Health and Accident Insurance: Legal Concepts
Which type of clause describes the following statement: "We have issued the policy in consideration of the representations in your applications and payment of the first-term premium". 1. Premium clause 2. Consideration clause 3. Adhesion clause 4. Contestability clause
2. Consideration clause
The deeds and actions of a producer indicate what kind of authority? 1. Express 2. Apparent 3. Implied 4. Conditional
2. Apparent Apparent authority is the appearance or assumption of authority based on the actions, words, or deeds of the producer.
The unwritten authority of a producer to perform incidental acts necessary to fulfill the purpose of the agency agreement is 1. Implied authority 2. Mandated authority 3. Express authority 4. Assumed authority
1. Implied authority Implied authority is authority that is not expressly granted, but which the agent is assumed to have in order to transact the business of the principal.
An agent is an individual that represents whom? 1. Insurer 2. Insured 3. Broker 4. Himself/Herself
1. Insurer An agent is an individual who is authorized by an insurer to sell goods and services on its behalf. An agent is also the insurer's representative in dealing with the public.
Who is responsible for assembling the policy forms for insureds? 1. State Insurance Departments 2. NAIC 3. Insurance carriers 4. Insurance producers
3. Insurance carriers The insurance carrier has become responsible for assembling the policy forms for the insured person(s).
Which of the following terms is used for the voluntary relinquishment of a known right? 1. Estoppel 2. Adhesion 3. Waiver 4. Unilateral
3. Waiver If an insurer voluntarily waives a legal right it has under the contract, it cannot later deny a claim based on a violation of that right.
All of the following are considered to be typical characteristics describing the nature of an insurance contract EXCEPT (1) Bilateral (2) Unilateral (3) Aleatory (4) Adhesion
(1) Bilateral Unilateral, aleatory, and adhesion are all special features of insurance contracts. Bilateral is not.
Which of the following statements describes the parol evidence rule? (1) A written contract cannot be changed once it is signed. (2) An oral contract cannot be modified by written evidence. (3) A written contract cannot be changed by oral evidence. (4) An oral contract takes preference over any earlier written contracts.
(3) A written contract cannot be changed by oral evidence. Parol evidence rule basically states that you cannot use oral testimony to contradict the terms of a signed document.
In an insurance contract, the element that shows each party is giving something of value is called (1) offer (2) acceptance (3) consideration (4) purpose
(3) consideration
All of the following are elements of an insurance policy EXCEPT 1. definitions 2. other insurance 3. claim forms 4. conditions
3. claim forms
Insurable interest does NOT occur in which of the following relationships? 1. Sister and brother 2. Parent and children 3. Business partners 4. Business owner and business client
4. Business owner and business client There would not be insurable interest between a business owner and its customer.
______ is NOT an element of a valid contract. 1. Legal 2. Consideration 3. Competent parties 4. Countersignature
4. Countersignature A countersignature is not an element of a valid contract.
Which contract element is insurable interest a component of? 1. Competent parties 2. Offer and acceptance 3. Consideration 4. Legal purpose
4. Legal purpose
Which of the following statements regarding utmost good faith in insurance contracts is CORRECT? 1. The concept of utmost good faith (that there is no attempt to conceal, disguise, or deceive) applies only to the insurer. 2. Although a warranty is a statement, it is not technically part of the contract. 3. A representation is a statement that the applicant guarantees to be true. 4. Most state insurance laws consider statements made in an application for an insurance policy to be representations, not warranties.
4. Most state insurance laws consider statements made in an application for an insurance policy to be representations, not warranties. Representations are statements believed to be true to the best of one's knowledge, but they are not guaranteed to be true. Warranties are an absolutely true statement upon which the validity of the insurance policy depends.
The authority given by an insurer or employer to a licensee to transact insurance or adjust claims on their behalf is called (1) authorization (2) appointment (3) certification (4) representation
(1) authorization Authority is the actions and deeds an agent is authorized to conduct on behalf of an insurance company, as specified in the licensee's contract.
