Term
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Definition
The offer may be made by the applicant by signing the application, paying the first
premium, and if necessary, submitting to a physical examination. Policy issuance, as applied for, constitutes
acceptance by the company. Or, the offer may be made by the company when no premium payment issubmitted
with application. Premium payment on the offered policy then constitutes acceptance by the applicant. |
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Term
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Definition
Element of a binding contract; acceptance by the company of payment of the premium and
statements made by the prospective insured in the application. |
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Term
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Definition
| In contract law, the requirement that the object of, or reason for, the contract must be legal. |
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Term
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Definition
To be enforceable, a contract must be entered into by competent parties. A competent party
is one who is capable of understanding the contract being agreed to.
The applicant, unless proven otherwise, is presumed to
be competent with three possible exceptions:
► Minors
► The mentally infirm
► Those under the influence of alcohol or narcotics |
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Term
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Definition
Feature of insurance contracts in that there is an element of chance for both parties and that the dollar
given by the policyholder (premiums) and the insurer (benefits) may not be equal. |
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Term
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Definition
A life insurance policy is a contract of adhesion because buyers must adhere to the terms of the
contract already in existence. They have no opportunity to negotiate terms, rates, values, and so on. |
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Term
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Definition
This means that only one party (the insurer) makes any kind of enforceable
promise. Insurers promise to pay benefits upon the occurrence of a specific event, such as death or disability. |
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Term
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Definition
Life insurance is a personal contract or personal agreement between the insurer and the insured. The owner of
the policy has no bearing on the risk the insurer has assumed. For this reason, people who buy life insurance policies
are called policyowners rather than policyholders. Policyowners actually own their policies and can give them away
if they wish. This transfer of ownership is known as assignment. To assign a policy, a policyowner simply notifies the
insurer in writing. The company will then accept the validity of the transfer without question. The new owner is
granted all of the rights of policy ownership. |
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Term
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Definition
Characteristic of an insurance contract in that the payment of benefits is dependent on
or a condition of the occurrence of the risk insured against. |
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Term
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Definition
A valued contract pays a stated sum
regardless of the actual loss incurred.
An indemnity contract, however, is one that pays an amount equal to the loss. |
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Term
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Definition
Insurance is a contract of utmost good faith.Insurance applicants are required to make a full, fair and honest disclosure of the risk to the
agent and insurer. Concepts related to utmost good faith include warranties, representations, and concealment.
These represent grounds through which an insurer might seek to avoid payment under a contract. |
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Term
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Definition
| A warranty in insurance is a statement made by the applicant that is guaranteed to be true in every respect. |
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Term
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Definition
A representation is a statement made by the applicant that they consider to be true and accurate to
the best of the applicant's belief. It is used by the insurer to evaluate whether or not to issue a policy. |
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Term
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Definition
The issue of concealment is also important to insurance contracts. Concealment is defined as the failure by the
applicant to disclose a known material fact when applying for insurance. |
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Term
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Definition
This means that the person acquiring the
contract (the applicant) must be subject to loss upon the death, illness, or disability of the person being insured.
To have "an insurable interest" in the life of another person, an individual must have a reasonable expectation of
benefiting from the other person's continued life. |
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Term
| Stranger-Originated Life Insurance (STOLl) |
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Definition
Stranger-Originated Life Insurance (STOLI) transactions are life insurance arrangements where investors persuade individuals (typically seniors) to take out new life insurance, naming the investors as beneficiary. This is sometimes
called Investor-Originated Life Insurance (IOLI). These arrangements are used to circumvent state insurable interest statutes. |
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Term
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Definition
Agent authority is another important concept of agency law. Authority is what’s given by an insurer to a licensee to
transact insurance on their behalf. |
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Term
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Definition
| Express authority is the authority a principal deliberately gives to its agent. |
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Term
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Definition
Implied authority is the unwritten authority that is not expressly granted, but which the
agent is assumed to have in order to transact the business of the principal. |
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Term
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Definition
Apparent authority is the appearance or assumption of authority based on the actions,
words, or deeds of the principal. It can also exist because of circumstances the principal created.
► The significance of authority (whether express, implied, or apparent) is that it ties the company to the acts and
deeds of its agents. The law will view the agent and the company as one and the same when the agent acts within
the scope of his authority.
► An insurer may be liable to an insured for unauthorized acts of its agent when the agency contract is unclear about the authority granted. |
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Term
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Definition
Fiduciary is another legal concept which governs the activity of an agent. A fiduciary is a person who holds a
position of financial trust and confidence. Agents act in a fiduciary capacity when they accept premiums on behalf
of the insurer or offer advice that affects a person’s financial security. |
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Term
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Definition
Unlike agents, brokers legally represent the insureds. A broker (or independent agent) may represent a number of
insurance companies under separate contractual agreements. A broker solicits and accepts applications for
insurance and then places the coverage with an insurer. |
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Term
| Professional Liability Insurance (E&O) |
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Definition
Just as doctors should have malpractice insurance to protect against legal liability arising from their professional
services, insurance agents need errors and omissions (E&O) professional liability insurance. Under this insurance,
the insurer agrees to pay sums that the agent legally is obligated to pay for injuries resulting from professional
services that he rendered or failed to render. |
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Term
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Definition
A waiver is the voluntary giving up of a legal, given right. If an insurer fails to enforce (waives) a provision of a
contract, it cannot later deny a claim based on a violation of that provision. |
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Term
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Definition
The concepts of waiver and estoppel are closely related. Estoppel is the legal impediment to one party denying the
consequences of its own actions or deeds if such actions or deeds result in another party acting in a specific manner
or if certain conclusions are drawn. In other words, it is the loss of defense. |
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Term
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Definition
Parol evidence is oral or verbal evidence, or that which is given verbally in a court of law. The parol evidence rule
states that when parties put their agreement in writing, all previous verbal statements come together in that writing
and a written contract cannot be changed or modified by parol (oral) evidence. |
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Term
| Void versus Voidable Contracts |
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Definition
The terms void and voidable are often incorrectly used interchangeably. A void contract is simply an agreement
without legal effect. An insurer may also void an insurance policy if a
misrepresentation on the application is proven to be material.
A voidable contract is an agreement which, for a reason satisfactory to the court, may be set aside by one of the
parties to the contract. It is binding unless the party with the right to reject it wishes to do so. |
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Term
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Definition
In the event of fraud, insurance contracts are unique in that they run counter to a basic rule of contract law. Under
most contracts, fraud can be a reason to void a contract. |
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