Question 1: What makes an insurance policy a unilateral contract? The insurance company must perform its obligation only after the fortuitous event, the fire, occurs. In an insurance contract, consideration is given by the applicant in exchange for the insurer’s promise to pay benefits. These include waiver, estoppel, parol evidence rule, void vs voidable contracts, and fraud. With life insurance contracts, an insurer has only a limited period of time (usually two years from date of issue) to challenge the validity of a contract. With a life insurance contract, the insurer binds itself to pay a certain sum upon the death of the insured. Generally, the investors loan money to the insured to pay the premiums for a defined period (usually two years based on the life insurance policy’s contestability period). Both insurance and gambling contracts are typically considered aleatory contracts. But the law also recognizes other types of aleatory contracts. When the applicant is the same as the person to be insured, there is no question that insurable interest exists. A policy of adhesion can also be described as one which the insurance company can modify. Authority is what’s given by an insurer to a licensee to transact insurance on their behalf. 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. 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. COMMUTATIVE CONTRACT, civil law. © 版权所有 2017, Sanhe Hu. Browse US Legal Forms’ largest database of 85k state and industry-specific legal forms. Contracts of indemnity attempt to return the insured to their original financial position. In addition to the principles of contract and agency law, there are other legal concepts that apply to insurance and the power of agents. Question 10: In an insurance contract, the element that shows each party is giving something of value is called, Question 11: In order for a contract to be valid, it must, Question 12: A professional liability for which producers can be sued for mistakes of putting a policy into effect is called. How to use contract in a sentence. ► The significance of authority (whether express, implied, or apparent) is that it ties the company to the acts and deeds of its agents. The contract agrees that the business will sell 100,000 Euros in 60 days time (30 January 2019) at a EUR/USD forward rate of 1.25 and will therefore receive/pay the difference between this rate and the rate on the settlement date. An example of an adhesion contract is an insurance contract. A contract breach would then be based on the clarity of the agreement, and whether one party can prove that the task was completed. See more. For this reason, people who buy life insurance policies are called policy owners rather than policyholders. In many cases, the offer of an insurance In exchange, the policyowner pays premiums. If the purpose for concealing information is to defraud the insurer (that is, to obtain a policy that might not otherwise be issued if the information were revealed), the insurer may have grounds for voiding the policy. 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. This normally includes: an upfront payment, a loan, or a small continuing interest in the policy’s death benefit. There are several variations of the fixed price contract. An insurance contract is either a valued contract or an indemnity contract. If the event does not materialize, no benefits are paid. Unlike agents, brokers legally represent the insureds. Statements made by applicants for insurance are considered to be representations and not warranties. e application is proven to be material. Economic exposure 2. In this contract, the lessor undertakes to deliver the usufruct of the asset based on agreed specifications. Parties to a contract exchange unequal amounts of money. Contracts of insurance are binding and enforceable. In an insurance contract the value that each party gives the other is said to be the: Consideration. Revision f89211cd. A contract in which one party agrees to commit murder for money would be unenforceable in court because the object or purpose of the contract is not legal. Let's take a closer look at the two required contract elements: agreement between the parties, and exchange of things of value. It doesn’t have to continue throughout the duration of the policy nor does it have to exist at the time of claim. The contract is then voidable, and the insurance company has the right to cancel the contract and revoke the coverage. Group of answer choices. An aleatory contract is conditioned upon the occurrence of an event. An aleatory contract is conditioned upon the occurrence of an event. For example, an individual who has a disability insurance policy will collect benefits if she becomes disabled. Unequal. Unilateral or Bilateral. An aleatory contract is a contract whose execution or performance is contingent upon the occurrence of a particular event or contingency or an uncertain (random) event beyond the control of either party. It is binding unless the party with the right to reject it wishes to do so. A void contract cannot be enforced by either party. The contract of sale is of this kind. Technically, only those actions for which an agent is actually authorized can bind a principal. This means that the object of the contract and the reason the parties enter into the agreement must be legal. Insurance contracts are aleatory. This means there is an element of chance and potential for unequal exchange of value or consideration for both parties. Question 14: The power given to an individual producer that is not specifically addressed in his/her contract is considered what type of authority? Question 6: When the principal gives the agent authority in writing, it’s referred to as, Question 7: The term which describes the fact that both parties of a contract may NOT receive the same value is referred to as. Concealment the best