Insurance Contracts

In an ____, one party may receive a benefit that is entirely out of proportion to the consideration he or she is giving. Receiving the disproportionately large benefit, however, depends on whether a chance event occurs.

aleatory contract

Because applicants for insurance have no input in the drafting of the insurance contract's language, courts have ruled that ___ in the contract must be interpreted to the benefit of the policyowner.

ambiguities

In the typical insurance transaction, the _____ is the offeror who makes an offer to buy insurance through a signed application plus the initial premium.

applicant

The party to whom the promise is made is known as the promisee, which is the _____ in all insurance transactions.

applicant (i.e., future policyowner)

Most states stipulate a certain minimum age for a person to be deemed legally competent to purchase an insurance contract. In some states the age is as low as __ or __ years.

14 or 15

___ contracts are based on chance events occurring, such as an accident or health crisis, which would result in a high payout to a policyholder in comparison to the premium paid for the insurance coverage.

Aleatory

___compels a party to relinquish a right it had no intention to relinquish when through its words, actions, or inactions, another party was reasonably led to act in a manner such that to allow the first party to enforce its right would be unfair to the relying party.

Estoppel

___ is the deliberate act to deceive with the intent to gain something of value.

Fraud

___is willful deception with the intent to gain something of value.

Fraud

If the insurer does not accept the application "as applied for," it may make a ____ by offering a policy with different terms (e.g., a rated policy or a policy that limits benefits or excludes certain conditions from coverage through the use of riders). It is then the applicant's responsibility to accept or reject it.

counteroffer

With ___ a party gives up a right by its actions, whether it intended to or not, and more important, it is subsequently prevented from exercising that right.

estoppel

The long-term success of the insurance industry is based on _____ that promises made by the insurer will be respected when the time comes.

reasonable expectations

A ___ is not guaranteed by its maker to be true; it is only believed to be true. A ___ is a statement guaranteed to be true, and it becomes a party of a policy contract.

representation warranty

An applicant's statements on an application for insurance are considered ___ and not warranties.

representations

An insurance contract requires that both the policyowner and the insurer act in _____.

utmost good faith

Under the concept of ___, both parties are entitled to receive all the material facts related to the circumstances under which they enter into the contract.

utmost good faith

Life insurance policies by their very nature are ____ contracts.

valued

____ contracts that guarantee payment of a stated sum regardless of the perceived "worth" of the insured.

valued

Failure to disclose critical information on the part of one party usually gives the other party the right to ____ the contract.

void

If the concealed facts would have changed the insurer's decision to offer the insurance policy, then the insurer has grounds to___the insurance contract.

void

Willful misrepresentation is fraud and is grounds for ____ the contract if discovered by the insurer during the policy's contestability period.

voiding

Two related principles that affect insurance contracts and their enforceability are:

waiver estoppel

A __is a statement the maker guarantees to be true in every respect. The warranty becomes a part of the contract.

warranty

a ____ is a statement the maker guarantees to be true in all ways.

warranty

_____ is the deliberate withholding of material facts when applying for insurance.

Concealment

True/False The policy does not become a contract until the applicant accepts the company's offer by paying the initial premium.

True

___occurs when a party to a contract voluntarily relinquishes a known right.

Waiver

With insurance contracts the applicant's ____ is the initial premium payment. If paid with the application, coverage may become effective the date the application was submitted. If paid after the application is submitted, coverage would not become effective until the first premium is paid to the insurer (or the insurer's agent).

With insurance contracts the applicant's consideration is the initial premium payment. If paid with the application, coverage may become effective the date the application was submitted. If paid after the application is submitted, coverage would not become effective until the first premium is paid to the insurer (or the insurer's agent).

