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17 Cards in this Set

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1) What purposes does insurance serve? (Pg. 343)
a. Insurance serves to shift the risk of damage from the insured to the insurance company. It also spreads the risk among a number of parties so that no single individual must bear the full amount of the damage or loss.
2) Explain the meaning of: insurance policy, insured, insurer, premium, rider, and endorsement. (Pg. 343-344)
a. An insurance policy is the written evidence of the terms of a contract of insurance.
b. The insured is the party that obtains the insurance protection. The insurer is the insurance company.
c. A premium is the price paid by the insured for coverage and which varies according to the amount of risk associated with the particular insured.
d. A rider is a separate clause incorporated in the insurance contract to supplement the standard contract’s terms.
e. An endorsement is the written evidence of a change in the terms of the existing insurance contract.
3) Distinguish an insurance agent from an insurance broker and an insurance adjuster. (Pg. 344)
a. An insurance agent is an employee of an insurance company who arranges the insurance contract on behalf of an insurance company. An insurance broker conducts an independent business and, generally, acts for the insured, no the insurer. An insurance broker will deal with a number of insurance companies and choose the insurance policy that best suits the insured. An insurance adjuster is the individual who appraises damage or loss, determines whether the loss is covered by the insurance contract and, if so, what the amount of the loss (compensation) should be.
4) Why were statutes passed to regulate insurance? (Pg. 344-45)
a. Statutes act to protect the public by requiring insurance companies to abide by certain rules and regulations.
5) What is a deductible? (Pg. 345)
a. A deductible is a clause reuiring the insured to bear the loss up to a stated amount. For example, if you have a $50 deductible and you are in an accident, you must pay the first $50 worth of damage and the insurance company will pay the balance.
6) How does an insurance contract differ from a wager? (Pg. 348)
a. In an insurance contract, the insured must have an insurable interest whereas in a wager he/she need not.
7) When do you have an insurable interest in a contract for property insurance? For life insurance? Why is it important to know the answers to these questions? (Pg. 348)
a. In a property insurance contract, the insured must have an insurable interest at the time the contract was formed and at the time the claim arises. Where the contract is for life insurance, the person buying the insurance must either obtain written consent of the person whose life is being insured or have an insurable interest at the time the contract is formed, but it is not necessary at the time the claim arises. It is important to know whether an insured has an insurable interest because without it the insurance contract is void.
8) What is utmost good faith and what part does it play in insurance law? (Pg. 350-51)
a. Utmost good faith requires the insured to reveal any relevant information to the insurance company. Relevant information is any information that might affect the amount of the premium or whether the insurance company would insure at all. If utmost good faith is not displayed, an insurance claim may be defeated.
9) What role does notice play with respect to insurance contracts? (Pg. 350-51)
a. There is a statutory term requiring the insured to notify the insurer promptly of any change that is material to the risk and within the control and knowledge of the insured. Where prompt notice is not given by the insured, the insurer is absolved from liability under the policy.
10) How do you assign a life insurance contract? A property insurance contract? (Pg. 351)
a. To assign a life insurance contract, you need only properly pass the rights under the insurance to a third party. The insurer’s consent is not required. This is because the policy often has a cash surrender value. Under a property insurance contract, you cannot assign without the consent of the insurer.
11) What is subrogation? (Pg. 351)
a. Subrogation is a substitution of one person for another so that the rights and duties that attach to the original person become attached to the substituted one. In other words, one party is said to “stand in another’s shoes.”
12) List three important characteristics of a guarantee. (Pg. 352-54)
a. In a guarantee, a guarantor makes a promise to a creditor that if a debtor defaults, he/she will perform the debtor’s obligation. Second, a claim under the guarantee arises only if the debtor himself/herself defaults. Third, a guarantor’s obligation to pay arises immediately upon default by the principal debtor.
13) Must a creditor sue the debtor before it sues the guarantor? (Pg. 352-254)
a. Generally, a creditor need not sue the primary debtor before it sues the guarantor. However, the debtor must default before the creditor can sue the guarantor. The guarantee may have a term requiring the creditor to first sue the debtor.
14) What consideration does a guarantor receive for giving a guarantee? (Pg. 354-55)
a. Normally, the consideration is that the creditor forebears from suing the debtor or else grants credit to the debtor when he/she otherwise would not. Consideration is not automatic, however, and must be proven to exist.
15) What acts of the creditor will discharge the guarantor’s obligation? (Pg 355-56)
a. If a creditor agrees to a material change in the scope of the debtor’s liability without obtaining the consent of the guarantor, the guarantor is discharged from his/her obligation under the guarantee.
16) Explain how the concept of subrogation works in a guarantee. (Pg. 357)
a. Where a guarantor pays the loan for a debtor, the guarantor steps into the shoes of the creditor and has the right to sue to debtor.
17) Must a guarantee be in writing to be enforceable? (Pg. 357)
a. By virtue of the Statute of Frauds, a guarantee must be in writing to be enforceable.