Insurance License Section 3

Front 1

life insurance contract

Back 1

• an agreement enforceable by law
• with a life insurance contract, the insurer binds itself to pay a certain sum upon the death of the insured
• in exchange, the policyowner pays premiums
  

Front 2

agency

Back 2

• a relationship in which one person is authorized to represent and act for another person, who is called the "principal"
• principal = insurance company
• agent = representative or producer
• payment to the agent is pmt to the principal
• contracts made by agent are contracts of principal
• agent's knowledge = principal's knowledge
  

Front 3

presumption of agency

Back 3

• if a company supplies an individual with forms and other materials that make is appear that he is an agent of the company, the court will think a presumption of agency exists
• company is then bound by the acts of the individual whether or not he has been given authority
  

Front 4

3 types of agent authority

Back 4

1. express
2. implied
3. apparent
   

Front 5

express authority

Back 5

the explicit, definite authority which the insurer has given the producers under the terms of the agent's written contract

Front 6

implied authority

Back 6

• not granted under a contract, but is actual authority granted to an agent in accordance with general business practices
• addresses the relationship between the producer and the company
• not written into the contract but necessary to conduct insurance business
  

Front 7

apparent authority

Back 7

• authority that agent seems to have because of certain actions
  
• members of the public have reason to believe that the agent does have auth to conduct biz
• ex: business cards
  

Front 8

collection of premium

Back 8

• all premiums received by an agent are collected and held in trust
• agent may establish an acct separate from a personal acct to deposit the trust funds
• agent's records must clearly distinguish the funds for each individual
  

Front 9

fiduciary

Back 9

• a person in a position of financial trust
• agent has an obligation to act in the best interest of the insured
  

Front 10

commingling

Back 10

mixing personal funds with the insured's or insurer's funds

Front 11

suitability considerations

Back 11

agent and insurer should obtain info from applicant to make sure the product is appropriate for their needs

Front 12

waiver

Back 12

the intentional and voluntary giving up of a known right

Front 13

estoppel

Back 13

one party who has given up a right may be blocked from changing conduct and reasserting the right, after another party has already begun to rely upon it, if doing so would be to the detriment of a second party

Front 14

errors and omissions insurance

Back 14

• needed by professionals who give advice to their clients
• covers negligence, error, or omission by the insurer or its representative
• only covers losses resulting from the 3 factors above
• usually have a high deductible
• may be written with both a limit per claim and a limit for all claims during the policy period
  

Front 15

can't bind the insurer

Back 15

life or health producer can solicit applications and collect initial premium pmts, but the app and premium must be sent to the insurance company underwriter to determine whether the company will accept the risk

Front 16

characteristics of life insurance contracts

Back 16

• generally noncancelable
• long term
• contestable for a one or two year period
  

Front 17

contract definition and elements

Back 17

A legal agreement between two or more parties promising a certain performance in exchange for a valuable consideration
Elements necessary for a valid contract:

• agreement (offer and acceptance)
• consideration
• competent parties
• legal purpose
  

Front 18

offer

Back 18

• a proposal that creates a contract if accepted by another party
• may come from the insurer or the applicant
• no offer if the applicant sends the application without payment of the premium (that's just an invitation for the company to make an offer)
• an acceptance must be unconditional and unqualified
  

Front 19

consideration

Back 19

• refers to an exchange of value
• each party to the contract must give valuable consideration such as statements, promises, and/or monetary pmts
• applicant gives the premium and representation statements and the insurer gives its promise to fulfill its part of the contract
  

Front 20

legal purpose

Back 20

to be valid, a contract must be for legal purpose and not contrary to public policy

Front 21

4 parts of life insurance contracts

Back 21

1. policy face (title page)
2. insuring clause
3. conditions
4. exclusions
   

Front 22

policy face

Back 22

• usually the first page
• includes policy #, name of the insured, policy issue date, and the limits of the policy
• has signatures of secretary and president of the issuing insurance co
• info on the right to cancel and warning to read carefully
  

Front 23

insuring clause

Back 23

• generally on policy face
• statement by insurance company that sets out the essential element of insurance: the promise to pay for losses covered by the policy in exchange for the insured's premium and compliance w/ policy terms
  

Front 24

exclusions

Back 24

certain risks are not insurable (war and acts of war, self-inflicted injuries, certain hazardous occupations or avocations like scuba diving and ski diving)

Front 25

contracts of adhesion

Back 25

• insurance contracts are contracts of adhesion
  
• insured has no part in determining the wording of the contract
• if the wording is unclear, courts will interpret it in favor of the insured
  

Front 26

written contracts

Back 26

• if material is unclear and inconsistent between printed, typed, or handwritten material in the contract, the typed or handwritten part will determine intent
• handwritten > typed

Front 27

utmost good faith

Back 27

• required between the parties in an insurance contract
• each party is entitled to rely on the representations of the other, and each should have a reasonable expectation that the other is acting in good faith without attempts to conceal or deceive

Front 28

aleatory contract

Back 28

• an insurance contract is an aleatory contract
• performance depends upon an uncertain event
• each party may not give and receive the same value
  

Front 29

unilateral

Back 29

• insurance contracts are unilateral because after the insured has completed the act of paying the premium, only one party of the contract is legally required to do something
• ex: insurer promises to pay the death benefit in the event of a loss
  

Front 30

conditional

Back 30

when a loss occurs certain conditions must be met to make the contract legally enforceable (ex: might have to prove insurable interest and proof of loss)

Front 31

personal contract

Back 31

Insurance policies are generally personal contracts between the insured and insurer (once a policy is formed it cannot be transferred to another person without consent of the insurer).

But it is possible to assign ownership of a life insurance policy to another person (ex: collateral for a loan)

Front 32

warranty

Back 32

something that becomes part of the contract itself and is a statement that is considered to be guaranteed to be true

Front 33

representation

Back 33

a statement believed to the true to the best of one's knowledge

Front 34

concealment

Back 34

failure to disclose known facts

Front 35

material info/material fact

Back 35

crucial to the acceptance of risk (makes a difference in whether or not the insurance company would have insured you)

Front 36

parol (oral) evidence rule

Back 36

• limits the impact of waiver and estoppel on contract terms by disallowing oral evidence based on statements made before the contract was created
• it's assumed that oral statements made before the contract was formed were incorporated in the contract
• an oral stmt may waive contract provisions only when the stmt occurs after contract exists
  

Front 37

void contract

Back 37

an agreement without legal effect

Front 38

voidable contract

Back 38

agreement which, for a reason satisfactory to the court, may be set aside by one of the parties to the contract