Legal Concepts of the Insurance Contract
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Questions and Answers

The authority given by an insurer or employer to a licensee to transact insurance or adjust claims on their behalf is called ______.

Authorization

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:

  • Authorize payment of certain claims (correct)
  • Collect premiums from policyowners
  • Render services to prospects
  • Solicit applications for insurance

    • Which of the following statements regarding utmost good faith in insurance contracts is CORRECT?

  • A warranty is a statement that is technically part of the contract.
  • Statements in an application for an insurance policy are considered representations. (correct)
  • A representation is guaranteed to be true.
  • The concept applies only to the insurer.

    • When an agent is provided the materials from his/her company, which category of authority allows those items to be used?

    <p>Apparent</p> Signup and view all the answers

    Which of the following statements about authority is NOT correct?

    <p>Express authority is determined by a principal's conduct.</p> Signup and view all the answers

    Which of the following is an example of legal consideration?

    <p>Application and initial premium</p> Signup and view all the answers

    All of the following are true about aleatory contracts EXCEPT:

    <p>Only one party makes a legally enforceable offer</p> Signup and view all the answers

    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:

    <p>Implied authority</p> Signup and view all the answers

    Which characteristic of an insurance contract means there is a potential for unequal exchange of value for both parties?

    <p>Aleatory</p> Signup and view all the answers

    An agent is an individual that represents whom?

    <p>Insurer</p> Signup and view all the answers

    All of the following are considered to be typical characteristics describing the nature of an insurance contract EXCEPT:

    <p>Bilateral</p> Signup and view all the answers

    Which of the following statements describes an insurable interest?

    <p>The policyowner must expect to suffer a loss when the insured dies or becomes disabled.</p> Signup and view all the answers

    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:

    <p>Expressed authority</p> Signup and view all the answers

    In life insurance, an insurable interest in the life of the insured must exist:

    <p>Only at the inception of the contract</p> Signup and view all the answers

    Which of the following statements about authority is NOT correct?

    <p>Express authority is determined by a principal's conduct.</p> Signup and view all the answers

    Which of the following best describes the concept that the consideration is not equal in contract law?

    <p>Aleatory</p> Signup and view all the answers

    Which of the following is an example of legal consideration?

    <p>Application and initial premium</p> Signup and view all the answers

    The term which describes the fact that both parties of a contract may NOT receive the same value is referred to as:

    <p>Aleatory</p> Signup and view all the answers

    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?

    <p>Apparent</p> Signup and view all the answers

    The following are all characteristics of insurance contracts EXCEPT:

    <p>Unconditional</p> Signup and view all the answers

    Which is considered a statement made by an applicant that he/she believes to be true?

    <p>Representation</p> Signup and view all the answers

    A life insurance policy would be considered a wagering contract WITHOUT:

    <p>Insurable interest</p> Signup and view all the answers

    A producer's powers stated in the agency contract are:

    <p>Express</p> Signup and view all the answers

    All of the following are true about aleatory contracts EXCEPT:

    <p>Only one party makes a legally enforceable offer</p> Signup and view all the answers

    With life and health contracts, when must an insurable interest exist?

    <p>At the inception of the policy</p> Signup and view all the answers

    The deeds and actions of a producer indicate what kind of authority?

    <p>Apparent</p> Signup and view all the answers

    All of the following would be considered non-competent parties in an insurance contract EXCEPT:

    <p>The disabled</p> Signup and view all the answers

    Which of the following terms is used for the voluntary relinquishment of a known right?

    <p>Waiver</p> Signup and view all the answers

    All of the following normally indicate the presence of insurable interest in the life of another person EXCEPT:

    <p>Maintaining a lasting friendship with the other person</p> Signup and view all the answers

    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:

    <p>Void</p> Signup and view all the answers

    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?

    <p>The insurance contract is a contract of adhesion.</p> Signup and view all the answers

    An insurance company has how many years to challenge the validity of a life insurance contract?

    <p>Two</p> Signup and view all the answers

    When the principal gives the agent authority in writing, it's referred to as:

    <p>Express authority</p> Signup and view all the answers

    The power given to an individual producer that is not specifically addressed in his/her contract is considered what type of authority?

    <p>Implied</p> Signup and view all the answers

    What makes an insurance policy a unilateral contract?

    <p>Only the insurer is legally bound</p> Signup and view all the answers

    Which of the following statements regarding insurable interest is NOT correct?

    <p>A policy obtained by a person without an insurable interest in the insured can be enforced.</p> Signup and view all the answers

    The unwritten authority of a producer to perform incidental acts necessary to fulfill the purpose of the agency agreement is:

    <p>Implied authority</p> Signup and view all the answers

    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'?

    <p>Consideration clause</p> Signup and view all the answers

    A relationship in which one person is authorized to represent and act for another person or company is established through:

    <p>The law of agency</p> Signup and view all the answers

    Which of the following statements describes the parol evidence rule?

