Insurance Lesson 2

Front 1

The elements that compose a legally binding contract perpetuating an insurance transaction are what?

Back 1

Offer & Acceptance + Consideration + Legal Purpose + Competent Parties = Legally Binding Contract

Hint 1

2.1

Front 2

What is offer and acceptance?

Back 2

proposal (offer) and approval (acceptance). Offer and acceptance is completed when a premium payment accompanies the offer made by the proposed insured or applicant and the insurer accepts the offer. Typically, the effective date of the policy would be the date the payment was accepted.

Hint 2

2.1

Front 3

The effective date of a policy is what?

Back 3

the date the insurer accepts an offer by the applicant "as written."

Hint 3

2.1.1

Front 4

What is the consideration clause?

Back 4

The consideration clause specifies the amount and frequency of premium payments that the policyowner must make to keep the contract in force.

Hint 4

2.1.2

Front 5

Explain Legal Purpose.

Back 5

In contract law, legal purpose is the requirement that the object of, or reason for, the contract must be legal.

Hint 5

2.1.3

Front 6

Competent Parties does not include who?

Back 6

Minors, the mentally impaired, and those under the influence of alcohol or drugs are not considered competent parties.

Hint 6

2.1.4

Front 7

An insurance contract is conditional in that what?

Back 7

in that the insurer's promise to pay benefits is dependent on the occurrence of the risk insured against.

Hint 7

2.1.4

Front 8

On what grounds can an insurer may use to avoid making contracted payments.

Back 8

Warranties, representations, and concealment

Hint 8

2.1.5

Front 9

What are Warranties in a contract?

Back 9

a warranty is a statement made by the applicant that is guaranteed to be truthful and becomes part of the contract. In the event that a warranty is discovered to be false, it can be grounds for contract revocation.

Hint 9

2.1.5

Front 10

What are Representation in a contract?

Back 10

a representation is a statement made by the applicant that is believed by the applicant to be truthful. Representations do not become part of the contract and must only be true to the extent that they are material and related to the risk.

Hint 10

2.1.5

Front 11

The main difference between warranties and representations is the consequences of them being untrue. What are they?

Back 11

If a warranty is found to be untrue, the insurer is within their rights to cancel the contract. If a representation is found to be untrue, the insurer is within their rights to cancel the contract only if is proven that the representation was material to contract creation.

Hint 11

2.1.5

Front 12

What is "Right of Assignment."?

Back 12

Policyowners, as opposed to policyholders, can give their policy away since they own the policy outright. The ownership of the contract can be transferred (contract transfer) to another with written notice to the insurer.

Hint 12

2.2

Front 13

Explain Aleatory contracts.

Back 13

In aleatory contracts there is an element of chance for both parties. The dollar given by the policyholder (premiums) and the insurer (benefits) may not be equal. Aleatory contracts are unequal contingencies on the potential for profit or loss upon both parties in the insurance contract. The dollar values exchanged may not be equal

Hint 13

2.2.1

Front 14

The opposite of Aleatory is what?

Back 14

Commutative

Hint 14

2.2.1

Front 15

Who prepares a contract of adhesion.

Back 15

A contract of adhesion is prepared by the insurer rather than by negotiation between the contracting parties.

Hint 15

2.2.2

Front 16

Explain adhesion.

Back 16

contract of adhesion" because buyers must adhere to the terms of the contract already in existence. They have no opportunity to negotiate terms, rates, values, etc. the agent is prohibited from negotiating insurance contract provisions.

Hint 16

2.2.2

Front 17

What is A unilateral insurance contract?

Back 17

A unilateral insurance contract obligates only one party (the insurer) in the contract; the distinctive element that grants the policyowner the right to terminate the policy at any time and prohibits the insurer from doing so (unless premium payments are not being made).

Hint 17

2.2.3

Front 18

What is a Valued contracts?

Back 18

Valued contracts pay a predetermined amount with no way to assess loss.

Hint 18

2.2.4

Front 19

What is Indemnity contracts?

Back 19

Indemnity contracts (or reimbursement contracts) pay the amount of the loss only (up to the policy limit) by paying the amount necessary to return the insured to the same position he/she was in before the loss occurred.

Hint 19

2.2.4

Front 20

What is meant by a person having an Insurable Interest?

Back 20

A person has an insurable interest in something when loss or damage to the insured would cause that person to suffer a financial loss or certain other kinds of losses.

Hint 20

2.2.5

Front 21

What are the specific criteria defining the kinds of insurable interest that are acceptable?

Back 21

1. Love and Affection is interest that developed through marriage. 2. Blood Relationships such as a parent, child or sibling.3. Economic Interests such as key person insurance, i.e., a mortgage company on the life of the mortgagee, an automobile finance company on the life of the auto purchaser, etc.

Hint 21

2.2.5

Front 22

What is a STOLI?

Back 22

Stranger-Originated Life Insurance. These are life insurance arrangements where investors persuade consumers to take out new life insurance policies with the investors named as beneficiary. Investors loan money to the insured to pay the premiums and the insured ultimately assigns ownership of the policy to the investors, who receive the death benefit when the insured dies.

Hint 22

2.2.5