2 Legal Concepts

The Consideration clause of an insurance contract includes?

The schedule and amount of premium payments. (The Consideration clause of a Life or Health policy includes the schedule and amount of premium payments.)

Life and health insurance policies are?

Unilateral contracts. (Life and health insurance policies are considered unilateral contracts because one party makes a promise, and the other party can only accept by performance.)

Who makes the legally enforceable promises in a unilateral insurance policy?

Insurance company. (Under a unilateral insurance policy, the insurance company makes the legally enforceable promises.)

Insurance policies are offered on a "take it or leave it" basis, which make them?

Contracts of Adhesion. (Because insurance policies are offered on a "take it or leave it" basis, they are referred to as Contracts of Adhesion.)

A policy of adhesion can only be modified by whom?

The insurance company. (A policy of adhesion is best described as a policy which only the insurance company can modify.)

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

Insurable interest. (Without insurable interest, a life insurance policy would be considered a wagering contract.)

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

Investor-Originated Life Insurance. (Investor-originated life insurance (or IOLI) is used to circumvent state insurable interest statutes. This is done when an investor (or stranger) persuades an individual to take out life insurance specifically for the purpose of selling the policy to the investor. The investor compensates the insured and makes the premiums, then collects the death benefit when the insured dies.)

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

Warranty.

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

Legal Purpose. (Insurable Interest)

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

Contract. (Offer, acceptance, and consideration are all elements of a contract.)

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

Unilateral.

When must insurable interest exist for a life insurance contract to be valid?

Inception of the contract. (Insurable interest must only exist at the inception of the contract.)

If a contract of adhesion contains complicated language, to whom would the interpretation be in favor of?

Insured. (In a contract of adhesion, any confusing language would be interpreted in the favor of the insured.)

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

Investor-Originated Life Insurance.

What is the consideration given by an insurer in the Consideration clause of a life policy?

Promise to pay a death benefit.

When must insurable interest be present in order for a life insurance policy to be valid?

At the time of application.

if a contract of adhesion contains questionable language, to whom would the interpretation be in favor of?

Insured.

When third-party ownership is involved, applicants who also happen to be the stated primary beneficiary are required to have?

Insurable interest in the proposed insured.

Which of these is NOT considered to be an element of an insurance contract?

Negotiation.

Offer & Acceptance?

A definite. Unqualified proposal (offer) by one party and the acceptance of its exact terms by the other.

Consideration.

Consideration is given by the applicant in exchange for the insurer’s promise to pay benefits.

Legal Purpose.

To be legal, a contract must have a legal purpose. This means that the object of the contract and the reason the parties enter into the agreement must be legal.

Competent Parties.

To be enforceable, a contract must be entered into by competent parties. With a contract of insurance, the parties to the contract are the applicant and the insurer. The insurer is considered competent if it has been licensed or authorized by the state(s) in which it conducts business. The applicant, unless proven otherwise, is presumed to be competent with three possible exceptions: ► Minors ► The mentally infirm ► Those under the influence of alcohol or narcotics

Aleatory

Insurance contracts are aleatory. This means there is an element of chance and potential for unequal exchange of value or consideration for both parties. Both insurance and gambling contracts are typically considered aleatory contracts.

Adhesion.

Insurance contracts are contracts of adhesion. This means that 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. Any confusing language in a contract of adhesion would be interpreted in favor of the insured. The purpose is to correct any advantage that may result for the party who prepared the contract. A policy of adhesion can also be described as one which the insurance company can modify.

Unilateral.

This means that only one party (the insurer) makes any kind of enforceable promise.

Conditional.

This means that the insurer’s promise to pay benefits depends on the occurrence of an event covered by the contract. If the event does not materialize, no benefits are paid. Furthermore, the insurer’s obligations under the contract are conditioned on the performance of certain acts by the insured or the beneficiary. For example, the timely payment of premiums is a condition for keeping the contract in force. If premiums are not paid, the company is relieved of its obligation to pay a death benefit.

Utmost Good Faith.

