Chapter3-Legal Concepts of the Insurance Contract
When must insurable interest exist for a life insurance contract to be valid?
Inception of the contract
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?
Contract utmost of good faith
An agreement is reached when an insurance contract is formed. Which of the following is NOT considered to be an element of an agreement?
Equity
What happens when an initial offer is answered with a counteroffer?
Initial offer is void
In what way are insurance policies said to be aleatory?
Involves the potential for the unequal exchange of value
Which of the following relationships demonstrates insurable interest in the absence of economic interest?
Marriage partners
Insurable interest involves what assumption?
One person benefits from another person's continued life
An insurance company's failure to enforce a contract's provision is called a(n)
Waiver-When an insurance company does not enforce a contract's provision
What is the insurer responsible for when a producer is acting within the scope of authority granted in the agency contract?
Responsible for acts by the producer that are authority only
Written evidence-elements of a valid contract TRUE OR FALSE
False
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
Which element of a contract constitutes a definite and unqualified
Offer
Which situation would not require the insured's consent when a life insurance policy is issued?
A policy is purchased by a parent for a minor child
Which element of a contract constitutes a definite and unqualified proposal by one party to another?
Offer
What qualifies as acceptance of an insurance contract offer?
An issued policy- An issued policy signifies acceptance of an offer of an insurance contract.
An insurance contract may be voided if a misrepresentation found on the application is determined to be
Material- An insurer can void an insurance policy if a misrepresentation on the application is found to be material.
An insured is entitled to coverage under a policy that a prudent person would expect it to provide. This principle is called
Reasonable expectations
Use of XYZ Insurance Company brochures, business cards, and rating guides is an example of
Apparent authority- Apparent authority is what a third party (such as a member of the public) assumes an agent has, based on the actions or words of the principal. By supplying the agent with business cards, brochures, and rating guides, the insurance company has given the impression that it supports the words and actions of its agent.
Which of the following situations would an insurance agent need to guard against liability for professional errors and omissions?
Making a recommendation to a potential insured to replace existing coverage- An insurance agent needs to guard against liability for professional errors and omissions particularly when recommending replacement coverage to a potential insured.
Which of these is true regarding the exchange of consideration among parties involved in an insurance contract?
Can be unequal- Insurance contracts are aleatory. This means there is an element of chance and potential for unequal exchange of value for both parties.
Ambiguities in insurance contracts are typically interpreted in favor of the insured. This rule is referred to as
Reasonable expectations
Which of the following would NOT have a restricted ability to enter into a contract?
Small employer
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)
contract of adhesion- In a case where the meaning of an insurance policy is not clear, a court of law will usually interpret the policy in favor of the insured because an insurance contract is a contract of adhesion.
An agent whose actions exceed the authority granted by contract is
not backed by the insurer