Utah Life Producer Practice Exam

Which insurance principle is violated when an insurer fails to pay a legitimate claim?

1. Underwriting

2. Consideration

3. Indemnification

4. Insurable interest

The correct answer is: Consideration

The principle that is primarily violated when an insurer fails to pay a legitimate claim is consideration. In the context of insurance, consideration refers to the exchange of value between the parties involved: the insurer provides coverage in exchange for the insured's premium payments. This contractual relationship is fundamental, as it ensures that both parties fulfill their obligations. When the insurer receives premium payments, it is expected to pay out legitimate claims. If the insurer fails to do so, it undermines the foundational agreement that is central to the insurance contract. Thus, the act of not paying a valid claim directly challenges the notion of consideration, as the insurer is not honoring the terms of the agreement in exchange for the premiums collected. Understanding this principle is crucial as it highlights the responsibilities of insurance companies to their policyholders, reinforcing the trust inherent in such contracts.