2 Legal Concepts UPDATED Exam
Questions and CORRECT Answers
The Consideration clause of an insurance contract includes? - Correct Answer- The schedule
and amount of premium payments. (The Consideration clause of a Life or Health policy
includes the schedule and amount of premium payments.)
Life and health insurance policies are? - Correct Answer- Unilateral contracts.
(Life and health insurance policies are considered unilateral contracts because one party
makes a promise, and the other party can only accept by performance.)
Who makes the legally enforceable promises in a unilateral insurance policy? - Correct
Answer- Insurance company.
(Under a unilateral insurance policy, the insurance company makes the legally enforceable
promises.)
Insurance policies are offered on a "take it or leave it" basis, which make them? - Correct
Answer- Contracts of Adhesion.
(Because insurance policies are offered on a "take it or leave it" basis, they are referred to as
Contracts of Adhesion.)
A policy of adhesion can only be modified by whom? - Correct Answer- The insurance
company.
(A policy of adhesion is best described as a policy which only the insurance company can
modify.)
A life insurance policy would be considered a wagering contract WITHOUT? - Correct
Answer- Insurable interest.
(Without insurable interest, a life insurance policy would be considered a wagering contract.)
A life insurance arrangement which circumvents insurable interest statutes is called? - Correct
Answer- Investor-Originated Life Insurance.
(Investor-originated life insurance (or IOLI) is used to circumvent state insurable interest
statutes. This is done when an investor (or stranger) persuades an individual to take out life
, insurance specifically for the purpose of selling the policy to the investor. The investor
compensates the insured and makes the premiums, then collects the death benefit when the
insured dies.)
Which of these is considered a statement that is assured to be true in every respect? - Correct
Answer- Warranty.
Stranger Originated Life Insurance (STOLI) has been found to be in violation of which of the
following contractual elements? - Correct Answer- Legal Purpose.
(Insurable Interest)
Which of these require an offer, acceptance, and consideration? - Correct Answer- Contract.
(Offer, acceptance, and consideration are all elements of a contract.)
In an insurance contract, the insurer is the only party who makes a legally enforceable
promise. What kind of contract is this? - Correct Answer- Unilateral.
When must insurable interest exist for a life insurance contract to be valid? - Correct Answer-
Inception of the contract.
(Insurable interest must only exist at the inception of the contract.)
If a contract of adhesion contains complicated language, to whom would the interpretation be
in favor of? - Correct Answer- Insured.
(In a contract of adhesion, any confusing language would be interpreted in the favor of the
insured.)
Which of these arrangements allows one to bypass insurable interest laws?. - Correct Answer-
Investor-Originated Life Insurance.
What is the consideration given by an insurer in the Consideration clause of a life policy? -
Correct Answer- Promise to pay a death benefit.
When must insurable interest be present in order for a life insurance policy to be valid? -
Correct Answer- At the time of application.
Questions and CORRECT Answers
The Consideration clause of an insurance contract includes? - Correct Answer- The schedule
and amount of premium payments. (The Consideration clause of a Life or Health policy
includes the schedule and amount of premium payments.)
Life and health insurance policies are? - Correct Answer- Unilateral contracts.
(Life and health insurance policies are considered unilateral contracts because one party
makes a promise, and the other party can only accept by performance.)
Who makes the legally enforceable promises in a unilateral insurance policy? - Correct
Answer- Insurance company.
(Under a unilateral insurance policy, the insurance company makes the legally enforceable
promises.)
Insurance policies are offered on a "take it or leave it" basis, which make them? - Correct
Answer- Contracts of Adhesion.
(Because insurance policies are offered on a "take it or leave it" basis, they are referred to as
Contracts of Adhesion.)
A policy of adhesion can only be modified by whom? - Correct Answer- The insurance
company.
(A policy of adhesion is best described as a policy which only the insurance company can
modify.)
A life insurance policy would be considered a wagering contract WITHOUT? - Correct
Answer- Insurable interest.
(Without insurable interest, a life insurance policy would be considered a wagering contract.)
A life insurance arrangement which circumvents insurable interest statutes is called? - Correct
Answer- Investor-Originated Life Insurance.
(Investor-originated life insurance (or IOLI) is used to circumvent state insurable interest
statutes. This is done when an investor (or stranger) persuades an individual to take out life
, insurance specifically for the purpose of selling the policy to the investor. The investor
compensates the insured and makes the premiums, then collects the death benefit when the
insured dies.)
Which of these is considered a statement that is assured to be true in every respect? - Correct
Answer- Warranty.
Stranger Originated Life Insurance (STOLI) has been found to be in violation of which of the
following contractual elements? - Correct Answer- Legal Purpose.
(Insurable Interest)
Which of these require an offer, acceptance, and consideration? - Correct Answer- Contract.
(Offer, acceptance, and consideration are all elements of a contract.)
In an insurance contract, the insurer is the only party who makes a legally enforceable
promise. What kind of contract is this? - Correct Answer- Unilateral.
When must insurable interest exist for a life insurance contract to be valid? - Correct Answer-
Inception of the contract.
(Insurable interest must only exist at the inception of the contract.)
If a contract of adhesion contains complicated language, to whom would the interpretation be
in favor of? - Correct Answer- Insured.
(In a contract of adhesion, any confusing language would be interpreted in the favor of the
insured.)
Which of these arrangements allows one to bypass insurable interest laws?. - Correct Answer-
Investor-Originated Life Insurance.
What is the consideration given by an insurer in the Consideration clause of a life policy? -
Correct Answer- Promise to pay a death benefit.
When must insurable interest be present in order for a life insurance policy to be valid? -
Correct Answer- At the time of application.
