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32 Cards in this Set

  • Front
  • Back

cancellation

voluntary act of terminating an


insurance contract

legally valid and binding

offer and acceptance, consideration,


legal purpose, and competent partie

Offer and Acceptance

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.



schedule and amount of premium payments

Legal Purpose

the reason the


parties enter into the agreement must be legal

Competent Parties

► Minors


► The mentally infirm


► Those under the influence of alcohol or narcotics

Aleatory

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.

Unilateral

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


promise.

Personal Contract

For this reason, people who buy life insurance policies


are called policyowners rather than policyholders. Policyowners actually own their policies and can give them away


if they wish. This transfer of ownership is known as assignment. To assign a policy, a policyowner simply notifies the


insurer in writing. The company will then accept the validity of the transfer without question. The new owner is


granted all of the rights of policy ownership.

Conditional

This means that the insurer's promise to pay benefits depend on the occurrence


of an event covered by the contract. If the event does not materialize, no benefits are paid.

Valued or Indemnity

A valued contract pays a stated sum


regardless of the actual loss incurred. An indemnity contract, however, is one that pays an amount equal to the loss.

Utmost Good Faith

nsurance applicants are required to make a full, fair and honest disclosure of the risk to the


agent and insurer

Warranty

guaranteed to be true in every respect

Representation

A statement made by the applicant that they consider to be true and accurate to


the best of the applicant's belief.

Concealment

failure by the


applicant to disclose a known material fact when applying for insurance. If

Insurable Interest

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. A policy obtained by a person not having an insurable interest

Stranger-Originated Life Insurance (STOLl)

investors named as beneficiary.These arrangements are used to


circumvent state insurable interest statutes.

Principles of Agency Law (4)

The acts of the agent (within the scope of his authority) are the acts of the principal


► A contract completed by an agent on behalf of the principal is a contract of the principal


► Payments made to an agent on behalf of the principal are payments to the principal


► Knowledge of the agent regarding business of the principal is presumed to be knowledge of the principal

Agent Authority

Authority is what’s given by an insurer to a licensee to


transact insurance on their behalf.

Express authority.

is the authority a principal deliberately gives to its agent.

mplied authority.

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.

Agent as a Fiduciary

A fiduciary is a person who holds a


position of financial trust and confidence

Brokers versus Agents

Unlike agents, brokers legally represent the insureds. A broker (or independent agent) may represent a number of


insurance companies under separate contractual agreements. A broker solicits and accepts applications for


insurance and then places the coverage with an insurer.

Professional Liability Insurance (E&O)

errors and omissions (E&O) professional liability insurance.

Waiver

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.

Estoppel

Estoppel is the legal impediment to one party denying the


consequences of its own actions or deeds if such actions or deeds result in another party acting in a specific manner


or if certain conclusions are drawn. In other words, it is the loss of defense.

Parol Evidence Rule

The parol evidence rule


states that when parties put their agreement in writing, all previous verbal statements come together in that writing


and a written contract cannot be changed or modified by parol (oral) evidence.

Void

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.

Fraud

With life insurance contracts, an insurer has only a limited


period of time (usually two years from date of issue) to challenge the validity of a contract. After that period, the


insurer cannot contest the policy or deny benefits based on material misrepresentations, concealment, or fraud.