This means both the policy owner and the insurer must know all material facts and relevant information. There can be no attempt by either party to conceal, disguise, or deceive. A consumer purchases a policy based largely on the insurer and agent’s explanation of the policy’s features, benefits, and advantages. Insurance applicants are required to make a full, fair and honest disclosure of the risk to the agent and insurer.

Warranty.

A warranty in insurance is a statement made by the applicant that is guaranteed to be true in every respect. It becomes part of the contract and, if found to be untrue, can be grounds for revoking the contract. Warranties are presumed to be material because they affect the insurer’s decision to accept or reject an applicant.

Representation.

Consider to be true and accurate to the best of the applicant’s belief. It is used by the insurer to evaluate whether or not to issue a policy.

Concealment.

Concealment is defined as the failure by the applicant to disclose a known material fact when applying for insurance.

Insurable Interest.

Another element of a valid insurance contract is insurable interest. Insurable interest is a component of legal purpose. This means that the person acquiring the contract (the applicant) must be subject to loss upon the death, illness, or disability of the person being insured. To have "an insurable interest" in the life of another person, an individual must have a reasonable expectation of benefiting from the other person’s continued life.

STOLI (Stranger-Originated Life Insurance).

Life insurance arrangements where investors persuade individuals (typically seniors) to take out new life insurance, naming the investors as beneficiary. This is sometimes called Investor-Originated Life Insurance (IOLI). These arrangements are used to circumvent state insurable interest statutes.

Express Authority.

Express authority is the authority a principal deliberately gives to its agent.

Implied Authority.

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.

Apparent Authority

Apparent authority is the appearance or assumption of authority based on the actions, words, or deeds of the principal. It can also exist because of circumstances the principal created.

Waiver.

A waiver is the voluntary giving up of a legal, given right. If an insurer fails to enforce (waives) a provision of a contract, it cannot later deny a claim based on a violation of that provision.

Void/Voidable Contract

Void The terms void and voidable are often incorrectly used interchangeably. A void contract is simply an agreement without legal effect. Voidable voidable contract is an agreement which, for a reason satisfactory to the court, may be set aside by one of the parties to the contract.

Estoppel.

Legal process used to prevent a party from reclaiming a right or privilege that was already waived. legal consequence of the waiver.

Parol evidence.

Prevents parties from changing the meaning of a written contract by trying to introduce oral or written statements made before the formation of the contract.

The part of a life insurance policy guaranteed to be true is called a?

Warranty

A life insurance arrangement which circumvent insurable interest statues is called?

Inventor-originated life Insurance

Warranty

Is the statement guaranteed to be true.

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

Inventor-originated life insurance.

A policy of adhesion can only be modified by whom?

By insurance company.

Which of the following consists of an offer, acceptance, and consideration?

Contract

Insurance policies are offered on a "take it or leave it" basis which makes them?

Contracts of adhesion

Which of these is not considered to be an element of an insurance contract?

Negotiating

When must insurable interest exist for the life insurance contract to be valid?

Inception of the contract

A life insurance policy would be considered a wagering contract without?

Agent solicitation

Strange originated life insurance (STOL I )has been found to be in violation of which of the following contractual elements?

Legal purpose. (insurable interest).

The consideration clause of an insurance contract includes?

The schedule and amount of premium payments.

What is the consideration given by an insurer in the consideration clause of a life policy?

Promise to pay a death benefit to named beneficiary

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

Unilateral

E and F are business partners. Each steaks out $500,000 life insurance policy on the other, naming himself as primary beneficiary. E and F eventually terminate their business and four months later E dies. Although he wasn’t married with three children at the time of death the primary beneficiary is still F. However on insurable interest no longer exist. Where will the proceeds from E’s life insurance policy be directed to?

F

Statements made on an insurance application that are believed to be true to the best of the applicants knowledge are called?

Representations

A policy of adhesion can only be modified by whom?

Insurance company

If a contract of adhesion contains complicated language, to whom would the interpretation be in favor of?

Insured

At what point does an formal contract become binding?

When one party makes an offer and the other party accepts that offer.

Which of these is not a type of agent authority?

Principal