Chapter 10

Question 1

Are life insurance contracts required by general rules of contract law to be written to be valid?

Answer 1

no, but laws in many states require insurance contracts to be written.

Question 2

What 4 requirements must be met, in order to form an informal contract?

Answer 2

1. the parties must mutually assent to the contract
2. they must exchange legally adequate consideration
3. they must have contractual capacity
4. the contract must be for a lawful purpose.

Question 3

how does one characterize an informal contract?

Answer 3

requires no special formalities to be valid

Question 4

how does one characterize a unilateral contract?

Answer 4

• only one party - the insuere- makes legally enforceable promises

Question 5

how does one characterize an aleatory contract?

Answer 5

one party- the policy owner- provides something of value to another party- the insuere- in exchange for a conditional promise

Question 6

how does one characterize a contract of adhesion?

Answer 6

one party- the insurer- prepares and that the other party- the applicant- must accept or reject as a whole without any bargaining between the parties

Question 7

How can the insurer accept an applicants offer?

Answer 7

1. by issuing the policy that contains the same terms as those stated in the applicant’s offer
2. delivering the policy to the applicant

Question 8

How can an applicant accept an insurer’s counter offer? (ie in substandard assessments)

Answer 8

by accepting delivery of the policy and agreeing to the new contract terms that the insurer propsed.

Question 9

When can an offeror withdraw his offer?

Answer 9

any time before the offerre has accepted the offer.

Question 10

What is the minor age at which they may enter into a valid and binding insurance contract?

Answer 10

14-16 depending on the state

Question 11

Who are the typical beneficiaries of a minor’s life insurance?

Answer 11

usually the minor’s parents or legal guardian, spouse, child, brother or sister

Question 12

In common law provinces in Canada, an insurable interest exist between a person and who?

Answer 12

1) his children and grandchildren
2) spouses
3) anyone who contributes to his support or education

Question 13

In Quebec, an insurable interest exist between a person and who?

Answer 13

1. his spouse
2. his descendants, his spouses’ decedents
3. any one who contributes to his support or education

Question 14

In malaysia an insurable interrest exist between a person and

Answer 14

1) spouse and his child or ward under age of majority
2) his employee
3) a person on whom he is wholly or partly dependent

Question 15

Name some examples of business relationships that create an insurable interest

Answer 15

1. partners of the bussiness
2. employer to key person
3. creditor into its debtors

Question 16

Name some insurance law exceptions to consent requirements on insurance policies issued on insured’s. (ie who doesnt need consent) (3)

Answer 16

1. parent > minor child
2. spouse > spouse (some states)
3. employers > employees (some states)

Question 17

Insurance policies typically do not become effective until what 2 requirements are met? (think delivery)

Answer 17

1. its delivered to the policyowner

2. the initial premium is paid.

Question 18

What is a constructive delivery?

Answer 18

occurs when the policy was delivered and never actually reached the policy owner. The courts would still consider the policy to have been delivered.

Question 19

What is the free look provision?

Answer 19

a 10 day period following delivery of the policy within which to cancel the policy and recieve a premium refund.

Question 20

define what is in an entire contract provision

Answer 20

this defines the documents that consitute the contract between the insurer and the policy owner. The wording defines a closed vs. open contract

Question 21

What is a closed contract?

Answer 21

a contract for which only those terms and conditions that are printed in-or attached to- the contract are considered to be part of the contract.

Question 22

Individual life insurance policies typically include 6 provisions. Name them

Answer 22

1. free look provision
2. entire contract provision
3. grace period provision
4. incontestability provision
5. misstatement of age provision
6. reinstatement provision

Question 23

A participating policy includes the 6 regular provisions and what additional provision?

Answer 23

dividend provision

Question 24

A permanent policy includes the 6 regular provisions and what additional provisions

Answer 24

a nonforfeiture provision and a policy loan provisions

Question 25

What is an open contract?

Answer 25

a contract that identifies the documents that constitute the contract between the parties, but the enumerated documents are not all attached to the contract.

Question 26

who typically issues an open contract?

Answer 26

policies issued by fraternal insurers

Question 27

What documents typically included in an open contract ?