of the applicant’s belief. Insurers promise to pay benefits upon the occurrence of a specific event, such as death or disability. It becomes part of the contract and, if found to be untrue, can be grounds for revoking the contract. A participant has been cleaning the offices of a nonprofit health clinic every month for over a year, and getting paid a regular amount - let's say $100.00 each time - for doing so. What Makes a Contract Unconscionable? If you are wondering what are the different types of contract, then you are … To assign a policy, a policy owner simply notifies the insurer in writing. The voluntary act of terminating an Money, personal property, real property, provision of services, and the like, qualify as consideration. For example, insurance is a classic aleatory contract in which a premium is paid in exchange for a promise of monetary benefits in the event of an uncertain (random) future loss (e.g., a house burns down). To reduce its exposure to foreign exchange risk the business enters into a 60 day foreign exchange forward contract. The contract usually details the quality of the goods or services, the timing needed to support the project, and the price for delivering goods or services. Question 5: Which type of clause describes the following statement: “We have issued the policy in consideration of the representations in your applications and payment of the first-term premium”. To be legally enforceable, a contract must be made with a definite, unqualified proposal (offer) by one party and the acceptance of its exact terms by the other. For example, when a person buys an annuity, s/he runs the risk of losing the consideration in case of her/his death soon after. For a contract to be legally valid and binding, it must contain certain elements - offer and acceptance, consideration, legal purpose, and competent parties. There can be no attempt by either party to conceal, disguise, or deceive. It is the means by which one or more parties bind themselves to certain promises. Another type of aleatory contract is where each party runs a risk which is the consideration of the engagement of the other. A waiver is the voluntary giving up of a legal, given right. Adhesion Contract Explained . Agent authority is another important concept of agency law. Some of these characteristics are unique to insurance contracts. Let’s review these distinctions. OTC options are exotic options traded on the over-the-counter market , where participants can choose the characteristics of the options traded. Most insurance policies are aleatory contracts. Again, the insurer must prove concealment and materiality. Any confusing language in a contract of adhesion would be interpreted in favor of the insured. An insurer may also void an insurance policy if a misrepresentation on An agent’s role involves the following duties: ► Describing the company’s insurance policies to prospective buyers and explaining the conditions under which the policies may be obtained, ► Rendering service to prospects and to those who have purchased policies from the company. Insurance contracts are unilateral. 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. 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. Question 13: Insurable interest does NOT occur in which of the following relationships? In other words, it is the loss of defense. With a contract of insurance, the parties to the contract are the applicant and the insurer. If it appears that one side did not have this reasoning capacity, the contract may be held unenforceable against that person. Insurance contracts are always considered to possess a legal purpose. Policy owners actually own their policies and can give them away if they wish. Within the authority granted, the agent is considered to be the insurance company. This transfer of ownership is known as assignment. If one party to a contract might receive considerably more in value than he or she gives up under the terms of the agreement, the contract is said to be aleatory. After that period, the insurer cannot contest the policy or deny benefits based on material misrepresentations, concealment, or fraud. The insurance company must perform its obligation only after the fortuitous event, the fire, occurs. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ In the event of fraud, insurance contracts are unique in that they run counter to a basic rule of contract law. The fixed-price contract is a legal agreement between the project organization and an entity (person or company) to provide goods or services to the project at an agreed-on price. A broker solicits and accepts applications for insurance and then places the coverage with an insurer. After the two year period, the investors make the premium payments on behalf of the insured. Concepts related to utmost good faith include warranties, representations, and concealment. Insurance contracts are contracts of adhesion. On the other hand the person may live so as to receive three times the amount of the price s/he paid for it. With this in mind, we can review the main principles of agency law: ► The acts of the agent (within the scope of his authority) are the acts of the principal, ► A contract completed by an agent on behalf of the principal is a contract of the principal, ► Payments made to an agent on behalf of the principal are payments to the principal, ► Knowledge of the agent regarding business of the principal is presumed to be knowledge of the principal. The buyer gives the price and receives the thing sold, which is the equivalent. Of course, the insurer has the right to cancel the contract if premiums are not paid. Most insurance policies are aleatory contracts. Strategic exposure. A consumer purchases a policy based largely on the insurer and agent’s explanation of the policy’s features, benefits, and advantages. Warranties are presumed to be material