2 Legal Concepts

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

Bilateral Unilateral, aleatory, and adhesion are all special features of insurance contracts. Bilateral is not.

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

Contract

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

Insurance company Under a unilateral insurance policy, the insurance company makes the legally enforceable promises.

A policy of adhesion can only be modified by whom?

The insurance company

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

conditional

A life insurance policy would be considered a wagering contract WITHOUT

insurable interest The correct answer is "insurable interest". Without insurable interest, a life insurance policy would be considered a wagering contract.

A warranty

is a statement guaranteed to be true

Which of these is NOT a type of agent authority?

Principal is NOT. 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.

At what point does an informal contract become binding?

When one party makes an offer and the other party accepts that offer. An informal contract becomes 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?

negotiating The elements of an insurance contract do not include negotiating. the offer, acceptance, negotiating, consideration

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.

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

If material to the risk, false representations will void a policy. In insurance, false representations will void a policy if they are material to the risk.

A life insurance arrangement which circumvents insurable interest statutes is called

Investor-Originated Life. InsuranceInvestor-originated life insurance (or IOLI) is used to circumvent state insurable interest statutes. This is done when an investor (or stranger)[sometimes called stranger-originated life insurance (or STOLI) ] 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.

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

Inception of the contract

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 In this situation, the proceeds from E's life insurance policy will go to F. Insurable interest only needs to exist at the time of application.

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

Unilateral

Life and health insurance policies are

Unilateral contracts Life and health insurance policies are considered unilateral contracts because one party makes a promise, and the other party can only accept by performance.

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

representations

Insurance policies are considered aleatory contracts because

performance is conditioned upon a future occurrence. Insurance contracts are aleatory. This means there is an element of chance and potential for unequal exchange of value or consideration for both parties. An aleatory contract is conditioned upon the occurrence of an event.

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