Under the subrogation clause, legal action can be taken by the insurer against the (1) responsible third party (2) beneficiary (3) policyowner (4) State
(1) responsible third party Under the subrogation clause, legal action can be taken by the insurer against the responsible third party.
Which of the following is an example of legal consideration? (1) Politeness (2) Application and initial premium (3)Legal purpose (4) Offer and acceptance
(2) Application and initial premium Consideration can be defined as something of value given in exchange for the promises sought. In an insurance contract, consideration is given by the applicant in the form of paying premiums in exchange for the insurer's promise to pay benefits.
An agreement without legal effect is 1. estoppel 2. parole evidence 3. fraudulent 4. void
4. void A void contract is simply an agreement without legal effect. In essence, it is not a contract at all, for it lacks one of the elements specified by law for a valid contract. A void contract cannot be enforced by either party. For example, a contract having an illegal purpose is void, and neither party to the contract can enforce it.
Which of the following statements regarding insurable interest is NOT correct? (1) Insurable interest exists when the applicant is the insured. (2) A policy obtained by a person without an insurable interest in the insured can be enforced. (3) The applicant must be subject to loss upon the death, illness,or disability of the insured. (4) Generally, the person to be insured must give consent before a policy is issued, even if the applicant has an insurable interest.
(2) A policy obtained by a person without an insurable interest in the insured can be enforced. Insurable interest occurs when the policyowner faces the possibility of losing money or something of value in the event of loss.
What is implied authority defined as? (1)Authority given in writing to an agent in the agency agreement (2) Authority that is not specifically given to an agent in the agency contract, but that an agent can reasonably assume to carry out his/her duties (3) Authority given to handle claims and process payments (4) Authority given to an agent to act outside the scope of the agency agreement
(2) Authority that is not specifically given to an agent in the agency contract, but that an agent can reasonably assume to carry out his/her duties Implied authority is defined as the authority that is not specifically granted to an agent in the agency agreement, but that an agent can reasonably assume to accomplish the day-to-day activities of the job.
Which of the following is a unique characteristic of an insurance contract? (1) Offer and Acceptance (2) Conditional (3) Consideration (4) Competent Parties
(2) Conditional An insurance contract is conditional in that certain conditions must be met before the contract can be legally enforced.
The authority that an insurer gives to its agent by means of the agent's contract is known as (1) Implied authority (2) Express authority (3) Fiduciary responsibility (4) General authority
(2) Express authority Express authority is written in the contract between the insurer and the agent. Implied authority is assumed and not written into the contract. Apparent authority is based on the actions of the insurer when they furnish them with a rate book and sales literature.
An insurance company has how many years to challenge the validity of a life insurance contract? (1) One (2) Two (3) Three (4) Four
(2) Two After two years, the insurer cannot contest the policy or deny benefits based on any incorrect information in the insurance policy, this is called the Incontestable Clause.
The authority granted to a licensed producer is provided via the (1) producer's apparent authority (2) written contract (3) Law of Agency (4) Principal Capacity
(3) Law of Agency According to the Law of Agency, the producer/agent represents the principal/insurer and is granted actual, implied and apparent authority to act on behalf of the insurer. The Law of Agency makes the principal responsible for these acts of the agent.
What makes an insurance policy a unilateral contract? (1) Only the insured pays the premium (2) Only the insured can change the provisions (3) Only the insurer is legally bound (4) Only the insured is legally bound
(3) Only the insurer is legally bound Insurance contracts are unilateral, meaning that only the insurer makes legally enforceable promises in the contract.
Which is considered a statement made by an applicant that he/she believes to be true? (1) Warranty (2) Concealment (3) Representation (4) Good Faith
(3) Representation Representations are statements made by applicants to which they believe are true. They are used by insurers to evaluate whether or not to issue a policy.
According to the principle of Utmost Good Faith, the insured will answer questions on the application to the best of their knowledge and pay the required premium, while the insurer will deal fairly with the insured and it's (1) underwriting (2) issuance of the policy (3) promises made (4) legal reserve
(3) promises made Without good faith, it would be difficult to reach agreement. Without agreement, there would be no valid contract.