    <p>A written contract cannot be changed by oral evidence.</p> Signup and view all the answers

    Intentional withholding of material facts that would affect an insurance policy's validity is called a(n):

    <p>Concealment</p> Signup and view all the answers

    A valid contract requires all of the following EXCEPT:

    <p>Written evidence</p> Signup and view all the answers

    In insurance, an offer is usually made when:

    <p>The application is submitted</p> Signup and view all the answers

    Special features of insurance contracts include all of the following EXCEPT:

    <p>Estoppel</p> Signup and view all the answers

    An agreement without legal effect is:

    <p>Void</p> Signup and view all the answers

    The authority that an insurer gives to its agent by means of the agent's contract is known as:

    <p>Express authority</p> Signup and view all the answers

    A professional liability for which producers can be sued for mistakes of putting a policy into effect is called:

    <p>Errors and omissions</p> Signup and view all the answers

    All are competent parties who can enter into insurance contracts EXCEPT:

    <p>Those under the influence of alcohol</p> Signup and view all the answers

    What is implied authority defined as?

    <p>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.</p> Signup and view all the answers

    In an insurance contract, the element that shows each party is giving something of value is called:

    <p>Consideration</p> Signup and view all the answers

    Because an insurance contract has been prepared by an insurance company with no negotiation, it is considered:

    <p>A contract of adhesion</p> Signup and view all the answers

    Insurable interest must exist at what time?

    <p>At the time of application</p> Signup and view all the answers

    Which of the following is a unique characteristic of an insurance contract?

    <p>Unilateral</p> Signup and view all the answers

    Study Notes

    • Implied Authority: A producer may have the authority to collect premiums even if not explicitly stated in the agency contract, highlighting the concept of implied authority.

    • Aleatory Contracts: Insurance contracts are considered aleatory, meaning there is a possibility for an unequal exchange of value, as benefits may not always exceed premiums paid.

    • Role of an Agent: An agent represents the insurer by selling goods/services and is authorized to act on behalf of the insurer.

    • Characteristics of Insurance Contracts: Common characteristics include unilateral obligations, being aleatory, and contracts of adhesion, but not bilateral, as they do not require mutual promises.

    • Insurable Interest: Required for a policyowner who must expect to suffer a financial loss upon the insured's death or disability.

    • Express Authority: This type of authority is explicitly defined in the agency contract, allowing agents to perform specific functions.

    • Time of Insurable Interest: In life insurance, insurable interest must exist at the inception of the contract, not throughout its duration.

    • Incorrect Authority Statements: A statement that express authority is determined by a principal's conduct is inaccurate; express authority is clearly defined in a contract.

    • Consideration in Contracts: Legal consideration in insurance is exchanging premiums for the insurer's promise to pay.

    • Unilateral Nature of Contracts: Insurance policies are unilateral contracts since only the insurer is required to fulfill obligations (e.g., making payments).

    • Competent Parties: To enter an insurance contract, parties such as trusts and estates must be competent, while minors and those under the influence of drugs/alcohol cannot.

    • Waiver: The voluntary relinquishment of a known right can prevent an insurer from denying a claim later.

    • Parties and Relationships: Relationships that indicate insurable interest include being closely related, married, or co-signing mortgages; mere friendship doesn't establish it.

    • Void Contracts: A contract based on fraudulent actions (e.g., inducing fraud) is void and without legal effect.

    • Agency Law: The agency relationship allows one individual to act on behalf of another, establishing authority through written agreements.

    • Parol Evidence Rule: This rule states a written contract cannot be contradicted by oral statements made before or at the same time as the contract.

    • Concealment: Intentionally withholding significant information affecting an insurance policy's validity is defined as concealment.

    • Contract Validity: A valid contract requires offer and acceptance, competent parties, and consideration, but does not mandate written evidence.

    • Offer in Insurance: The applicant makes an offer by submitting an insurance application, with acceptance occurring when the insurer issues the policy.

    • Conditional Nature: Insurance agreements require specific conditions to be met before enforcement.

    • Authorization: The authority given to an agent to transact insurance on behalf of the insurer is referred to as authorization.

    • Errors and Omissions: Producers may be liable for mistakes made during the policy underwriting process.

    • Representations vs. Warranties: Representations are statements believed true by the applicant; warranties are guaranteed truths critical to the insurance contract.

    • Authority Limitations: Agents typically cannot authorize claim payments and must adhere to the boundaries of their authority as defined in contracts.

    • Legal Effect of Contracts: Contracts created for illegal purposes are void and cannot be enforced.

    • Timing of Insurable Interest: Must exist at the time of application for life or health insurance, not necessarily during the policy's validity.

    • Unique Insurance Characteristics: Insurance contracts involve conditional terms that necessitate compliance for legal enforcement.

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    Description

    Test your knowledge with flashcards on the legal concepts related to insurance contracts. This quiz covers essential terms and definitions that are foundational in understanding insurance law and the agency relationships within it. Perfect for students of insurance studies or professionals looking to refresh their knowledge!

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