2010 Il Life & Health Insurance Exam Unit 3

Front 1

Agency

Back 1

– Relationship in which one person is authorized to
represent and act on behalf of another person or
corporation
• Corporation is a legal person, cannot act for itself,
so must act through agents

Front 2

Agent

Back 2

– Person authorized to act on behalf of another person,
who is called the principal
– In insurance industry, agent is the sales
representative or producer for the insurance company

Front 3

Principal

Back 3

n insurance industry, the principal is the insurance
company

Front 4

Actual/expressed authority

Back 4

authority as specified
in the producer’s contract—written authority

Front 5

Implied authority

Back 5

authority that is not expressly
granted, but which a producer is assumed to have in
order to transact the business of the principal (i.e.
printing business cards that contain the principal’s
name)

Front 6

Apparent authority

Back 6

authority a reasonable person
would assume a producer has based on the
producer’s actions and statements

Front 7

Elements of a Legal Contract

Back 7

CLAC
1. Competent parties
2. Legal objective
3. Agreement (offer and acceptance)
4. Consideration

Front 8

Parts of the Insurance Contract

Back 8

1. Policy face (title page)
2. Insuring clause
3. Conditions
4. Exclusions

Front 9

Unilateral contract

Back 9

– exchange of an act for a
promise
– Legally enforceable to only one party to the contract
– Only the insurer has promise to keep

Front 10

Contract of adhesion

Back 10

– The contract must be accepted by the insured exactly
as written by the company—insured can take it or
leave it
– Because only insurers draw up contracts, courts
generally have held that any ambiguity (whenever a
term in the policy could be interpreted in two different
ways) in the contract should be interpreted in favor of
the insured

Front 11

Aleatory contract

Back 11

– The insurance contract is valid even though there are
unequal exchanges between the parties
– Small premium paid, large coverage benefit

Front 12

Conditional contract

Back 12

– The contract may be voided if all policy conditions are
not met

Front 13

Warranties

Back 13

– Statements considered to be guaranteed to be true
– Guarantees answers on the application are true
– Breach of warranty provides grounds for voiding the
contract

Front 14

Concealment

Back 14

– Failure to disclose known facts
– An insurer may be able to void the insurance if it can
prove that the insured intentionally concealed a
material fact

Front 15

Fraud

Back 15

– Intentional misrepresentation of a material fact

Front 16

Entire contract

Back 16

– Courts look at entire contract to determine intent of
the parties
– Do not consider material added to the basic content,
nor do they take only parts of the contract to make a
determination