Key Concepts
Adhesion - 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, etc.
Aleatory - Feature of insurance contract 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.
Apparent Authority - The authority an agent appears to have, based on the principal's actions, words, deeds or because of circumstances the principal.
Competent Parties - 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.
Concealment - Failure of the insured to disclose to the company a fact material to the acceptance of the risk at the time application is made.
Conditional - Characteristics of an insurance contract in that the payment of benefits is dependent on or a condition of the occurrence of the risk insured against.
Consideration - Element of a binding contract; acceptance by the company of payment of the premium and statements made by the prospective insured in the application.
Estoppel - Legal impediment to denying the consequences of one's actions or deeds if they lead to detrimental actions by another.
Express Authority - The specific authority given in writing to the agent in the contract of agency.
Fiduciary - Person in a position of special trust and confidence; e.g., in handling or supervising affairs or funds of another.
Fraud - An act of deceit, misrepresentation of a material fact made knowingly, with the intention of having another person rely on that fact and consequently suffer a financial hardship.
Implied Authority - Authority not specifically granted to the agent in the contract of agency, but which common sense dictates the agent has. It enables the agent to carry out routine responsibilities.
Insurable Interest - Requirement of insurance contracts that loss must be sustained by the applicant upon the death or disability of another and loss must be sufficient to warrant compensation.
Legal Purpose - In contract law, the requirement that the object of, or reason for, the contract must be legal.
Offer and Acceptance - 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 is submitted with the application. Premium payment on the offered policy then constitutes acceptance by the applicant.
Parol Evidence Rule - Rule of contract law that brings all verbal statements into the written contract and disallows any changes or modifications to the contract by oral evidence.
Representations - Statements made by applicants on their application for insurance that they represent as being substantially true to the best of their knowledge and belief, but that are not warranted as exact in every detail.
Unilateral - Distinguishing characteristic of an insurance contract in that it is only the insurance company that pledges anything.
Valued vs. Reimbursement - Valued contract is a contract of insurance that pays a stated amount in the event of loss. Reimbursement (indemnity) contracts pay the amount of loss only.
Void vs. Voidable Contract - A void contract is an agreement without legal effect, an invalid contract. A voidable contract is one that can be made void at the option of one or more parties to the agreement.
Waiver - An agreement waiving the company's liability for a certain type or types of risk ordinarily covered in the policy; a voluntary giving up of a legal, given right.
Warranties - Statements made on an application for insurance that are warranted to be true; that is, they are exact in every detail as opposed to representations. Statements on applications for insurance are rarely warranties, unless fraud is involved.
Familiarize yourself with the Key Concepts in the Florida study manual, Unit 3.
