FL 2-15: CH 2 - Legal Concepts

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Conditional Contract

Certain conditions must be met by all parties to the contract when a loss occurs in order for the contract to be legally enforceable.

Which arrangement allows one to bypass insurable interest laws?

Investor-Originated Life Insurance

Unilateral Contract

One sided agreement, where only the insurer is legally bound. In an insurance contract only the insurance company is legally bound to do anything.

Aleatory Contract

The exchange of value is unequal.

At what point does an informal agreement become a binding contract?

When consideration is provided

A contract where one party either accepts or rejects the terms of a contract written by another party is called a contract of

adhesion

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

conditional

What are the 4 elements of a contract?

consideration legal purpose offer & acceptance competent parties

Contract of Adhesion

only one author - the insurance company. if there is an ambiguity in the contract, the courts always favor the insured over the insurer.

Insurance policies are considered aleatory contracts because...

performance is conditioned upon a future occurrence.

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

Principal of Indemnity

restore the insured to the same financial condition as that which existed prior to the loss.

Insurable Interest

something of value that, if lost, would cause you financial harm. Only exists at time of application

A policy of adhesion can only be modified by who?

the insurance company

The Consideration clause of an insurance contract includes

the schedule and amount of premium payments

What is consideration?

The value given in return for a promise or performance in a contractual agreement. the insured provides consideration with premium payment. the insurer provides consideration by promising to pay.

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

contract

Insurance policy are offered on a "take it or leave it" basis, which makes them:

contracts of adhesion

What are the types of agent authority?

express, apparent, implied

indemnity contract:

health insurance will only reimburse the actual cost of loss.

A life insurance policy would be considered a wagering contract without...

insurable interest

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

insurance company

If a contract of adhesion contains complicated language, to whom would the interpretation be in favor of?

insured

Stranger Originated Life Insurance (STOLI) has been found to be in violation of which of the following contractual elements?

legal purpose (insurable interest)

Valued Contract

life insurance contract it will pay a stated amount

health insurance

the insurance company agrees to pay a percentage of the insured's medical bills (or benefit) in exchange for consideration (premiums).

life insurance

the insurance company agrees to pay a predetermined amount - the face amount (or benefit), in exchange for the insured's consideration (premium)

In 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 (What type of contracts?)

unilateral. One party makes a promise, the other can only accept by performance

Which of these is said to be true in every respect?

warranty

At what point does an informal agreement become a binding contract?

when consideration is provided

When must insurable interest be present in order for a life insurance policy to be valid?

when the application is made


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