of adhesion would be interpreted in favor of the insured. Also described as one which the insurance company can modify. In an insurance contract, the company and its agent has the power to draft the contract, while the potential policyholder only has the right of refusal; he or she cannot counter the offer or create a new contract to which the insurer can agree.

An arrangement where an individual is authorized to act on behalf of another person. Or company is established through

Law of agency

unacceptable risk

Level of risk as determined by the risk management process which cannot be mitigated to an acceptable safe level. level of risk at which, given costs and benefits associated with further risk reduction measures, action is deemed to be warranted at a given point in time

Which of these does NOt indicate the presence of insurable interest in a life insurance contract

Lifelong friendship

Which of the following situations would an insurance agent need to guard against liability for professional errors and omissions

Making a recommendation to a potential insured person to replace existing coverage.

Which of the following relationships demonstrates insurable interest in the absence of economic interest

Marriage partners

Insurance contract may be voided if misrepresentation found on application is determined to be

Material.

Contract of good faith

Means both policy owner and insurer must know all mater facts and relevant info. There can be no attempt by either Party to conceal, disguise, or deceive. Concepts related to contracts of good faith are warranties, representations, and concealment.

An agent whose actions exceed the authority granted by contract is

Not backed by the insurer

unilateral contract

Only one party (the insurer) makes any kind enforceable promise.Insurers promise to pay benefits upon occurrence of a specific event, such as death or disability. Applicant makes no such promise. In fact, applicant does not promise to pay premiums. Insurer cannot require the premiums to be paid, but insurer does have right to cancel contract if premiums are not paid.

All of these statements correctly describe an aleatory contract except

Only one party makes any kind of legally enforceable offer.

Parol (Oral) Evidence Rule

Oral or verbal evidence, or that which is given verbally in a court of law. Parol evidence rule states when parties put their agreements in writing, all prior verbal statements come together in that writing and a written contract cannot be changed or modified by parol(oral) evidence. principle that preserves the integrity of written documents or agreements by prohibiting the parties from attempting to alter the meaning of the written document through the use of prior and contemporaneous oral or written declarations that are not referenced in the document.

Insurable interest

Person acquiring the contract (the applicant) must be subject to loss upon the death, illness or disability of the person being insured. A person has an insurable interest in something when loss or damage to it would cause that person to suffer a financial loss or certain other kinds of losses. In order to exercise an insurable interest, you must take out an insurance policy protecting the item. To have an insurable interest in the life of another person, an individual must have a reasonable expectation of benefiting from the other persons continued life. Individuals presumed to have insurable interest in themselves. Insurable interest must only exist at the time of the application of a life or health insurance contract. Does NOT have to continue through the duration of the policy nor does it have to exist at the time of the claim

NAIC

The National Association of Insurance Commissioners (NAIC) is a nationwide organization whose main responsibility is to protect the interests of insurance consumers.

Competent parties

To be enforceable, contract must be entered into by competent parties. With an insurance contract, the parties to the contract are the applicant and the insurer. Insurer is considered competent if it has been licensed or authorized by the state(s) in which it conducts business Applicant assumed to be competent, unless proven otherwise, with three possible exceptions: minors, mentally disabled, or those under the influence of drugs or alcohol.

Legal purpoae

To be legal, contract must have a legal purpose. Means the object of the contact and the reason the parties enter into the agreement must be legal. Contract where one agent agrees to commit murder for money would be unenforceable in court because the object or purpose of contract is not legal Insurance contracts ALWAYS considered to possess a legal purpose

Giving up a known right on a voluntary basis is called an

Waiver

During app process a statement made by an applicant that becomes part of the contract is considered to be a

Warranty