LOMA 311 MOD 4 TEST PREPARATION
QUESTIONS WITH COMPLETE
ANSWERS!!
misrepresentation three elements - Answer-Most jurisdictions require that an insurer
prove these three elements:
- The applicant or proposed insured misrepresented or failed to disclose a fact.
- The fact was known by the applicant or proposed insured at the time of the
misrepresentation or failure to disclose.
- The fact was material—or relevant—to the insurer's acceptance of the
risk.============In the United States and many other countries, life insurance
policies typically include a misstatement of age or sex provision that describes the
action an insurer will take in the event that the age or sex of the insured is incorrectly
stated. Note that when an insurer takes action because of a misstatement of age or sex,
the insurer is enforcing the policy's misstatement of age or sex provision.
In most jurisdictions, a misrepresentation regarding an insured's age or sex affects the
premium rate that an insurer charges for life insurance. Thus, a misstatement of the
insured's age or sex is a significant issue. Such an action by the insurer is not
considered a contest to the validity of the contract and is not prohibited by the
incontestability provision.++++An insurer's adjustment of a policy's face amount
because of a misrepresentation of the insured's age typically is not considered a contest
to the validity of the contract.
duty to disclose - Answer-requires applicants and proposed insureds to disclose to the
insurer any fact that is within their knowledge and that is material to the insurance.
duty to disclose is breached if an applicant or proposed insured (1) provides false
information or (2) conceals a material fact.
warranty - Answer-a promise or guarantee recognized by law that a statement of fact is
true. A warranty that is not literally true gives an injured party grounds to avoid the
contract. In the past, the
doctrine of warranties sometimes resulted in unjust results when applied
to life insurance.
representation - Answer-a statement made by a contracting party that
is influential in inducing the other party to enter into the contract.
A representation can be used to invalidate the contract if the statement
is not substantially true and the statement induced the other party to enter into the
contract.
,a misrepresentation is material if the insurer
with knowledge of the true facts would have taken any of the following actions with
regard to the policy: (1) declined to issue, (2) increased the premium rate, or (3)
excluded coverage for certain risks.
barriers to contesting validity of a policy - Answer--An agent's knowledge of a
misrepresentation is considered the principal's
knowledge as well.
- The insurer delays in acting on its knowledge of a misrepresentation.
-The insurer fails to inquire about ambiguous answers provided on the application
for insurance.
- The insurer does not provide the policyowner with a copy of the insurance
application.
The PRIMARY barrier to contesting validity of life ins. policy is the INCONTESTABILITY
Provision
Incontestability Provision - Answer-a life insurance policy provision that denies the
insurer the right to avoid the contract on the grounds of a material misrepresentation in
the application after
the contract has been in force for a specified period of time.
The contestable period is the time period within which the insurer has the right to avoid
a policy on the grounds of a material misrepresentation in the application.
IE: We will not contest the validity of this policy after it has been in force
during the lifetime of the insured for two years from the date of issue.
A two-year contestable period is the maximum period allowed by most states. Some
insurers
include a one-year contestable period in their policies. The states permit
this shorter period because it is more favorable to policyowners. The phrase during the
lifetime of the insured is an important part of an incontestability provision. The phrase
ensures that the policy never becomes incontestable if the person whose life is insured
dies during the contestable period.
The incontestability provision gives policyowners and beneficiaries the knowledge that if
(1) all required premiums are paid and (2) the policy
has been in force during the insured's lifetime for at least the stated contestable period,
then the insurer cannot contest the policy's validity and usually must pay policy
proceeds after the insured's death.=====The phrase "during the lifetime of the insured"
is an important part of an incontestability provision because this phrase ensures that the
policy never becomes incontestable if the person whose life is insured dies during the
stated contestable period, as Mr. Shen did.
,If this phrase were not included in the incontestability provision and the insured died
during the contestable period, a claimant could delay making a death claim until after
the contestable period ended
contestable period start date - Answer-The date of issue is the date the application is
approved and the policy is issued by the insurer.
The effective date is the date insurance coverage starts. Life insurance policies typically
specify that the contestable period starts on the date of issue.
Effect of Reinstatement - Answer-if a life insurance policy is reinstated, a new
contestable period typically starts on the date the policy is reinstated.
The length of the new contestable period is the same as the length of the
policy's original contestable period.
During the new contestable period, the insurer
may contest the policy based on misrepresentations in the reinstatement application.
In addition, the insurer may contest the policy based on misrepresentations in the
original application as long as the original contestable
period has not expired.
collusion - Answer-an agreement between two
or more people to defraud another person or entity of certain rights. When an agent
and an applicant engage in collusion, the agent's knowledge is not considered to be the
knowledge of the insurer.
copy of the application - Answer-the insurance policy and the attached application
usually constitute the entire contract.
an insurer has the right to use a material misrepresentation in the life insurance
application
as a basis for avoiding a life insurance policy ONLY if a copy of the application is
attached to the policy when the policy is delivered to the applicant.