Legal purpose is a term used in contract law meaning (1) there must be an offer and acceptance (2) the contract must be aleatory (3) there must be legal reasons for entering into the contract (4)the contract must be a contract of adhesion
(3) there must be legal reasons for entering into the contract In contract law, legal purpose refers to the fact that the reasons for entering into a contract must be legal.
With life and health contracts, when must an insurable interest exist? (1) After the policy is issued (2) Before the beneficiary is named (3) While the policy is in force (4) At the inception of the policy
(4) At the inception of the policy Insurable interest must only occur at the time of inception. However, it does not have to continue throughout the duration of the policy nor does it have to exist at the time of the claim.
All of the following have a restricted ability to enter into a contract EXCEPT (1) Individuals who are intoxicated (2) Individuals who are mentally ill (3) Minors under a certain age (4) Small employer
(4) Small employer
In order for a contract to be valid, it must (1) be filed with the state (2) be signed and witnessed by an attorney (3) be in writing (4) contain an offer and acceptance
(4) contain an offer and acceptance For a contract to be valid it MUST include an offer and an acceptance
The following are all characteristics of insurance contracts EXCEPT (1) insurable interest (2) unilateral (3) valued or indemnity (4) unconditional
(4) unconditional Unconditional is not a characteristic of an insurance contract
Which characteristic of an insurance contract means there is a potential for unequal exchange of value for both parties? 1. Aleatory 2. Adhesion 3. Unilateral 4. Conditional
1. Aleatory Insurance contracts are aleatory. Aleatory contracts are conditioned upon the occurrence of an event. The benefits provided by an insurance policy may or may not exceed the premiums paid.
Insurable interest must exist at what time? 1. At the time of application 2. At the time of delivery 3. At the time of death 4. At all times
1. At the time of application It is important to note that insurable interests must exist upon issuance of a life or health insurance contract. It does not have to continue throughout the duration of the policy nor does it have to exist at the time of claim
A producer's powers stated in the agency contract are: 1. Express 2. Implied 3. Apparent 4. Conditional
1. Express A producer's powers stated in the agency contract are express.
If the agency contract gives the producer the authority to solicit insurance but states nothing about the collection of premiums, the producer normally has authority to collect premiums based on 1. Implied authority 2. Express authority 3. Apparent authority 4. Licensee authority
1. Implied authority Implied authority is authority not specifically granted to the agent in the agency contract, but which common sense dictates the agent has.
All of the following normally indicate the presence of insurable interest in the life of another person EXCEPT 1. Maintaining a lasting friendship with the other person 2. Being closely related to the other person by birth 3. Being married to the other person 4. Co-signing a mortgage with the other person
1. Maintaining a lasting friendship with the other person Maintaining a lasting friendship with the other person does not normally indicate the presence of insurable interest in the life of another person.
In life insurance, an insurable interest in the life of the insured must exist 1. Only at the inception of the contract 2. Only at the death of the insured 3. During the first two years of the contract 4. Throughout the period of the contract
1. Only at the inception of the contract Insurable interest needs to only exist at the time of application.
Krissa and Janet enter into a contract in which Krissa agrees to fraudulently induce sick people to sell their insurance contracts to Janet's company. Krissa and Janet's contract can best be described as 1. Void 2. Competitive 3. Voidable 4. Conditional
1. Void A void contract is simply an agreement without legal effect. For example a contract created for an illegal purpose is void.
When the principal gives the agent authority in writing, it's referred to as 1. express authority 2. implied authority 3. apparent authority 4. imposed authority
1. express authority Express authority is given when the principal gives the agent authority in writing.
A life insurance policy would be considered a wagering contract WITHOUT 1. insurable interest 2. premium payment 3. agent solicitation 4. constructive delivery
1. insurable interest Without insurable interest, a life insurance policy would be considered a wagering contract.
