Chapter 35

shley purchases a life insurance policy from a local insurance company. However, while purchasing the policy, Ashley misstates her age. A few months later, Ashley meets with an accident that turns out to be fatal. When Ashley's beneficiary claims the insurance money, the fact that Ashley had misstated her age comes to light. Which of the following is most likely to be true in this scenario? a. The face amount paid for Ashley's death would be that sum which the premium paid would have provided for had her age been correct. b. Misstating age will not render the insurance contract void; Ashley's beneficiary gets the complete insurance amount. c. The face amount paid to Ashley's beneficiary will be a quarter of the sum for which Ashley bought the insurance. d. The insurance policy will be considered void; Ashley's beneficiary does not get the insurance money.

a. The face amount paid for Ashley's death would be that sum which the premium paid would have provided for had her age been correct. In the given scenario, the face amount paid to Ashley's beneficiary would be that sum which the premium paid would have provided for had the age been correctly stated. Review the section titled "Some Legal Aspects of the Insurance Contract" in Chapter 35 of your text.

An oral or written misstatement of a material fact by the insured prior to the finalization of the insurance contract is called a: a. false representation. b. false warranty. c. cram down. d. comparative negligence.

a. false representation. An oral or written misstatement of a material fact by the insured prior to the finalization of the contract is called a false representation. If the insured makes a false representation, the insurer may avoid the contract of insurance. This results whether or not the insured made the misstatement purposely. Review the section titled "Some Legal Aspects of the Insurance Contract" in Chapter 35 of your text.

Knowing failure by the insured to supply all pertinent, material information is called: a. license. b. concealment. c. forgery. d. negligence.

b. concealment. A willful failure to disclose pertinent information is known as concealment. The willful concealment of a material fact in most states renders the contract voidable.Review the topic titled "Who May Be Insured" in Chapter 35 of your text.

A(n) _____ interest, usually risk of financial loss, is a requirement of every person who wishes to purchase a policy. a. contractual b. insurable c. promissory d. negligence

b. insurable To become a policyholder, one must have an insurable interest. An insurable interest means that the policyholder has an interest in the non-occurrence of the risk insured against, usually because there would be financial loss. Review the topic titled "Who May Be Insured" in Chapter 35 of your text.

Conditions which contribute to financial risk and uncertainty and are commonly covered by insurance, including fire, flood, and sleet, are called: a. faces. b. binders. c. insureds. d. hazards.

d. hazards. Factors such as fire, floods, and sleet, which contribute to financial uncertainty, are called hazards. Review the topic titled "Terms Used in Insurance" in Chapter 35 of your text.

Selena owned the home in which her family and her in-laws lived. If something happened to the house, all the family members would have to scramble to find a place to stay. In insurance, this type of interest is called a(n): a. insurable interest. b. guaranty. c. warranty. d. tenancy.

a. insurable interest. An insurable interest means that the policyholder has an interest in the nonoccurrence of the risk insured against, usually because there would be financial loss. To become a policyholder, one must have an insurable interest. Review the section titled "Who May Be Insured" in Chapter 35 of your text.

Thomas and Tabitha had been married for ten years and had two children, but ultimately decided to part ways in divorce. As part of the divorce settlement, Thomas has a continuing obligation to pay Tabitha $500 per month in child support until the youngest reaches age 18 or was no longer a full-time student. Which of the following is most likely to be true in this scenario? a. Because Thomas is paying child support, Thomas has no insurable interest in Tabitha's life as primary caregiver for his children. b. Tabitha has an insurable interest in Thomas's life so long as Thomas owes Tabitha child support. c. Once a marriage is dissolved by court decree, any contract for life insurance relating the two former spouses is unconscionable under the law. d. There is no insurable interest relating to the cost of caring for the children because they are minors.

b. Tabitha has an insurable interest in Thomas's life so long as Thomas owes Tabitha child support. In the given scenario, Thomas has a continuing financial obligation to Tabitha. A relationship exists between them that a reasonable expectation of financial support will be derived from the continued existence of the other person.Review the section titled "Who May Be Insured" in Chapter 35 of your text.

Conrad was very athletic and spent a lot of time outdoors. Unfortunately, he didn't always remember to protect his skin from the sun, and as he approached middle age, began to develop pre-cancerous patches of skin cells on his face. When he decided to apply for life insurance, he failed to include on the application the fact that he had been treated for this damage to his skin. In insurance, this is called: a. insurable interest. b. concealment. c. warranty. d. risk.

b. concealment. A willful failure to disclose pertinent, material information is known as concealment. An insurer must rely on the information supplied by the insured. This places the responsibility of supplying all information pertinent to the risk on the insured. Review the section titled "Some Legal Aspect of the Insurance Contract" in Chapter 35 of your text.

In the context of insurance terms, the danger of a loss of, or injury to, property, life, or anything else, is called a: a. rider. b. peril. c. binder. d. codicil.

b. peril. In insurance terms, the danger of a loss of, or injury to, property, life, or anything else, is called a peril. Insurance is a contract whereby a party transfers a risk of financial loss to the risk bearer, the insurance company, for a fee. Review the topic titled "Terms Used in Insurance" in Chapter 35 of your text.

