Chapter 5
After policy is delivered, when does it go into effect?
Policy is signed Statement of continued good health is signed (if applicable) Premium paid
The insured gives the insurer two items of consideration
Premium Statements in the application These are given in return for the insurance companies issuance of policy
Insured gives what to considerations ?
Premium and statements in the application
Who can change the policy?
(before it is actually delivered) The company officers
In most states "legally competent" means age
15 - age of majority for insurance law
Two types of ownership
1st party ownership: you own a policy on yourself 3rd party ownership: someone else owns a policy on you.
Signatures required
1st party: applicant 3rd party: applicant and insured If minor...parent may have to sign Agent signs all the applicants.
Policies sold to the elderly (Medicare supplement or long term care)...have an extended free look provision. How many days?
30 days
If the client files a claim. The client has to wait how many days to file a lawsuit?
60 days - gives the insurance company time to pay. After 60 days the client has to sue within 3 years. (can vary)
Misrepresentation
A flat out lie - grounds for denying the claim
Insurance policies are conditional
Certain conditions have to be met
An insurance policy will lead to the payment of a claim only if the Insured pays the premium and notifies the Insurer of the loss. This relates to the contract concept of?
Conditional
Legally Enforcable agreement
Contract
Policy does not go into effect when there's a counter offer until when?
Counter offer is accepted.
When is a policy offer accepted? When the policy is issued or delivered?
Delivered. Issuance is when it goes from underwriter to agent.
Incontestable or contestable clause
Details the statues of limitations
A warranty is a bad thing that insurance companies try to do.
Fill out this 200 page application...and guarantee that it's all right! A warranty is a guarantee forcing the applicant to guarantee everything to be true or policy is voided. Courts have prevented insurance companies from doing this.
If the application is incomplete, what should the agent do?
Have the applicant make the changes and sign or initial them or do a new application.
Conditional receipt promises what?
IF the policy WOULD HAVE been issued, coverage will be effective from the date you apply or date of medical exam, whichever is later, assuming that you meet the company's underwriting requirements. This only applies when you submit an application with a PREMIUM.
Insurable Interest
IOT be insurable the loss has to be economic. You have to show that you would lose money if this person died.
Agent must explain that conditional receipt until premium payment is actually made (in case of bounced check)
If the agent collects premium payment while out of the office... a temp receipt should be issued (even if it's on a napkin)
Statue of Limitations of 2 years
If the applicant lies...the insurance company has two years to catch them.
Provision and Clause are interchangeable
Ifit's in the polcy or clause Not tacked on to the policy like a rider.
Do beneficiaries have to sign the application?
No
Entire Contract Clause
Protects the insurance company by saying that all that counts is the contract (not advertising, statements made by agent, etc)
99& of the time an application is submitted with premium...this is an offer. What can the company do?
Reject offer - you get a refund of premium (no interest) Counter offer - almost always at a higher rate. "rated policy" or same rate that covers less. Accept offer
Statements made in the application and proof of loss form are presumed to be what?
Representations
Grace Period Clause
Required by all life and health policies. Delays the termination (lapsation) to 31 days. Exact time depends on state: ranges from 28 to 31 days.
When does an application rise to the level of an "offer"?
Signed application sent in with premium payment
These folks are always deemed to have insurable interest in each other (based on state law)
Spouses Close relatives (state law determines how close) Creditors in debtors Employers can ensure employees
Rider
Tacked on to policy. A rider can increase or decrease coverage.
Consideration clause
The considerations given by the insured.
Can a first party owner be the beneficiary?
Yes
When the agent delivers a policy, is that an offer?
Yes
What if you get sick or die duing the grace period?
You are still insured. They will deduct amount of premium plus interest
Usually a policy delivered will be delivered with...
a statement of continued good health.
Representation
a statement regarding a material fact that the applicant believes to be true to the best of his or her knowledge. the closest thing to a warranty...but not the same.
Conditional receipt
better than an ordinary receipt from premium application. Is a conditional receipt might allow coverage to become effective even if you die or get sick before policy is issued. The only catch is that you have to meet the underwriting requirements for the policy.
