Texas Examination For Life, Accident & Health Insurance / Series 14-54

Front 1

Contract

Back 1

An agreement enforceable by law. It is the means by which one or more parties bind themselves to certain promises. 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. Because contracts of insurance are binding and enforceable, certain legal concepts extend to the contract parties: the applicant and the insurer, as well as the agent who brings them together.

Front 2

Agency

Back 2

A relationship in which one person is authorized to represent and act for another person or for a corporation.

Front 3

Agent

Back 3

A person authorized to act on behalf of another person

Front 4

Principal

Back 4

The person the agent is acting on behalf of.

Front 5

Three Types of Authority for an Agent

Back 5

1) Express
2) Implied
3) Apparent

Front 6

Express Authority

Back 6

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

Front 7

Implied Authority

Back 7

Authority that is not expressly granted under an agency contract, but it is actual authority granted to an agent in accordance with general business practices. Implied authority addresses the relationship between the producer and the company. For example, these authorities are not written into the contract but are necessary to conduct insurance business; for example, when the producer collects the initial premium from an applicant on behalf of the insurer.

Front 8

Apparent Authority

Back 8

Authority the agent seems to have because of certain actions undertaken by the agent, thereby giving members of the public reason to believe that the agent does indeed have such authority to conduct business. For example, business cards and rate books give the impression to the applicant that the producer works for and represents the company; the agent’s words could appear to be the company’s words.

Front 9

Fiduciary

Back 9

A person in a position of financial trust.

Front 10

Commingling Mixing personal funds with the insured’s or insurer’s funds.

Back 10

Mixing personal funds with the insured’s or insurer’s funds.

Front 11

Suitability considerations

Back 11

Before an agent takes an applica tion for insurance or an annuity product, the agent and the insurer should obtain information from the prospective applicant that will help determine if either an insurance or annuity product is an appropriate means of addressing the prospect’s needs and, if so, what kind of product will best address those 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 (or stopped) from changing conduct and reasserting the right, after another party has begun to rely upon it, if doing so would be to the detriment of the second party.

Front 14

Error

Back 14

Providing incorrect advice or information.

Front 15

Omission

Back 15

Failure to inform of an important issue.

Front 16

Offer

Back 16

A proposal that becomes a contract if accepted by the person being offered the proposal.

Front 17

Four Parts of an Insurance Policy

Back 17

1) Policy Face
2) Insuring Clause
3) Conditions
4) Exclusions

Front 18

Policy Face

Back 18

The first page of the insurance policy. It includes the policy number, name of the insured, policy issue date, the amount of premium and dates the premium is due, and the limits of the policy. The policy face also includes the signatures of the secretary and president of the issuing insurance company. In addition, generally there are clauses required by law to give the insured information on the right to cancel and a warning to the insured to read the policy carefully.

Front 19

Insuring Clause

Back 19

A statement by the 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 with policy terms.

Front 20

Conditions

Back 20

Provisions that apply to the insured and insurer.

Front 21

Exclusions

Back 21

A basic part of the contract, and a complete knowledge of them is essential to a thorough understanding of the agreement. Certain risks must be excluded from insurance contracts because they are not insurable. Such risks include war and acts of war, self-inflicted injuries, and certain hazardous occupations or avocations, such as sky diving, scuba diving, and auto racing.

Front 22

Utmost Good Faith

Back 22

Each party is entitled to rely on the representations of the other, and each party should have a reasonable expectation that the other is acting in good faith without attempts to conceal or deceive.

Front 23

Aleatory

Back 23

Performance depends upon an uncertain event.

Front 24

Adhesion

Back 24

The insurance company drafts the wording of the contract and the insured simply adheres to it. As a result, any ambiguity in the contract is usually resolved in favor of the insured. Courts will usually grant any reasonable expectation on the part of the policyowner or the beneficiaries from a contract that was drawn up by the insurance company.

Front 25

Warranty

Back 25

Something that becomes part of the contract itself and is a statement that is considered to be guaranteed to be true. Under a strict interpretation, any breach of warranty provides grounds for voiding the contract.

Front 26

Representation

Back 26

A statement believed to be true to the best of one’s knowledge. An insurer seeking to void coverage on the basis of a misrepresentation usually has to prove that the misrepresentation is material to the risk.

Front 27

False Pretenses

Back 27

Also known as impersonation. It means assuming the name and identity of another person for the purpose of committing a fraud.

Front 28

Misrepresentation

Back 28

A written or oral statement that is false. Generally, for a misrepresentation to be grounds for voiding an insurance policy, it has to be material to the risk.

Front 29

Concealment

Back 29

The failure to disclose known facts. Generally, an insurer may be able to void the insurance if it can prove that the insured intentionally concealed a material fact.

Front 30

Material Information/Material Fact

Back 30

Something that is crucial to acceptance of the risk. For example, if the correct information about something would have caused the insurance company to deny a risk or issue a policy on a different basis, the information is material. If a person misrepresents her age or gender, this may be considered material misrepresentation, and the policy could be voided as a result. However, the policy would only be voided if the company would not have issued the policy at all had the company possessed the correct information.

Front 31

Fraud

Back 31

An intentional act designed to deceive and induce another party to part with something of value.

Front 32

Consideration

Back 32

The price requested and given in exchange for a promise or an act. In terms of insurance, it is the price of the contract, or the premium, the insured pays to keep the contract and its promised benefits in force.