Answer 27

1. the policy and any riders and endorsements 2. fraternal society's charter, constitution and bylaws 3. application for membership in the fraternal society 4. decleration of insurability, signed by the applicant

Question 28

A premium receipt that provides temporary insurance coverage states what? (3)

Answer 28

1. when that coverage becomes effective 2. the condition that must be met for the coverage to become effective 3. when the coverage will end.

Question 29

which is favoured when the terms of a premium reciept conflict with the terms of the policy applied for

Answer 29

The terms of the premium receipt control

Question 30

What are the two basic types of receipts that are issued?

Answer 30

1. conditional premium receipts | 2. binding premium receipts

Question 31

What is a condition?

Answer 31

a contractual term that limits a party's promise. They are categorized as conditions precent or subsequent.

Question 32

What is a condition precedent?

Answer 32

a condition that must occur in order to give rise to one party's duty to perform a promise.

Question 33

What is a condition subsequent?

Answer 33

a condition that, if it occurs, cancels one party's duty to preform a promise.

Question 34

What does a conditional premium receipt provide ?

Answer 34

temp-orary insurance coverage only if specified conditions are met.

Question 35

What is an insurability premium reciept provide?

Answer 35

provides temporary insurance coverage on condition that the insurer finds the proposed insured to be insurable as a standard or preferred risk

Question 36

What does an approval premium receipt provide?

Answer 36

temporary insurance coverage only when the insurer approves the proposed insured as a standard or better than average risk

Question 37

A binding premium receiept provides what?

Answer 37

temporary insurance coverage that becomes effective on the date specified in the reciept. They provide insurance coverage without requiring that specific condition be met.

Question 38

Temporary coverage under a binding premium receipt typically remains effective until the earliest of what 4 occurrences?

Answer 38

1. the insurer issues the policy 2. the insurer declines the application 3. the insurer terminates or suspends coverage under the reciept 4. a specified time- 45-60 days expires.

Question 39

A valid annuity contact is created much like an informal contract, in the idea that which 4 requirements are met?

Answer 39

1. mutual assent 2. adequate consideration 3. contractual capacity 4. lawful person.

Question 40

When is the annuity contract between the parties created? (official)

Answer 40

when the insurer issues the contract and delivers it to the contract owner and the contract owner pays the amount required as the first annuity consideration.

Question 41

What are two provisions that individual annuity contracts typically have?

Answer 41

1. entire contract provision (includes annuity contract, application, and any riders/endorsements) 2. free look provision (10-30 days)

Question 42

What must a producer obtain to sell variable products?

Answer 42

1. obtain a state insurance license, + pass all required tests 2. be a registered representative associated with a FINRA member

Question 43

What is an agent of the insurer?

Answer 43

an insurance producer who markerts and sells life insurance products on behalf of the insurance company.

Question 44

What do you call the writen contract between the insurer and the producer?

Answer 44

agency agreement, it spells out the rights and duties of the principal (insurer) and the agent (producer)

Question 45

What are some common terms in an agency agreement?

Answer 45

1. employee vs. independent contractor 2. Authority 3. limitations on the authority 4. performance requirements 5. compensation shedule 6. termination provisions

Question 46

What is defined in the Unfair Trade Practices Act?

Answer 46

defines certain practices as unfair and prohibits those practices in the business of insurance if they are committed glagrantly in conscious diregard of the Act or so frequently as to indicate a general business practice.

Question 47

Name the activities that are prohibited by most state Unfair Trade Practices Act

Answer 47

1. defamation 2. false statements and entries 3. unfair discrimination 4. rebating

Question 48

What is rebating?

Answer 48

a sales practice in which a producer offers a prospect an inducement to purchase a policy from the producer and the inducement is not offered to all applicant.

Question 49

Name 4 specific misrepresentations prohibited by the states

Answer 49

1. Life insurance must not be representated as 'investments' or 'savings' 2. premiums are not deposits 3. policy dividends are not earnings or savings and guarantees may not be implied 4. beneficiaries do not get death benefits and policy cash value unless its written

Question 50

How does on open a mutual fund account?`

Answer 50

an investor typically must complete an application that the mutual fund prepares. May also be required to invest a stated minimum to pen the account. the owner must sign the application and the investors inital vestment must accompany the application.