Chapter 2 Quiz

The failure to disclose known facts is known as

concealment (According to CIC 380, neglecting to communicate that which a party knows, and ought to communicate is concealment.)

Because an insurance policy is a contract between the insurer and the insured, it must conform to the state laws governing contracts which require all of the following elements EXCEPT

conditions (Conditions are part of the policy structure. Consideration is an essential part of a contract.)

In insurance, an offer is usually made when 1. An applicant submits an application to the insurer. 2. The agent hands the policy to the policyholder. 3. An agent explains a policy to a potential applicant. 4. The insurer approves the application and receives the initial premium.

An applicant submits an application to the insurer (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.)

When both parties to a contract must perform certain duties and follow rules of conduct to make the contract enforceable, the contract is 1. Conditional. 2. Personal. 3. Unilateral. 4. Aleatory.

Conditional. (The contract is formed on the basis that certain conditions are met.)

When an insured makes truthful statements on the application for insurance and pays the required premium, it is known as which of the following? 1. Consideration 2. Legal purpose 3. Contract of adhesion 4. Acceptance

Consideration (Consideration is something of value that each party gives to the other. The consideration on the part of the insured is the payment of premium and the representations made in the application.)

Representations are written or oral statements made by the applicant that are

Considered true to the best of the applicant's knowledge (Representations are statements made by an applicant that they believe to be true.)

According to the Code, how many separate requirements should an insurance policy have? 1. 10 2. 4 3. 6 4. 8

6 (The following must be identified: the parties to the contract; the property or persons being insured; a statement of the insurable interest that exists if the insured is not the owner; the risk(s) being covered; the time period during which the policy will be in force or continue; the stated premium or manner to calculate premium.)

Every expressed warranty made at or before the execution of a policy must be

Contained in and referred to in the policy or other document and signed by the insured. (According to CIC 443, every express warranty made at or before the execution of a policy must be contained in the policy itself, or in another instrument signed by the insured and referred to in the policy.)

Contracts that are prepared by one party and submitted to the other party on a take-it-or-leave-it basis are classified as 1. Unilateral contracts. 2. Aleatory contracts. 3. Binding contracts. 4. Contracts of adhesion.

Contracts of Adhesion (Insurance policies are written by the insurer and submitted to the insured on a take- it-or-leave-it basis. The insured does not have any input into the contract, but simply adheres to the contract.)

When would a misrepresentation on the insurance application be considered fraud?

If it is intentional and material (A misrepresentation would be considered fraud if it is intentional and material. Fraud would be grounds for voiding the contract.)

Which of the following does NOT need to be identified in an insurance policy?

Insurer's financial rating (An insurer's financial rating does not need to be specified in an insurance policy.)

The written instrument, in which a contract of insurance is set forth, is known as the 1. Insuring clause. 2. Policy. 3. Binding clause. 4. Right of agency.

Policy. (According to CIC 380, the written instrument in which a contract of insurance is set forth is the policy.)

When may a representation be withdrawn?

Prior to the issuance of the policy (Once the policy is issued, representations cannot be withdrawn.)

The importance of a misrepresentation is determined by

The materiality of a given concealment (The materiality of a given concealment determines the importance of a misrepresentation)

The act of revoking or terminating an insurance policy is called

cancellation (Cancellation is the act of revoking or terminating one's insurance policy.)

A life insurance application is asking if the applicant has applied for any other life insurance within the past 6 months. The applicant states that he applied for $15,000 coverage from XYZ Co., but fails to mention the $150,000 coverage with DEF Co. The applicant is guilty of

concealment (According to CIC 380, neglecting to communicate that which a party knows and ought to communicate is concealment.)

Which of the following best defines an insurance policy?

A contract between an insured and an insurer that guarantees payment for loss caused by a specific event. (A policy is a contract between an insured and an insurance company which agrees to pay the insured for loss caused by specific events.)

Which of the following would be covered by contract law? 1. An employer suing an employee for spreading damaging rumors. 2. An insured suing the insurer for failure to provide promised benefits. 3. Neighbors suing each other for trespassing. 4. A consumer suing the manufacturer for a defective product.

An insured suing the insurer for failure to provide promised benefits (Contract law applies to voluntarily undertaken written agreements between parties. The insurer's failure to provide promised benefits to the insured would be in breach of contract, therefore, covered by contract law. All other scenarios illustrate tort law, which provides a remedy for civil, non-contractual wrong through legal action.)

Representations are written or oral statements made by the applicant which

Are considered true to the best of the applicant's knowledge.

How is the premium in an insurance policy determined?

By multiplying the rate by the number of units of insurance purchased (The premium is determined by multiplying the rate by the number of units of insurance purchased.)

