Questions and Answers
What is life insurance?
What does health insurance cover?
percentage of medical bills
The four elements of a valid insurance contract are: consideration, legal purpose, offer and acceptance, and __________.
competent parties
What is a contract of adhesion?
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An aleatory contract implies equal exchange between parties.
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What is a unilateral contract?
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What characterizes a personal contract in insurance?
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Insurance contracts are considered unconditional.
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What distinguishes valued contracts from indemnity contracts in insurance?
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What does utmost good faith require in insurance?
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What are warranties in an insurance context?
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What are representations in an insurance context?
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What is concealment in insurance?
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Study Notes
Life Insurance
- Agreement for the insurer to pay a predetermined amount, known as the face amount or benefit.
- Premium paid by the insured serves as consideration for this agreement.
Health Insurance
- Insurer pays a portion of the insured's medical expenses in exchange for premiums.
- The benefit is typically a percentage of the total medical bills incurred.
Elements of a Valid Contract
- Consideration: Insured pays premium as consideration; insurer promises to pay benefits.
- Legal Purpose: Must comply with laws and public policy.
- Offer and Acceptance: Contract initiates when the applicant submits an application and initial premium.
- Competent Parties: All parties must be of legal age and mentally capable, free from undue influence.
Contract of Adhesion
- Prepared solely by the insurer, leaving no room for negotiation.
- Insured must accept or reject the entire contract, favoring the insured in case of ambiguities.
Aleatory Contract
- Involves unequal exchange; premiums paid are minimal compared to potential benefits.
- Example: A $50 premium can result in a $50,000 benefit, highlighting the contract's gamble.
Unilateral Contract
- Legally binding only on the insurer to pay claims.
- Insured has no concrete obligation to make future premium payments but risks cancellation for non-payment.
Personal Contract
- Insurance contracts are typically personal and non-transferable without the insurer's consent.
- Life insurance allows policy transfers, as the owner’s identity does not affect risk assumptions.
Conditional Contract
- Benefits are contingent on certain conditions being met, necessitating events covered by the contract.
Valued vs. Indemnity Contracts
- Life insurance is valued; it pays a specific amount upon loss.
- Health insurance is an indemnity; it reimburses actual medical expenses, adhering to the Principle of Indemnity to prevent profit from the loss.
Utmost Good Faith
- Requires transparency from both parties to avoid misrepresentation or fraud.
- Full and honest disclosure of risks is essential, along with accurate policy explanations by agents.
Warranties
- Statements guaranteed to be true by the applicant, forming part of the contract.
- Misrepresentation of warranties can lead to contract revocation.
Representations
- Statements believed to be true by the applicant; they are not part of the contract.
- Need to be true only as they materially relate to the risk involved.
Concealment
- Withholding crucial information from the insurer can impact the contract validity (e.g., not disclosing smoking habits or medical conditions).
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Description
This quiz focuses on key legal concepts related to insurance contracts as covered in Chapter 2 of the XCEL study materials. It includes essential terms such as life insurance and health insurance, helping learners understand the principles and elements involved in these contracts.
