Final Chapter 3 Exam

An agreement is reached when an insurance contract is formed. Which of the following is NOT considered to be an element of an agreement? Meeting of the minds Offer Acceptance Equity

Equity

During the application process, a statement made by an applicant that becomes part of the contract is considered to be a(n) warranty representation waiver exclusion

Representation

The payment of the first premium, the promise to pay a covered loss, and the agreement to abide by policy conditions are all examples of consideration legal purpose representation acceptance 7 of 41 Questions RemainingProceed Incorrect. The correct answer is "consideration". Consideration can be defined as the value given in exchange for the promises sought.

Consideration- consideration can be defined as the value given in exchange for the promises sought

Christopher is issued an insurance policy that contains an attached agreement which alters the terms of the policy. This attached agreement is called a(n) extension endorsement sanction restriction

Endorsement

Greg applies for insurance and makes a false statement on the application that will influence whether or not the insurer will accept the risk. Greg's false statement is called a(n) substandard representation unacceptable risk material misrepresentation adverse selection

Material Misrepresentation -A false statement made by an applicant that would influence an insurer in determining whether or not to accept the risk is considered a material misrepresentation.

Insurable interest involves what assumption? Insurable interest must exist during the entire life of the insured One person gains from the death of another person One person benefits from another person's continued life Insurable interest must only exist at the time of the insured's death

One person must benefit from another persons continued life

All of these statements correctly describe an aleatory contract EXCEPT A legal wager is considered an aleatory contract Potential unequal exchange of value for both parties Only one party makes any kind of legally enforceable offer Element of chance is involved

Only one party makes any kind of legally enforceable offer Insurance contracts are aleatory, which means there is an unequal exchange. The premiums paid by the applicant are small in relation to the amount that will be paid by the insurance company in the event of a loss.

An insurance company's failure to enforce a contract's provision is called a(n) waiver warranty assignment concealment

Waiver

An insured is entitled to coverage under a policy that a prudent person would expect it to provide. This principle is called Adhesion Reasonable sensibility Reasonable expectations Insurable interest

Reasonable expectations

Statements made by an insured on an accident and health insurance application are considered to be representations warranties conditional aleatory

Representations

Giving up a known right on a voluntary basis is called a(n) disclaimer estoppel waiver surrender

Waiver

An insurance company can be liable for a producer's unauthorized acts only when a felony is involved when the agency contract is unclear concerning the authority given at anytime only if the agency contract is unilateral

When the agency is unclear concerning the authority given

The following are all elements of a valid contract EXCEPT consideration offer and acceptance competent parties written evidence

Written Evidence

What qualifies as acceptance of an insurance contract offer? A declined policy An issued policy The application and initial premium The initial premium only

An Issued Policy

Voluntarily terminating an insurance policy is also known as discontinuation elimination estoppel cancellation

Cancelation

The insurer's obligation to pay a claim depends on whether the insured or beneficiary has complied with all policy conditions. This makes the policy a(n) agency agreement aleatory agreement contract of good faith conditional contract

Conditional Contract

An appointed producer's implied authority is derived from the NAIC express authority the insurer's Certificate of Authority evident authority

Express Authority

Greg applies for insurance and makes a false statement on the application that will influence whether or not the insurer will accept the risk. Greg's false statement is called a(n) substandard representation unacceptable risk material misrepresentation adverse selection

Material Misrepresentation

Ambiguities in insurance contracts are typically interpreted in favor of the insured. This rule is referred to as Subrogation Reasonable expectations Insurable interest Adhesion

Reasonable Expectations

What is the insurer responsible for when a producer is acting within the scope of authority granted in the agency contract? All actions by the producer Not responsible for any acts by the producer Responsible for acts that involve misrepresentation only Responsible for acts by the producer that are authority only

Responsible for acts by pro that are authority only

Which of the following would NOT have a restricted ability to enter into a contract? Mentally ill person Minor Person under the influence of alcohol Small employer

Small employer

Under the Law of Agency, the principal is considered to be the producer the insurer the plan administrator the insured

The Insurer

An arrangement where an individual is authorized to act on behalf of another person or company is established through estoppel the law of agency the law of adhesion an aleatory contract

The Law of Agency

An agent whose actions exceed the authority granted by contract is acting under apparent authority acting under Implied authority not backed by the insurer backed by the insurer

not backed by the insurer

Which of these is true regarding the exchange of consideration among parties involved in an insurance contract? Required to be in currency Must be equal Can be unequal Must be certified by the state where transaction takes place

Can be unequal

The unwritten authority given to a producer to carry out necessary incidental acts of the agency agreement is called implied authority express authority apparent authority acknowledged authority

Implied

A contract is considered void in all of the following situations EXCEPT When one party is a minor When consideration is unequal When consideration is incomplete When agreement cannot be reached between parties

When consideration is unequal

The 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 a(n) warranty contract aleatory contract contract of adhesion unilateral contract

Contract of adhesion

An insurance application requires an applicant to make a full, accurate disclosure of the risk factor involved. Using this criteria, an insurance policy is considered what type of contract? Aleatory contract Estoppel contract Contract of utmost good faith Unilateral contract

Contract of utmost good faith

The powers directly given to a producer in an agency contract are called express apparent implied assumed

Express

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 Apparent authority Express authority Assumed authority

Implied authority

When must insurable interest exist for a life insurance contract to be valid? Inception of the contract Throughout the entire length of the contract When the insured dies During the contestable period

Inception of the contract

In what way are insurance policies said to be aleatory? Only one party makes any kind of enforceable promise Involves the potential for the unequal exchange of value Contract is prepared by only one party Vagueness in a contract's wording is resolved in favor of the policyowner

Involves the potential for the unequal exchange of value

which of these do NOT indicate the presence of insurable interest in a life insurance contract? Lifelong friendship Marriage Blood-related Co-owning a business

Life long friendship

Which of the following situations would an insurance agent need to guard against liability for professional errors and omissions? Remitting premiums to an insurer Conducting a sales meeting with other agents Making a recommendation to a potential insured to replace existing coverage Setting a sales appointment with a potential client

Making a recommendation to a potential insured to replace existing coverage

Which of the following relationships demonstrates insurable interest in the absence of economic interest? Lifelong friends Employees Marriage partners Business associates

Marriage Partners

An insurance contract may be voided if a misrepresentation found on the application is determined to be conditional aleatory material intentional

Material

Which element of a contract constitutes a definite and unqualified proposal by one party to another? Adhesion Consideration Acceptance Offer

Offer