What term best describes the act of withholding material information that would be crucial to an underwriting decision? 1. Concealment 2. Breach of warranty 3. Withholding 4. Leading

Concealment. (Concealment occurs when a person withholds a material fact that is crucial to making a decision. In insurance, this involves withholding information that would be crucial to underwriting decisions. For instance, if someone omitted a 10-year smoking history from a health insurance application, this person would be guilty of concealment.)

The proposed insured makes the premium payment on a new insurance policy. If the insured should die, the insurer will pay the death benefit to the beneficiary if the policy is approved. This is an example of what kind of contract? 1. Personal 2. Conditional 3. Adhesion 4. Unilateral

Conditional. (A conditional contract requires both the insurer and policyowner to meet certain conditions before the contract can be executed, unlike other types of policies, which put the burden of condition on either the insurer or the policyowner.)

Untrue statements on the application unintentionally made by insureds that, if discovered, would alter the underwriting decision of the insurance company, are called 1. Material misrepresentations. 2. Fraudulent statements. 3. Warranties. 4. Common errors.

Material Misrepresentations. (A material misrepresentation is a statement that, if discovered, would alter the underwriting decision of the insurance company)

According to the California Insurance Code, any agent violating the regulations relating to misrepresentation will be charged with a

Misdemeanor, a fine not to exceed $25,000, and/or a possible 1-year imprisonment. (Any agent violating the misrepresentation provisions is guilty of a misdemeanor and punishable by a fine not to exceed $25,000 (for losses less than $10,000), and/or by imprisonment not to exceed 1 year. In addition, the Commissioner may suspend the license of the agent for a maximum period of 3 years.)

What other term is used to refer to unintentional torts?

Negligence (An unintentional tort is the result of acting without proper care. This is generally referred to as negligence.)

If only one party to an insurance contract has made a legally enforceable promise, what kind of contract is it?

unilateral (In a unilateral contract, only one of the parties to the contract is legally bound to do anything.)

A person caught violating provisions regarding misrepresentation could be subject to

A fine up to $25,000 (Agents in violation of provision on misrepresentation may be punished by a fine up to $25,000, imprisonment in a county jail for a period no longer than 1 year, or by both a fine and imprisonment. The Commissioner may also suspend the agent's license for a maximum of 3 years.)

Which of the following best describes a misrepresentation?

A statement intended to distract, mislead, or deceive a party to a contract (Misrepresentation is a written or oral statement that is intended to distract, mislead, or deceive a party to a contract.)

Insurance policy is 1. Any method used to transfer or avoid catastrophic risk. 2. A written instrument in which a contract of insurance is set forth. 3. A verbal or written agreement between two parties to transfer risk. 4. A statement of insurable interest.

A written instrument in which a contract of insurance is set forth. (An insurance policy must be in writing to be legally binding. As defined by the California Insurance Code, "a policy" is a written instrument in which a contract of insurance is set forth.)

The key factor of representation that allows the injured party to rescind the contract is

If the representation is false in a material point (If a representation is false in a material point the injured party is entitled to rescind the contract from the time the representation becomes false.)

Which of the following would qualify as a competent party in an insurance contract?

The applicant has a prior felony conviction. (When an insurer and insured enter into a contract, both parties must be of legal age and mentally competent. It is legal for a person convicted of a felony to buy an insurance contract. An intoxicated person, however, may not be mentally competent, a 12-year-old student is considered to be underage in most states and a person under mind-impairing medication most likely would not be mentally competent.)

All of the following must be specified in an insurance policy EXCEPT

The financial rating of the insurer (An insurance policy has 6 requirements: it identifies the parties to the contract; the life or property of the insured; insurable interest; the risks insured against; the period during which the insurance is to continue; and the amount of premium. The insurer's financial rating is not required to be specified in the insurance policy.)

Excluding life insurance, under what condition may a policyowner transfer their personal insurance policy to another person?

The insured will need the written consent of the insurer. (A personal insurance contract is written between an insurer and an individual. The insurer has a right to decide with whom it will and will not do business. Generally, the insured can transfer an insurance contract to another person, but they must first obtain the written consent of the insurer. The consent of the insurer is not required for the transfer of life insurance, but the policyowner must provide notice of the transfer.)

An agreement that is enforceable by law is known as a/an

contract (Contracts than contain all of the essential elements required by the state are enforceable in a court of law. Because insurance policies meet these requirements, they are enforceable as legal contracts.)

A contract between an insured and an insurance company which agrees to pay the insured for loss caused by specific events is 1. A rider. 2. A premium. 3. A policy. 4. A guaranteed benefit.

policy (A contract between an insured and an insurance company which agrees to pay the insured for loss caused by specific events is a policy.)

The price of insurance for each exposure unit is known as

rate (Rate is the price of insurance for each exposure unit. The rate helps determine the premium by multiplying it by the number of units of insurance purchased.)