Ch. 3 - Legal Concepts

Statements made by an insured on an accident and health insurance application are considered to be

a. representations

b. warranties

c. conditional

d. aleatory

Giving up a known right on a voluntary basis is called a(n)

a. disclaimer

b. estoppel

c. waiver

d. surrender

Which situation would not require the insured's consent when a life insurance policy is issued?

a. A policy is purchased by a husband for his wife

b. A policy is purchased by a parent for a minor child

c. A policy is purchased by a business partner for another partner

d. A policy is purchased by an employer for an employee

What is the insurer responsible for when a producer is acting within the scope of authority granted in the agency contract?

a. All actions by the producer

b. Not responsible for any acts by the producer

c. Responsible for acts that involve misrepresentation only

d. Responsible for acts by the producer that are authority only

The unwritten authority given to a producer to carry out necessary incidental acts of the agency agreement is called

a. implied authority

b. express authority

c. apparent authority

d. acknowledged authority

In what way are insurance policies said to be aleatory?

a. Only one party makes any kind of enforceable promise

b. Involves the potential for the unequal exchange of value

c. Contract is prepared by only one party

d. Vagueness in a contract's wording is resolved in favor of the policyowner

An insurance contract may be voided if a misrepresentation found on the application is determined to be

a. conditional

b. aleatory

c. material

d. intentional

Which of the following situations would an insurance agent need to guard against liability for professional errors and omissions?

a. Remitting premiums to an insurer

b. Conducting a sales meeting with other agents

c. Making a recommendation to a potential insured to replace existing coverage

d. Setting a sales appointment with a potential client

Which of these is true regarding the exchange of consideration among parties involved in an insurance contract?

a. required to be in currency

b. must be equal

c. can be unequal

d. must be certified by the state where transaction takes place

The payment of the first premium, the promise to pay a covered loss, and the agreement to abide by policy conditions are all examples of

a. consideration

b. legal purpose

c. representation

d. acceptance

The insurer's obligation to pay a claim depends on whether the insured or beneficiary has compiled with all policy conditions. This makes the policy a(n)

a. agency agreement

b. aleatory agreement

c. contract of good faith

d. conditional contract

What happens when an initial offer is answered with a counteroffer?

a. an arbitrator decides on a compromise

b. the counteroffer is legally enforceable

c. initial offer is void

d. initial offer os automatically accepted

Under the Law of Agency, the principal is considered to be

a. the producer

b. the insurer

c. the plain administrator

d. the insured

Christopher is issued an insurance policy that contains an attached agreement which alters the terms of the policy. This is attached agreement is called a(n)

a. extension

b. endorsement

c. sanction

d. restriction

An insured is entitled to coverage under a policy that a prudent person would expect it to provide. This principle is called

a. adhesion

b. reasonable sensibility

c. reasonable expectations

d. insurable interest

Use of XYZ Insurance Company brochures, business cards, and rating guides is an example of

a. expresses authority

b. implied authority

c. apparent authority

d. fiduciary duty

An arrangement where an individual is authorized to act on behalf of another person or company is established through

a. estoppel

b. the law of agency

c. the law of adhesion

d. an aleatory contract

An insured is entitled to coverage under a policy that a prudent person would expect it to provide. This principle is called

a. adhesion

b. reasonable sensibility

c. reasonable expectations

d. insurable interest

Which of these do NOT indicate the presence of insurable interest in a life insurance contract?

a. lifelong friendship

b. marriage

c. blood-related

d. co-owning a business

Ambiguities in insurance contracts are typically interpreted in favor of the insured. This rule is referred to as

a. subrogation

b. reasonable expectations

c. insurable interest

d. adhesion

Greg applies for insurance and makes a false statement on the application that will influence whether or not the insurer will accept the risk. Greg's false statement is called a(n)

a. substandard representation

b. unacceptable risk

c. material misrepresentation

d. adverse selection

An agreement is reached when an insurance contract is formed. Which of the following is NOT considered to be an element of an agreement?

a. meeting of the minds

b. offer

c. acceptance

d. equity

The following are all elements of a valid contract EXCEPT

a. consideration

b. offer and acceptance

c. competent parties

d. written evidence

An insurance application requires an applicant to make a full, accurate disclosure of the risk factor involved. Using this criteria, an insurance policy is considered what type of contract?

a. aleatory contract

b. estoppel contract

c. contract of utmost faith

d. unilateral contract

During the application process, a statement made by an applicant that becomes part of the contract is considered to be a(n)

a. warranty

b. representation

c. waiver

d. exclusion

Which element of a contract constitutes a definite and unqualified proposal by one part to another?

a. adhesion

b. consideration

c. acceptance

d. offer

A contract is considered void in all of the following situations EXCEPT

a. When one party is a minor

b. When consideration is unequal

c. When consideration is incomplete

d. When agreement cannot be reached between parties

An insurance company can be liable for a producer's unauthorized acts

a. only when a felony is involved

b. when the agency contract is unclear concerning the authority given

c. at anytime

d. only if the agency contract is unilateral

XYZ Insurance Company gives direct authority to its producers to sell insurance through an agency contract, but nothing is stated regarding the collection of premiums. Which authority grants the producer the right to collect premiums?

a. implied authority

b. apparent authority

c. express authority

d. assumed authority

An insurance company's failure to enforce a contract's provision is called a(n)

a. waiver

b. warranty

c. assignment

d. concealment

Insurable interest involves what assumption?

a. Insurable interest must exist during the entire life of the insured

b. One person gains from the death of another person

c. One person benefits from another person's continued life

d. Insurable interest must only exist at the time of the insured's death

Voluntarily terminating an insurance policy is also known as

a. discontinuation

b. elimination

c. estoppel

d. cancellation

The courts will normally interpret a policy in favor of the insured when the meaning of the policy is not clear. This is because an insurance policy is a(n)

a. warranty contract

b. aleatory contract

c. contract of adhesion

d. unilateral contract

Which of the following relationships demonstrates insurable interest in the absence of economic interest?

a. lifelong friends

b. employees

c. marriage partners

d. business associates

An appointed producer's implied authority is derived from

a. the NAIC

b. express authority

c. the insurer's Certificate of Authority

d. evident authority

The powers directly given to a producer in an agency contract are called

a. express

b. apparent

c. implied

d. assumed

All of these statements correctly describe an aleatory contract EXCEPT

A. A legal wager is considered an aleatory contract

b. Potential unequal exchange of value for both parties

c. Only one party makes any kind of legally enforceable offer

d. Element of choice is involved

A producer working for an insurance company my be personally liable for

a. acts performed which are expressed in the agency contract

b. acts performed which are prohibited in the agency contract

c. all actions taken on behalf of the insurer

d. nothing

Which of the following would NOT have a restricted ability to enter into a contract?

a. Mentally ill person

b. Minor

c. Person under the influence of alcohol

d. Small employer

What qualifies as acceptance of an insurance contract offer?

a. a decline policy

b. an issued policy

c. the application and initial premium

d. the initial premium only

When must insurable interest exist for a life insurance contract to be valid?

a. Inception of the contract

b. Throughout the entire length of the contract

c. When the insured dies

d. During the contestable period

An agent whose actions exceed the authority granted by contract is

a. acting under apparent authority

b. acting under implied authority

c. not backed by the insurer

d. backed by the insurer