Life Insurance Agreements: Understanding Insurable Interest Quiz

Why are insurance policies considered aleatory contracts?

Which of these require an offer, acceptance, and consideration?

A life insurance arrangement which circumvents insurable interest statutes is called:

Statements made on an insurance application that are believed to be true to the best of the applicant's knowledge are called:

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

Where will the proceeds from E's life insurance policy be directed to?

Which of these is considered a statement that is assured to be true in every respect?

A policy of adhesion can only be modified by whom?

In an insurance contract, the insurer is the only party who makes a legally enforceable promise. What kind of contract is this?

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

Which of these is NOT a type of agent authority?

Insurance policies are offered on a 'take it or leave it' basis, which makes them:

Which of these arrangements allows one to bypass insurable interest laws?

Insurance Contracts Overview

Insurance policies are classified as aleatory contracts due to their dependency on the occurrence of uncertain future events; this can lead to an unequal exchange of value.
Contracts in insurance require an offer, acceptance, and consideration, which distinguishes them from mere warranties or representations.

Life Insurance Special Cases

Investor-Originated Life Insurance (IOLI) is designed to bypass state laws regarding insurable interest, allowing investors to profit from life insurance policies they do not have a traditional insurable interest in.
Stranger-Originated Life Insurance (STOLI) also circumvents insurable interest statutes, posing legal challenges to its validity.

Application Statements

Statements made by applicants on insurance applications, believed to be true, are classified as representations; they are not guaranteed.
Warranties are assurances that certain statements are guaranteed to be true and cannot be used to void the contract.

Legal Implications of Policies

Proceeds from a deceased partner’s life insurance policy may go to the designated beneficiary, regardless of insurable interest at the time of death, if valid at application.
Contracts of adhesion require that only the insurance company has the authority to modify the policy terms.

Types of Agent Authority

Agent authority consists of express, implied, and apparent types, while “Principal” is not considered a type of agent authority.

Nature of Insurance Contracts

Insurance contracts are unilateral, meaning that only the insurer makes binding promises; the insured does not impose any enforceable obligations.
Insurance contracts are also conditional, as claims can only be paid once certain future conditions or acts occur.

Summary of Key Terms

Aleatory Contract: Based on uncertain future events.
IOLI: Circumvents insurable interest laws for profit.
Representation: Statement believed to be true by the applicant.
Warranty: Statement guaranteed to be true.
Contract of Adhesion: Generally non-negotiable, modifiable only by the insurer.
Unilateral Contract: Only one party, the insurer, makes enforceable promises.
Conditional Contract: Claims are contingent upon particular events happening.

Explore the key concepts of insurance contracts, focusing on their classification as aleatory contracts and the specific legal nuances of life insurance, including IOLI and STOLI. This quiz helps clarify the distinctions between representations and warranties in insurance applications.