The application for insurance is not considered a part of the contract unless it is
attached to the policy when the policy is issued. The only exception to this rule is when
a policy is issued electronically.
In such a case, the insurer must provide the policyowner with a copy of
the application, but the application does not have to be physically attached to the
policy.
defect in the formation of the contract - Answer-involves four requirements: mutual
assent, adequate consideration, contractual capacity, and lawful purpose.
If any one of these requirements is missing, the parties never entered into a valid
contract. A party has
, the right to contest a contract's validity at any time if any requirement was not met.
insurable interest reqm't guards against policies being purchased as wagering
contracts.
mistake of law - Answer-occurs when, with full knowledge of the facts, the parties make
a mistake as to
the legal effect of those facts. A mistake of law has no effect on the validity of the
contract.
mistake of fact - Answer-occurs when one or both parties is mistaken as to the
existence of something or as to the identity of something or someone. The
incontestability provision
does not prohibit a contest of the policy on the grounds of a mistake of fact. Either party
can contest a contract's validity on the grounds of a mistake of fact at any time, even
after the contestable period has expired.
unilateral Mistake - Answer-a mistake made by only one of the parties to a contract. The
effect of a unilateral mistake of fact depends on the type of mistake and the
circumstances.
bilateral mistake - Answer-occurs when both parties are mistaken when they enter into
a contract. Bilateral mistakes can be either common mistakes or mutual mistakes
COMMON Mistake= when both parties make the same mistake. When the parties make
a common mistake as to the identity or existence of the subject matter of the contract,
the contract is VOID.
When the parties to a contract make a common mistake about a general characteristic
concerning
the subject matter of the contract, the contract usually is VALID.
MUTUAL Mistake= occurs
when both parties to a contract make a mistake, but they make DIFFERENT mistakes.
If the parties are unaware of a mutual mistake as to the subject matter of the contract
and are at cross-purposes when entering the contract, then the contract usually is void.
This type of mutual mistake involves a misunderstanding between the parties.
legal remedies - Answer-primarily involve the payment of money damages to injured
parties.
Most litigation involving life insurance policies begins after an insurer denies a claim for
life insurance policy proceeds.
Civil damage awards generally provide a plaintiff with compensatory damages.
QUESTIONS WITH COMPLETE
ANSWERS!!
misrepresentation three elements - Answer-Most jurisdictions require that an insurer
prove these three elements:
- The applicant or proposed insured misrepresented or failed to disclose a fact.
- The fact was known by the applicant or proposed insured at the time of the
misrepresentation or failure to disclose.
- The fact was material—or relevant—to the insurer's acceptance of the
risk.============In the United States and many other countries, life insurance
policies typically include a misstatement of age or sex provision that describes the
action an insurer will take in the event that the age or sex of the insured is incorrectly
stated. Note that when an insurer takes action because of a misstatement of age or sex,
the insurer is enforcing the policy's misstatement of age or sex provision.
In most jurisdictions, a misrepresentation regarding an insured's age or sex affects the
premium rate that an insurer charges for life insurance. Thus, a misstatement of the
insured's age or sex is a significant issue. Such an action by the insurer is not
considered a contest to the validity of the contract and is not prohibited by the
incontestability provision.++++An insurer's adjustment of a policy's face amount
because of a misrepresentation of the insured's age typically is not considered a contest
to the validity of the contract.
duty to disclose - Answer-requires applicants and proposed insureds to disclose to the
insurer any fact that is within their knowledge and that is material to the insurance.
duty to disclose is breached if an applicant or proposed insured (1) provides false
information or (2) conceals a material fact.
warranty - Answer-a promise or guarantee recognized by law that a statement of fact is
true. A warranty that is not literally true gives an injured party grounds to avoid the
contract. In the past, the
doctrine of warranties sometimes resulted in unjust results when applied
to life insurance.
representation - Answer-a statement made by a contracting party that
is influential in inducing the other party to enter into the contract.
A representation can be used to invalidate the contract if the statement
is not substantially true and the statement induced the other party to enter into the
contract.
,a misrepresentation is material if the insurer
with knowledge of the true facts would have taken any of the following actions with
regard to the policy: (1) declined to issue, (2) increased the premium rate, or (3)
excluded coverage for certain risks.
barriers to contesting validity of a policy - Answer--An agent's knowledge of a
misrepresentation is considered the principal's
knowledge as well.
- The insurer delays in acting on its knowledge of a misrepresentation.
-The insurer fails to inquire about ambiguous answers provided on the application
for insurance.
- The insurer does not provide the policyowner with a copy of the insurance
application.