Nick purchases a life insurance policy from an insurance company in New York. He pays the company an additional $1000 annually along with the basic consideration to include an extra clause in the policy. According to the extra clause, the company would pay him a fixed monthly income in the event that Nick becomes disabled. This clause added to the base contract of the policy is called a(n): a. premium. b. rider. c. adjuster. d. binder.

b. rider. In the given scenario, the extra clause added to the policy is called rider. A rider on an insurance policy is a clause or even a whole contract added to another contract to modify, extend, or limit the base contract. A rider must be clearly incorporated in, attached to, or referred to in the policy so that there is no doubt the parties wanted it to become a part of the policy. Review the section titled "Terms Used in Insurance" in Chapter 35 of your text.

Joey, Victor's friend, borrows Victor's new car to go to a mall. While returning back from the mall, Joey loses control of the car, hits the concrete median, and causes extensive damage to the car. Under the right of subrogation, which of the following is most likely to be true if Victor, who has his car covered by comprehensive insurance, claims damage? a. Victor does not get the insurance money because the car was not hit by another automobile. b. Victor does not get the insurance money because the car was not hit by a moving object. c. The auto insurance company has the right to sue Joey to be repaid for the amount that it paid Victor. d. The insurance company has the right to reject the insurance claim as Victor did not cause the accident.

c. The auto insurance company has the right to sue Joey to be repaid for the amount that it paid Victor. In the given scenario, the insurance company has the right to sue Joey to be repaid on the insurance paid to Victor for the damage. This is the right of subrogation. In insurance, subrogation is the right of the insurer under certain circumstances to assume the legal rights of, or to "step into the shoes" of, the insured. Review the section titled "Some Legal Aspects of the Insurance Contract" in Chapter 35 of your text.

In the context of insurance terms, the maximum amount that the insurer agrees to pay in case of a loss is known as the _____ of the policy. a. estoppel b. subrogation c. face d. rider

c. face In insurance terms, the maximum amount that the insurer agrees to pay in case of a loss is known as the face of the policy. Insurance is a contract whereby a party transfers a risk of financial loss to the risk bearer, the insurance company, for a fee. Review the topic titled "Terms Used in Insurance" in Chapter 35 of your text.

Juliana purchased renter's insurance from a company in which all the policyholders are members and owners. This type of company is called a(n): a. limited liability company. b. corporation. c. mutual insurance company. d. underwriter

c. mutual insurance company. In a mutual insurance company, the policyholders are the members and owners and correspond to the stockholders in a stock company. In these companies, the policyholders are both the insurer and the insured, but the corporation constitutes a separate legal entity. Review the section titled "Types of Insurance Companies" in Chapter 35 of your text.

Ben purchases a life insurance policy from Pioneer Life Insurance Company. According to the policy terms, Ben's risk of death is covered for a period of seven years from the date the policy is registered. In the event of his death within the policy period, the company guarantees to pay Kelly, Ben's wife, $600,000. Which of the following is true with regard to this scenario? a. Ben is an underwriter. b. Kelly is the rider. c. Ben is the insurer. d. Kelly is the beneficiary.

d. Kelly is the beneficiary. In the given scenario, Kelly is the beneficiary. In life insurance, the person who will receive the benefits or the proceeds of the policy is known as the beneficiary. In most states, the insured may make anyone the beneficiary. Review the section titled "Terms Used in Insurance" in Chapter 35 of your text.

In the context of insurance terms, the written contract is commonly called a: a. codicil. b. premium. c. publication. d. policy.

d. policy. In insurance terms, the written contract is commonly called a policy. Insurance is a contract whereby a party transfers a risk of financial loss to the risk bearer, the insurance company, for a fee. Review the topic titled "Terms Used in Insurance" in Chapter 35 of your text.

Max purchases a life insurance policy from Tracker Inc., an insurance company in Dallas. He signs a contract with them, which requires him to pay an annual premium of $30,000 to the company for a period of five years. With respect to the given scenario, Max is called the: a. beneficiary. b. underwriter. c. rider. d. policyholder.

d. policyholder. With respect to the given scenario, Max is called the policyholder. In life insurance terms, the person insured is also known as the policyholder. Review the section titled "Terms Used in Insurance" in Chapter 35 of your text.

Michael purchases annuity insurance from "Serve All Inc.," an insurance company in Oklahoma. According to the policy, Michael must pay $50,000 to the company annually for a period of five years and the insurance company will pay Michael a monthly income of $10,000 from the age of sixty-five until his death. In the given scenario, $50,000 paid by Michael to the insurance company is called the: a. rider. b. insurable interest. c. binder. d. premium

d. premium. In the given scenario, $50,000 paid by Michael to the insurance company is called the premium. In life insurance terms, the consideration an insured pays for the protection is called the premium. Review the section titled "Terms Used in Insurance" in Chapter 35 of your text.

Adam, who owns a house in Manhattan, contacts Safety First Inc., a property insurance company, to get his house insured. He gets an all- risk insurance cover from the company after a thorough inspection of the property by the company officials. In the given scenario, Safety First Inc. is called a(n): a. beneficiary. b. policyholder. c. dealer. d. underwriter.

d. underwriter. In the given scenario, Safety First Inc. is called an underwriter. In life insurance terms, the insurer is also called the underwriter. The company agreeing to compensate a person for a certain loss is known as the insurer. Review the section titled "Terms Used in Insurance" in Chapter 35 of your text.

A _____ is a statement or promise of the insured that relates to the risk and appears in the contract or another document incorporated in the contract. a. license b. tenancy c. codicil d. warranty

d. warranty A warranty is a statement or promise of the insured that relates to the risk and appears in the contract or another document incorporated in the contract. Untrue statements or unfulfilled promises permit the insurer to declare the policy void. Review the section titled "Some Legal Aspects of the Insurance Contract" in Chapter 35 of your text.