Insurance Contract Fundamentals

Podcast

Play an AI-generated podcast conversation about this lesson

Questions and Answers

What is required to prove insurable interest?

Proof of previous insurance claims

Love and affection or financial loss (correct)

The applicant's age

A medical examination of the insured

Which statement best describes a warranty in insurance contracts?

A clause that is negotiable between parties

A statement that is absolutely true (correct)

A document that outlines payment terms

Believed to be true to the best of one's knowledge

What does the term 'aleatory' refer to in an insurance contract?

The chance of loss versus premium paid (correct)

An equal exchange between parties

The requirement of mutual consent

The obligation of both parties to perform

When does coverage begin for a health insurance policy?

Only when the insurer approves the application and issues the policy Signup and view all the answers

Which of the following is true regarding misrepresentations on an application?

They can void the contract if considered material Signup and view all the answers

What must an agent do before submitting an application to the insurer?

Ensure completeness and necessary signatures Signup and view all the answers

What allows for changes or corrections in a submitted insurance application?

Crossing out and initialing the mistakes Signup and view all the answers

Which characteristic describes an adhesion contract?

Prepared by one party and accepted with limited options Signup and view all the answers

What is the purpose of the Attending Physician Report in the insurance underwriting process?

To obtain accurate information on the applicant's medical history Signup and view all the answers

Which report may an underwriter request to compare an applicant's information with other insurers?

Medical Information Bureau (MIB) report Signup and view all the answers

What does the Fair Credit Reporting Act ensure regarding consumer records?

Confidential, accurate, and relevant records protection Signup and view all the answers

What must a covered entity obtain to disclose Protected Health Information (PHI)?

Written authorization if not for treatment, payment, or health care operations Signup and view all the answers

What is a key responsibility of an agent during the policy delivery process?

Personally deliver the policy whenever possible Signup and view all the answers

When comparing a proposed replacement policy to the current policy, what must the agent ensure?

That there are no coverage gaps between the two policies Signup and view all the answers

What is included in the definition of a legal contract, as highlighted in the chapter recap?

Insurable interest, warranties, and representations Signup and view all the answers

Which of the following best describes the role of an agent in explaining policy provisions?

To explain the policy's main benefits and obtain the insured's signature Signup and view all the answers

Study Notes

Elements of a Contract

A contract requires an agreement (offer and acceptance).
Consideration (something of value exchanged) is essential.
Parties must be competent to enter into an agreement.
The purpose of the contract must be legal.

Insurable Interest

Insurable interest is demonstrated through financial or economic loss.
This interest must exist at the time of policy issuance.
Love and affection alone are not enough proof.

Warranties and Representations

A warranty is an absolute guarantee, critical to policy validity.
A representation is a statement believed to be true, but not guaranteed.
Inaccurate statements can void the contract.
Material misrepresentations change the insurer's underwriting decision.

Unique Aspects of the Insurance Contract

Insurance contracts are conditional; specific conditions must be met.
They are unilateral; only one party (insurer) is obligated initially.
Insurance contracts are contracts of adhesion, meaning they are prepared by one party (insurer) and the other (insured) has minimal say.
Insurance contracts are aleatory, meaning the exchange of value (premium vs. payout) isn't equal. An example is: A $200 premium for a $100,000 home insurance payout if a covered peril strikes illustrates the unequal value.

Completing the Application

Applications must be complete and accurate.
Applications are the primary information source for underwriters.
Required signatures are: proposed insured, policy owner, and agent.
Incorrect information can be corrected with a new application or by correcting and initialing the changes.
The initial premium is submitted with the application. Coverage starts after approval and policy issuance.
The agent verifies the application's completeness and required signatures before sending it.

Sources of Information

The Attending Physician's Report is used to gather accurate medical information.
Medical examinations are sometimes required (higher amounts, additional concerns). Paramedical reports may also be requested.
Insurers may check with the Medical Information Bureau (MIB) for comparisons.
Medical exams are important for substantial coverage policies or if questions arise.
The Fair Credit Reporting Act protects consumer information accuracy.
Protected Health Information (PHI) disclosures require written authorization outside of treatment, payment, or health care operations (HIPAA).

Policy Delivery

Agent delivery is preferred.
A free-look period usually begins upon policy delivery.

Policy Explanation

The agent is responsible for explaining benefits and provisions clearly.
Changes or policy amendments should also be explained with insured signature acknowledgment.

Policy Replacement

Agents must compare current and prospective policy benefits, limitations, and exclusions.
A coverage gap between old and new policies should be avoided.
Pre-existing conditions are a concern during policy replacement.
Underwriting is important for replacement policies.

Chapter Recap

The chapter covers insurance contract elements, information gathering, policy delivery, and policy explanation in conjunction with policy replacement.

Studying That Suits You

Use AI to generate personalized quizzes and flashcards to suit your learning preferences.

Description

This quiz covers the essential elements of an insurance contract, including agreements, insurable interest, warranties, and representations. Understand key concepts that determine the validity of insurance policies and the unique nature of these contracts. Test your knowledge on the legal aspects and requirements of insurance contracts.