because they affect the insurer’s decision to accept or reject an applicant. Question 15: The deeds and actions of a producer indicate what kind of authority? Without contract formation, the same exchange is considered a gift from the offeror, rather than an enforceable contract. In this situation, who will receive Bob’s policy proceeds? It needs to pay €500,000 to the French supplier in 3 months’ time. ABC is based in the U.S. The policies continue in force with no change. The applicant, unless proven otherwise, is presumed to be competent with three possible exceptions: ► Those under the influence of alcohol or narcotics To be enforceable, a contract must be entered into by competent parties. In order to structure a typical exchange transaction, 1031 Exchange Place must be assigned in as the Seller of the relinquished property and also as the buyer of the replacement property. Aleatory contracts are based on a mutual agreement of the parties involved, and its effects are activated under the circumstances of uncertain events, while one or both parties accept the risk. A 1035 exchange is a tax-free exchange of an existing annuity contract, life insurance policy, or endowment for another of like kind. The terms void and voidable are often incorrectly used interchangeably. The authority of an agent to undertake these functions is clearly defined in a “contract of agency” (or agency agreement) between the agent and the company. A valued contract pays a stated sum regardless of the actual loss incurred. ► An insurer may be liable to an insured for unauthorized acts of its agent when the agency contract is unclear about the authority granted. insurance contract is called cancellation. The insurance company accepts the offer when it issues the policy as applied for. Both partners are still married at the time of Bob’s death. The concepts of waiver and estoppel are closely related. An insured that owns a $50,000 fire insurance policy and suffers a $5,000 loss due to fire will be able to collect up to $5,000, not $50,000. Nature of Insurance, Risk, Perils and Hazards, Chapter3. In fact, the applicant does not even promise to pay premiums. This means that only one party (the insurer) makes any kind of enforceable promise. Fiduciary is another legal concept which governs the activity of an agent. A) A contract that requires certain conditions or acts by the insured individual B) A contract that has the potential for the unequal exchange of consideration for both parties C) A contract where one party "adheres" to the terms of the contract D) A contract where only one party makes any kind of enforceable contract The premiums paid by the applicant are small in relation to the amount that will be paid by the insurance company in … By legal definition, an agent is a person who acts for another person or entity (known as the principal) with regard to contractual arrangements with third parties. The applicant makes no such promise. These arrangements are used to circumvent state insurable interest statutes. The Ron and Maggie Story. Fire and health insurance policies are examples of indemnity contracts. This means there is an element of chance and potential for unequal exchange of value or consideration for both parties. Unlike warranties, representations are not a part of the contract and need be true only to the extent that they are material and related to the risk. Aleatory Contracts. The issue of concealment is also important to insurance contracts. Let’s take a look at each. The contract may have said that the credit card issuer could change the interest rate at its discretion. In addition to these, insurance contracts have distinguishing characteristics that set them apart from many other legally binding agreements. "You have an excellent service and I will be sure to pass the word.". 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. After that time period passes (normally two years from policy issue), the contract cannot be voided or revoked for these reasons. The insurer is considered competent if it has been licensed or authorized by the state(s) in which it conducts business. based on an agreement/contract between the insurance company and the ... Insurance contracts are considered aleatory contracts. However, if no disability strikes, benefits are not paid. A contract may be found to be unconscionable based on three different factors: Undue Influence: This is where one party exercises unreasonable pressure in order to get the other party to sign the contract (especially where one party takes advantage of the other in some way); Duress: This where one party uses threats in order to get the other to agree … Just as doctors should have malpractice insurance to protect against legal liability arising from their professional services, insurance agents need errors and omissions (遗漏) (E&O) professional liability insurance. In an insurance contract, the company and its agent has the power to draft the contract… A contract is an agreement enforceable by law. If premiums are not paid, the company is relieved of its obligation to pay a death benefit. For example, the timely payment of premiums is a condition for keeping the contract in force. For example, a contract having an illegal purpose is void, and neither party to the contract can enforce it. The law will view the agent and the company as one and the same when the agent acts within the scope of his authority. The purpose is to correct any advantage that may result for the party who prepared the contract. Insurance contracts are aleatory. Broadly stated, a 1031 exchange (also called a like-kind exchange or a Starker) is a swap of one investment property for another. For a contract to be enforceable, the promise or promises it contains must be supported by consideration. Contracts May be Oral or Written. 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