A rider can also be called a
distinction or endorsement
Intentionally hiding the truth is an example of
fraud
Misrepresentation and concealment are both examples...
fraud
Material fact
if we aren't talking about a material fact...the lie does not matter. Material fact would have changed whether the policy would have been issued or rate of issuance.
After the two year period a policy becomes...
incontestable except for NONPAYMENT of premium or misstatement of age or gender!
Insurance contracts are aleatory contracts
is one where the possibility exists for largely disproportionate payment - one party comes out ahead and the other does not.
Contract needs
legal purpose competent parties consideration for each party an agreement (meeting of the minds) - offer and acceptance
Is there coverage if the agent tries to deliver policy but can't get in touch with the person?
no
If the policy is issued to the agent from the underwriter, does that consitute an offer?
no - only when it is delivered to the client.
Can an insurance company sue the insured for breach of payment?
No
Can there be a conditional receipt when no premium is paid?
No
Does conditional receipt guarantee the policy will be issued?
No
If you submit an application and the agent delivers a policy, do you have to accept the offer?
No
Is there a law requiring a statement of continued good health?
No
Under free look provision...can insurance company keep a portion of the premium if the policy is cancelled in the 10 day period?
No
If you submit an application without a premium, have you made an offer?
No - it's just an invitation to negotiate.
Does the insured promise to make a payment in the future?
No - there are no promises given by the insured but the insurance company is giving a promise
Does insurable interest have to exist at time of death or sickness?
No...as long as it exists at inception of the policy.
Estoppel
Once the company waives the right to deny the policy, the copmany waives the right to "complain" about the consequences.
Insurance contracts are unilateral, meaning what?
Only one promise The insured doesn't make promise. (not even to make premium payments) The Insurer makes a promise. *Most contract as bilateral but insurance contracts are unilateral.
State regulators are members of the NAIC
NAIC proposes model provisions
Ownership Clause
Person who owns the policy controls the policy. Owner can cancel policy, change the beneficiary, etc. Every insurance policy has an ownership clause
If you apply...i you are not leagally bound. An application is an...
Inquiry - an invitation to negotiate
Uniform Policy Provisions required in all policies (life, health)
Insuring Clause: has the insurers promise to pay in it. It also identifies who the parties are. States max amount of policy and exclusions. Company's consideration.
Concealment
Intentionally hiding the truth or intentionally telling a partial truth.
Free Look Provision
Most all life and health policies have these...required by state law Gives insured 10 days after the delivery of the policy to cancel. Don't have to have a reason to cancel. Refund of whole premium. (NO INTEREST)
Reinstatement Clause
Specifics the rules by which a client can reinstate their policy. Differs from health and life insurance. Required to be in policy. Prohibits the insurer from charging a reinstatement fee. Within the time limit set by state law, if the client submits a reinstatement, a new contestable period starts at that day (2 years). Before you can reinstate the client must pay back any loans (life insurance) or any premiums. Proof of insurability is required if the grace period laps and you go through reinstatement.
Where do we find the insurer's consideration?
The insuring clause
Entire Contract
The policy + the attached application
What happens if you fail to make the premium payment after the grace period?
The policy will lapse
Advertisements are NOT offers
They are invitations
Statement of continued good health
Verifies that the insured's health has not changed since time the application was completed. Good idea for an agent to get this signed in between the time the application was submitted and the policy was issued.
Waiver
Voluntarily surrendering a right What does that have to do with insurance? When an application is filled out incomplete and insurance is sold based on incomplete application. Insurance company can't refuse to pay based on incomplete application, if policy is issued.
"The consideration clause of the policy"
outlines the consideration given by the insured to the insurance company
"Insured clause" of contract
outlines the consideration that the insurance company gives to the insured
Physical Exam Autopsy Clause
paid for by insurance company Right to conduct as many physical exams on the dead client as is reasonable. you only get one autopsy but as many physical exams as the insurer wants.
The insurer gives the insured one item of consideration
the promise to indemnify the insured if he/she suffers a loss
Whoever makes the offer must have the intent...
to be leagally bound
Many companies require agents to deliver final polcy in person...
to explain final details of the policy and (potentially) to get a continued statment of good health.
When does a policy issued by an agent become an "offer?"
when the policy is delivered to the client
Insurance contracts of ADHESION
you're stuck with the terms of the contract