Which of the following is an example of the insured's consideration? 1. Insurer's promise to pay benefits 2. A paid premium 3. Legal purpose 4. Intent
2. A paid premium
Which of the following statements about authority is NOT correct? 1. Express authority is granted by means of the agent's contract. 2. Express authority is determined by a principal's conduct. 3. Implied authority is not overtly extended in the agent's contract but does permit many of the agent's operations. 4, Apparent authority can be assumed from the actions of the principal.
2. Express authority is determined by a principal's conduct. Express authority is the authority an insurance company grants to an agent by means of the agent's contract.
A relationship in which one person is authorized to represent and act for another person or company is established through: 1. The Fair Credit Reporting Act 2. The law of agency 3. An aleatory contract 4. Risk management
2. The law of agency An agency is a situation where an agent has the power to represent and act for another person or company.
Which of the following statements describes an insurable interest? 1. The policyowner must expect to benefit from the insured's death. 2. The policyowner must expect to suffer a loss when the insured dies or becomes disabled. 3. The beneficiary, by definition, has an insurable interest in the insured. 4. The insured must have a personal or business relationship with the beneficiary.
2. The policyowner must expect to suffer a loss when the insured dies or becomes disabled. The policyowner must face the possibility of losing money or something of value in the event of the death or disability of the insured
Because an insurance contract has been prepared by an insurance company with no negotiation, it is considered 1. a unilateral contract 2. a contract of adhesion 3. an aleatory contract 4. commutative contract
2. a contract of adhesion Insurance contracts are contracts of adhesion. This means that the contract has been prepared by one party (the insurer). The contract is not the result of negotiation between the parties. The applicant "adheres" to the terms of the contract when she accepts it.
Intentional withholding of material facts that would affect an insurance policy's validity is called a(n) 1. estoppel 2. concealment 3. adhesion 4. misrepresentation
2. concealment Deliberate withholding of material facts that would affect the validity of an insurance policy or a claim under the policy is known as concealment.
A professional liability for which producers can be sued for mistakes of putting a policy into effect is called 1. fiduciary bond 2. errors and omissions 3. fiduciary trust 4. errors and oversights
2. errors and omissions Errors and omissions is a professional liability for which producers can be sued for mistakes of putting a policy into effect.
All of the following would be considered non-competent parties in an insurance contract EXCEPT 1. minors 2. the disabled 3. the mentally infirm 4. those under the influence of drugs or alcohol
2. the disabled Minors, the mentally infirm, and those under the influence of drugs or alcohol would be considered non-competent parties in an insurance contract. This does not necessarily apply to a disabled person.
The term which describes the fact that both parties of a contract may NOT receive the same value is referred to as 1. Apparent 2. Estoppel 3. Aleatory 4. Unilateral
3. Aleatory Aleatory is a term that describes the fact that both parties of a contract may NOT receive the same value.
When an agent is provided the materials from his/her company, which category of authority is the one which allows those items to be used? 1. Intended 2. Implied 3. Apparent 4. Obvious
3. Apparent Apparent authority is the appearance or assumption of authority based on the actions, words, or deeds of the principal, or because of circumstances the principal created. For example, providing an individual with a rate book, application forms, and sales literature creates the impression that an agency relationship exists between the insurer and the individual.
All of the following are true about aleatory contracts EXCEPT 1. Consideration may be unequal 2. The outcome depends on chance or uncertain event 3. Only one party makes a legally enforceable offer 4. A legal bet is an aleatory contract
3. Only one party makes a 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.
In insurance, an offer is usually made when 1. The agent hands the policy to the policyholder 2. An agent explains a policy to a potential applicant 3. The application is submitted 4. The insurer approves the application and receives initial premium
3. The application is submitted In insurance, the offer is usually made by the applicant in the form of the application. Acceptance takes place when an insurer's underwriter approves the application and issues a policy.
An insurance contract is prepared by one party, the insurer, rather than by negotiation between the contracting parties. Which of the following statements explains this characteristic of insurance contracts? 1. The insurance contract is an aleatory contract. 2. The insurance contract is a contract of acceptance. 3. The insurance contract is a contract of adhesion. 4. The insurance contract names only the insurer as the competent party.