The PRIMARY barrier to contesting validity of life ins. policy is the INCONTESTABILITY
Provision
Incontestability Provision - Answer-a life insurance policy provision that denies the
insurer the right to avoid the contract on the grounds of a material misrepresentation in
the application after
the contract has been in force for a specified period of time.
The contestable period is the time period within which the insurer has the right to avoid
a policy on the grounds of a material misrepresentation in the application.
IE: We will not contest the validity of this policy after it has been in force
during the lifetime of the insured for two years from the date of issue.
A two-year contestable period is the maximum period allowed by most states. Some
insurers
include a one-year contestable period in their policies. The states permit
this shorter period because it is more favorable to policyowners. The phrase during the
lifetime of the insured is an important part of an incontestability provision. The phrase
ensures that the policy never becomes incontestable if the person whose life is insured
dies during the contestable period.
The incontestability provision gives policyowners and beneficiaries the knowledge that if
(1) all required premiums are paid and (2) the policy
has been in force during the insured's lifetime for at least the stated contestable period,
then the insurer cannot contest the policy's validity and usually must pay policy
proceeds after the insured's death.=====The phrase "during the lifetime of the insured"
is an important part of an incontestability provision because this phrase ensures that the
policy never becomes incontestable if the person whose life is insured dies during the
stated contestable period, as Mr. Shen did.
,If this phrase were not included in the incontestability provision and the insured died
during the contestable period, a claimant could delay making a death claim until after
the contestable period ended
contestable period start date - Answer-The date of issue is the date the application is
approved and the policy is issued by the insurer.
The effective date is the date insurance coverage starts. Life insurance policies typically
specify that the contestable period starts on the date of issue.
Effect of Reinstatement - Answer-if a life insurance policy is reinstated, a new
contestable period typically starts on the date the policy is reinstated.
The length of the new contestable period is the same as the length of the
policy's original contestable period.
During the new contestable period, the insurer
may contest the policy based on misrepresentations in the reinstatement application.
In addition, the insurer may contest the policy based on misrepresentations in the
original application as long as the original contestable
period has not expired.
collusion - Answer-an agreement between two
or more people to defraud another person or entity of certain rights. When an agent
and an applicant engage in collusion, the agent's knowledge is not considered to be the
knowledge of the insurer.
copy of the application - Answer-the insurance policy and the attached application
usually constitute the entire contract.
an insurer has the right to use a material misrepresentation in the life insurance
application
as a basis for avoiding a life insurance policy ONLY if a copy of the application is
attached to the policy when the policy is delivered to the applicant.
The application for insurance is not considered a part of the contract unless it is
attached to the policy when the policy is issued. The only exception to this rule is when
a policy is issued electronically.
In such a case, the insurer must provide the policyowner with a copy of
the application, but the application does not have to be physically attached to the
policy.
defect in the formation of the contract - Answer-involves four requirements: mutual
assent, adequate consideration, contractual capacity, and lawful purpose.
If any one of these requirements is missing, the parties never entered into a valid
contract. A party has
, the right to contest a contract's validity at any time if any requirement was not met.
insurable interest reqm't guards against policies being purchased as wagering
contracts.
mistake of law - Answer-occurs when, with full knowledge of the facts, the parties make
a mistake as to
the legal effect of those facts. A mistake of law has no effect on the validity of the
contract.
mistake of fact - Answer-occurs when one or both parties is mistaken as to the
existence of something or as to the identity of something or someone. The
incontestability provision
does not prohibit a contest of the policy on the grounds of a mistake of fact. Either party
can contest a contract's validity on the grounds of a mistake of fact at any time, even
after the contestable period has expired.
unilateral Mistake - Answer-a mistake made by only one of the parties to a contract. The
effect of a unilateral mistake of fact depends on the type of mistake and the
circumstances.
bilateral mistake - Answer-occurs when both parties are mistaken when they enter into
a contract. Bilateral mistakes can be either common mistakes or mutual mistakes
COMMON Mistake= when both parties make the same mistake. When the parties make
a common mistake as to the identity or existence of the subject matter of the contract,
the contract is VOID.
When the parties to a contract make a common mistake about a general characteristic
concerning
the subject matter of the contract, the contract usually is VALID.
MUTUAL Mistake= occurs
when both parties to a contract make a mistake, but they make DIFFERENT mistakes.
If the parties are unaware of a mutual mistake as to the subject matter of the contract
and are at cross-purposes when entering the contract, then the contract usually is void.
This type of mutual mistake involves a misunderstanding between the parties.
legal remedies - Answer-primarily involve the payment of money damages to injured
parties.
Most litigation involving life insurance policies begins after an insurer denies a claim for
life insurance policy proceeds.
Civil damage awards generally provide a plaintiff with compensatory damages.
