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10 Cards in this Set
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A contract is voidable when it: * A) was never in effect.* B) lacks one of the basic elements of a legal contract. * C) is binding unless the party with the right to set it aside wishes to do so. * D) cannot be enforced by either party. |
c A voidable contract is an agreement that, for a reason satisfactory to a court, may be set aside by one of the parties to the contract. Unless and until the contract is disaffirmed by one of its parties, however, it remains enforceable. |
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Since the obligations of the insurance company hinge on certain acts of the policyowner, the beneficiary, or both, the insurance contract is termed: * A) aleatory.* B) unilateral. * C) bilateral. * D) conditional. |
D Insurance is a conditional contract because the obligations of the insurance company hinge on the performance of certain acts by the owner and the beneficiary, such as the payment of premiums and furnishing proof of loss. |
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The fact that an insurance contract promises to pay benefits contingent on a future uncertainty (such as death or illness) makes it what type of contract? * A) Conditional.* B) Adhesion. * C) Aleatory. * D) Estoppel. |
A An insurance contract is conditional in that the insurer's promise to pay benefits is dependent on the occurrence of the risk insured against. If the loss does not materialize, no benefits are paid. |
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An insurance contract is prepared by one party, the insurer, rather than by negotiation between the contracting parties. Which of the following statements explains this characteristic of insurance contracts? * A) The insurance contract is a conditional contract.* B) The insurance contract is a contract of adhesion. * C) The insurance contract is an aleatory contract. * D) The insurance contract is a unilateral contract. |
B Insurance contracts are contracts of adhesion, meaning that they are prepared by one party, the insurer. They are not negotiated contracts. In effect, the applicant "adheres" to the terms of the contract when he or she accepts it. |
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With a life insurance contract, which of the contracting parties makes an enforceable promise? * A) Agent.* B) Applicant or owner. * C) Insurer. * D) Beneficiary. |
C A life insurance contract is unilateral in that only one party--the insurer--makes an enforceable promise (the promise to pay the policy's benefit if certain occurrences come to pass or certain conditions are met). The applicant or owner makes no enforceable promise and is not legally required to maintain the contract (by continuing to pay the premiums.) The owner can let the policy lapse at any time. Of course, once the owner stops paying the premiums, the insurer can cancel the policy. |
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Which of the following statements pertaining to a life insurance contract is CORRECT? * A) The term "adhesion" indicates that a life insurance contract involves no exchange of equivalent values.* B) The term "voidable" refers to the fact that under certain circumstances the contract can be voided by one of the parties. * C) The term "unilateral" refers to the legal obligations of the policyowner. * D) The term "conditional" indicates that the insurer will pay benefits regardless of a loss. |
B A "unilateral contract" in insurance refers to the insurer's legal obligations. "Adhesion" indicates that the contract was drafted by one party (the insurer) and must be accepted or rejected by a second party (the applicant), who cannot bargain with respect to its terms. "Conditional" refers to the fact that the insurer's promise to pay benefits is conditioned on the occurrence of a loss. A "voidable" contract is an agreement that can be voided by one of the parties, if the reason for voiding the contract is acceptable to the court. The term "voidable" contract should not be confused with the term "void" contract, which is simply an agreement without any legal effect. |
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The intentional failure to disclose known facts on an insurance application is called: * A) misrepresentation.* B) concealment. * C) twisting. * D) adhesion. |
Concealment occurs when the applicant intentionally fails to disclose known facts that could influence the issuance of the policy. This may give the insurer grounds for voiding the policy. B |
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Which of the following is the legal principle that allows a court to order an insurer to provide coverage not explicitly provided for in the contract? * A) Utmost good faith.* B) Conditional. * C) Adhesion. * D) Indemnity. |
C An insurance contract is a contract of adhesion. The insurer writes the contract and the insured adheres to it as the contract has been written. Insureds are protected by the courts with regard to insurance contracts where ambiguities arise. In these cases, the courts will usually rule in favor of the party that did not draft the contract. |
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Since only the insurer prepares the insurance contract, it is called a contract of: * A) condition.* B) adhesion. * C) estoppel. * D) unilateral terms. |
B Insurance contracts are contracts of adhesion, meaning that they are prepared by one party, the insurer. They are not negotiated contracts. In effect, the applicant adheres to the terms of the contract when he or she accepts it. |
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Which of the following statements regarding representations is CORRECT? * A) If a representation is false on a material point, the insurer may alter the contract but may not rescind it.* B) A representation may not be altered after the insurance is in effect. * C) Only written statements are considered representations. * D) A representation is guaranteed to be true. |
B A representation may be altered or withdrawn before the insurance is in force, but not afterward. |