3. The insurance contract is a contract of adhesion. Contracts of adhesion are written by the insurance company and offered as a "take-it-or-leave-it" basis to the applicant.
An insurance contract is prepared by one party, the insurer, rather than by a negotiation between the contracting parties. Which of the following statements explains this characteristic of insurance contracts? 1. The insurance contract is an aleatory contract. 2. The insurance contract is a contract of acceptance. 3. The insurance contract is a contract of adhesion. 4. The insurance contract names only the insurer as the competent party.
3. The insurance contract is a contract of adhesion. Contracts of adhesion are written by the insurance company and offered on a "take-it-or-leave-it" basis to the applicant.
An agent is an individual who has been authorized by an insurer to be its representative and to perform all of the following acts EXCEPT 1. solicit applications for insurance 2. collect premiums from policyowners 3. authorize payment of certain claims 4. render services to prospects
3. authorize payment of certain claims
The power given to an individual producer that is not specifically addressed in his/her contract is considered what type of authority? 1. discreet 2. apparent 3. implied 4. express
3. implied Implied authority is the unwritten authority that is not expressly granted, but which the agent is assumed to have in order to transact the business of the principal.
What are an applicant's statements concerning occupation, hobbies, and personal health history regarded as? 1. warranty 2. guarantee 3. representation 4. collateral
3. representation Statements by an applicant concerning personal health history, family health history, occupation, and hobbies are referred to as representations.
Under a contract of adhesion, 1. there is the potential for an unequal exchange of value 2. the insurer's obligations are dependent upon certain acts of the insured individual 3. the terms must be accepted or rejected in full 4. only one party makes any kind of enforceable promise
3. the terms must be accepted or rejected in full Under a contract of adhesion, the contract has been prepared by one party (the insurance company) with no negotiation between the applicant and insurer. In effect, the applicant "adheres" to the terms of the contract on a "take it or leave it" basis when accepted.
Which of the following best describes the concept that the consideration is not equal in contract law? 1. Adhesion 2. Warranty 3. Subrogation 4. Aleatory
4. Aleatory Insurance contracts are aleatory. This means there is an element of chance and potential for unequal exchange of value for both parties. An aleatory contract is conditioned upon the occurrence of an event. Consequently, the benefits provided by an insurance policy may or may not exceed the premiums paid.
All are competent parties who can enter into insurance contracts EXCEPT 1. Applicants 2. Trusts and estates 3. Business entities 4. Those under influence of alcohol
4. Those under influence of alcohol Applicants, trusts and estates, and business entities are all considered competent parties. The exclusions to these would be minors, the mentally infirm, and those under the influence of alcohol or narcotics
Bob and Tom start a business. Since each partner contributes an important element to the success of the business, they decide to take life insurance policies out on each other, and name each other as beneficiaries. Eventually, they retire and dissolve the business. Bob dies 12 months later. The policies continue in force with no change. Both partners are still married at the time of Bob's death. In this situation, who will receive Bob's policy proceeds? 1. Tom's spouse 2. Bob's estate 3. Bob's spouse 4. Tom
4. Tom Insurable interest only has to exist at the time of the application, not at the time of the claim. Being there was no change in beneficiary prior to Bob's death, Tom will still receive the policy proceeds.
A valid contract requires all of the following EXCEPT 1. Offer and acceptance 2. Competent parties 3. Consideration 4. Written evidence
4. Written evidence
Special features of insurance contracts include all of the following EXCEPT 1. conditional 2. aleatory 3. unilateral 4. estoppelv
4. estoppelv
The authority of an agent which is spelled out in the written words of the agency contract between the agent and the insurer is called 1. implied authority 2. apparent authority 3. presumed authority 4. expressed authority
4. expressed authority Express authority is the authority a principal deliberately gives to its agent. Express authority is granted by means of the agent's contract, which is the principal's appointment of the agent to act on its behalf.
In an insurance contract, the insurer is the only party legally obligated to perform. Because of this, an insurance contract is considered 1. voidable 2. conditional 3. aleatory 4. unilateral
4. unilateral A contract in which only the insurer would be legally obligated to perform is considered unilateral.