Life & Health Insurance Exam (National Portion)Life InsuranceEasy
A life insurance applicant intentionally withholds information about a pre-existing medical condition during the application process. This action is considered a violation of which of the following insurance contract principles?
- AUtmost Good Faith
- BUnilateral
- CAleatory
- DAdhesion
Show answer & explanationAnswer & explanation
Correct answer: A. Utmost Good Faith
The principle of Utmost Good Faith requires both the applicant and the insurer to deal honestly and openly with each other. Withholding material information violates this principle.
Why the other options are wrong
- B. A unilateral contract means only one party (the insurer) makes a legally enforceable promise.
- C. An aleatory contract means that the values exchanged by the parties are unequal and depend on an uncertain event.
- D. A contract of adhesion means one party (the insurer) drafts the contract, and the other party (the insured) must accept or reject it as is.
Utmost Good Faith
A principle of insurance contracts requiring all parties to be completely honest and disclose all material facts relevant to the contract.
- Applies to both the applicant and the insurer.
- Requires full disclosure of material information.
- Violation can lead to contract voidance.
Memory trick: Insurance contracts hinge on TRUST, like a good faith handshake.