A contract of ___ is one under which the benefit cannot be more than the actual loss the contract owner incurs or more than the face amount of the policy, whichever is less.

indemnity

A contract of _____ is one under which the benefit payable cannot be greater than the actual loss the contract owner incurs or the face amount of the policy, whichever is less.

indemnity

Medical expense insurance policies are ____contracts.

indemnity

Insurance contracts may be either ___ contracts or __contracts.

indemnity valued

The _______ (offeree) reviews the application and decides whether it wants to accept the offer.

insurance company

The party making the promise is known as the promisor, in insurance transactions that is the _________.

insurance company

For a contract to be enforceable, it must serve a _____.

legal purpose

For a contract to be valid, all parties must be deemed ______.

legally competent

In the case of life insurance, a misrepresentation is __ if it affects the decision the insurer takes in approving or rejecting a risk. In other words, if the insurer would have placed certain conditions or exclusions on coverage, or would not have accepted the risk in the first place but for the misrepresentation, the misrepresentation is a material one.

material

To be considered legally competent, a person must be

mentally sound, of legal age, and not under the influence of drugs or alcohol.

in the case of surplus insurance, a policy issued by a non-admitted/admitted insurer would be deemed invalid.

non-admitted

The first step in the formation of a legal contract is usually the _____.

offer

Under the insurance laws of most states, an applicant's statements on an insurance application are considered____ and not warranties.

representations

a statement that is believed to be true to the best of the maker's knowledge, even though in fact it may not be true. Statements made by an insurance applicant are deemed to be ___.

representations

In a___ownership situation, the insured under the life insurance policy generally has no rights under the policy.

third-party

In cases where the insured and policyowner are different, a___ownership situation exists.

third-party

In the case of insurance contracts, the insurer must discover the fraud within a limited time after the contract is signed. (This period is usually _____ after the date of policy issue.) After this period passes, the insurer loses the chance to void the contract.

two years

Insurance contracts are _____; only the insurer makes an enforceable promise. The policyowner must pay required future premiums to keep the policy in force, but there is no legally binding requirement for the owner to pay premiums.

unilateral

____ is when one party to a contract gives up a right that the party knows he or she holds. This applies to agents of the party,

Waiver

If the offeree does not ____every term of the offer, the offeree effectively rejects the offer. However, the offeree can make a counteroffer.

accept

Under common law, an offeree who wants to ___ an offer must abide by every condition in the offer. If written notice must be provided by a certain date, that condition must be met.

accept

If the insurer accepts the application and issues a policy as applied for, then this means the insurer has _____ the offer and the policy becomes a written contract between the parties.

accepted

An insurance contract is a contract of ___. It is offered to prospective policyowners on a take-it-or-leave-it basis, without negotiation of its terms.

adhesion

In the case of an insurance contract, the insurer determines terms and price. It is a take-it-or-leave-it proposition, and little, if any, bargaining occurs. This is an example of a contract of _____. A contract of adhesion is drafted by one party. The other party must adhere to its provisions.

adhesion

The insurance company's ______ is based on its authority to do business in a state.

competency

Insurance policies are ____, which means their continuation depends on certain actions of the policyowner.

conditional

Insurance contracts are:

contracts of adhesion aleatory personal unilateral conditional

The insurance company's consideration is its ____ promise to pay benefits when and as defined in the policy.

good faith

The two parties to a life insurance policy are the __ and the __, who may or may not be the insured. In most cases, the policyowner is the insured.

insurer policyowner

Though it is personal property that takes the form of a contract, life insurance is/is not a personal contract in the legal sense.

is

For a contract to be legally enforceable, its basic elements must include ___ and __ and exchange of __. A named beneficiary is not essential.

offer acceptance consideration

Legal Contract has five basic elements:

offer acceptance consideration competent parties legal purpose

In an insurance transaction, typically the applicant makes the ___ by submitting a completed application and paying the first premium. Upon approval of the application, the insurance company formally ___ the offer by issuing the insurance policy.

offer accepts

Once the offer is made and before the contract is entered into, the party making the offer is known as the __. The party to whom the offer is made is known as the___.

offeror offeree

Health insurance is a ___ contract that cannot be transferred or assigned to another party.

personal

To obtain and place insurance coverage, an insurance buyer and an insurance company agree to enter into a legal contract called a _____.

policy

Misstatement of age or sex is not grounds for voiding a policy. However, if such a misstatement occurs, the insurer does have the right to adjust the ____.

policy's benefits