The Sunken Ship
(c) copyright 1999 by Browzer Books.
Terms Peculiar to
the Insurance Industry
by Lin Stone
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| What is an agent? | An agent is someone empowered to act for the insurance company in specific and limited ways. |
| What is PRESUMPTION OF AUTHORITY? | When a company supplies someone with forms and other materials which are signs and evidences of authority that make it appear that s/he is an agent of that company, a court of law is quite likely to hold that a presumption of agency exists. |
| What are the 3 types of authority an agent might hold? | a: express, b: implied c: apparent |
| What is a waiver? | A waiver is the intentional and voluntary giving up of some known right. |
| Estoppel is a term that means what? | Estoppel means that an agent or the insurance company (or the insured) can be barred from asserting a right that would act to the detriment of the other party when the other part of the agreement has relied upon the conduct of the first party. What that boils down to in plain English is that if you tell me you will do something and I act on it, what you said you would do might had better darn well come true or you'll wish it had been when the judge gets done. |
Yes, estoppel and waivers do happen in the same contract or negotiation. But they are still separate and distinct processes.
Now for Contract Terminology
| For a contract to be binding, both parties must have __ | The legal capacity to make a contract. |
| To be valid, every contract must be for | a legal purpose, with an inusrable interest, and not contrary to public policy. |
| A insurance contract relies intrinsically upon UTMOST GOOD FAITH, which means that ---- | each party is entitled to rely upon the representations made by the other side; any attempt to conceal or deceive can void the contract. |
| Insurance contracts are CONDITIONAL contracts because | certain conditions must be met when loss occurs or the benefits won't be paid to the beneficiary. For example, a Cash Cancer policy won't pay off until a licensed doctor signs an affidavit that the client has internal cancer. |
My Dad's favorite insurance joke was about his friend who bought a life insurance policy that needed a magnifying glass to read the condition stating "Benefits will be paid only if the insured is run over by a steamboat on top of a mountain."
But that still isn't as bad as the accident policy that only covers farmers when they are OFF work; Anything more than 15 feet from the outhouse isn't covered!
| Insurance contracts are UNILATERAL because they _____ | An act (paying the premiums on time) is exchanged for a promise (to pay the benefits when certain conditons are met). |
| An insurance contract is Aleatory because ___ Adhesion describes an insurance contract because ___ | 1: It is dependent upon the outcome or future being uncertain. When the contract is signed, nobody knows who will pay more to the other on an individual basis, the Insured, or the Insurer. 2: the Insurer writes the contract and the Insured adheres to it. Consequently, if an unclear clause in the contract is contested in court, the judge leans towards favoring the Insured. |
| Legally speaking, an insurance contract is defined as an EXECUTORY instrument because ___ | the promises made in the contract will only be paid in the future, and then only after certain verifiable events occur. |
| The insurance agent must complete all the required information on the application form in a ____ | LEGIBLE, honest, thorough, complete and detailed manner. |
Two conditions which limit the rights contained in the insurance contract are the condition precedent and the condition subsequent. Precedent means BEFORE, and Subsequent means AFTER.
Condition precedent means something must happen BEFORE the rights are delivered. Double indemnity for accidental on an airplane won't be paid off until it actually, verifiably happens, for example.
Condition subsequent means that if something does happen, one of the parties has a right to cancel or not fulfill their end of the bargain. Suicide not be paid for until after two years is one example. (If it takes them that long to make up their mind --)
| A Life Care Community is one which | a person contracts for a place of residence and personal care services, from independent living to semi-dependent nursing care, to acute care -- paid for in advance. |
| Preexisting Conditions means one for which | medical advice or treatment was recommended by, or received from, a provider of health care services within 6 months prior to the effective date of coverage of an insured person. |
| Unintentional Lapse Protection Clause | The Long Term Care policyholder shall receive a notice of any lapse or termination of coverage due to nonpayment of premium, and may also designate some other person to be notified at the same time. |
| An insurance contract is a PERSONAL contract because | It is only made with someone who has an insurable interest in the outcome of the contract. |
Here's a BIGGIE for you. The Parol (Oral) Evidence Rule says that statements made BEFORE the contract was created can be disallowed in court because it is ASSUMED those agreements were incorporated into the legal document.
And here's another one. The judge will look at the INTENT OF THE CONTRACT in deciding what the individual clauses mean, or should have meant. Ambiguity runs against the Insured in a court of law.
Meet some policy terms
| The payments your client makes on an insurance policy or annuity contract are called _______ | Premiums |
| When a policyholder quits making payments on the policy it is said to ___ | Lapse |
| During the first 2 years an insurer can deny a claim as if the policy had never existed if: | false or incomplete statements were made on the policy application. |
| If your client commits suicide before the policy is 2 years old the beneficiaries will receive | A refund consisting of only the total premiums paid. |
| An Intestible clause says that after a period of 2 years | the insurer shall not resist a claim because your client made a false or incomplete statement on the app. |
| Borrow Policy Loan Values exist only if your life insurance policy __ | has a Cash Surrender Value, meaning your client can borrow some part of the premiums paid in from the insurer. |
| If your life insurance client dies after borrowing money on the policy, the amount of the loan and unpaid interest due will be ____ | subtracted from the the death benefits. |
| Cash Surrender Value is the | amount of money your client will get if they surrender their life insurance policy or annuity. |
| What is the minimum Cash Surrender Value built into every life insurance policy? | None. Many such policies do not offer Cash Surrender Values at all. |
| Evidence of Insurability means: | Supplying proof your client is an acceptable risk to the insurer. They have met the age, health, occupation and other standards the insurer feels are required to prove them eligible for coverage. |
| Place On Extended Term means | your client is using Cash Surrender Value from the insurance policy to change to term insurance coverage. |
| To Surrender a life insurance policy means your client will either _____ | a: let the policy lapse or b: tell the company s/he wants to drop the policy. |
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