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Self-test answers iii

Chapter 3 self-test answers

1. An insurance contract is an agreement enforceable at law between an insurer and a policyholder;
the policyholder agrees to pay a premium and the insurer agrees to pay a sum of money, or
something of monetary value, on the happening of a specified event.
2. Choose three from:
• intention to create legal relations;
• capacity to contract;
• offer and acceptance; and
• consideration
3. When the letter of acceptance is posted.
4. The policyholder’s consideration is the premium and the promise to comply with policy terms; the
insurer’s is a promise to compensate the policyholder in defined circumstances.
5. Between 14 and 30 days depending on the type of insurance policy.
6. By consent, necessity and ratification.
7. Ratification refers to a situation where an agent has acted outside the terms of the agency
agreement but the principal subsequently accepts the act as having been done on their behalf.
8. Two examples are as follows:
• When an agent advises on cover or where the insurance should be placed.
• When an agent advises the insured on how to formulate a claim.
9. An agency may be terminated by:
• mutual agreement between agent and principal;
• the agency being terminated by either the principal or the agent; or Reference copy for CII Face to Face Training
• the death, bankruptcy or loss of mental capacity of either party.

10. All agency/business agreement should:
• be clear and succinct;
• reflect the business relationship;
• define and allocate responsibilities and rights; and
• ensure compliance with regulatory or statutory rules.