Certified Financial Consultant (CFC) Practice Exam

Which of the following is NOT a consideration in an insurance policy?

1. Something of value exchanged between parties

2. The premium paid by the insured

3. The application given to a prospective insured

4. The promise to pay covered losses

The correct answer is: The application given to a prospective insured

The correct choice identifies the application given to a prospective insured as something that is not a primary consideration in an insurance policy. In an insurance context, a consideration is an essential element that forms the basis of the contractual agreement between the insurer and the insured. This typically includes the items of value exchanged between the parties, such as the premium paid by the insured and the insurer's promise to indemnify or pay for covered losses. These elements ensure that both parties have a stake in the agreement, thereby making the contract valid and enforceable. While the application is an important document in the insurance process as it provides information for underwriting and evaluates risk, it is not itself a direct element of consideration. The contract's enforceability and the obligations of the parties primarily hinge upon the actual considerations exchanged—namely, the premium and the promise to cover claims.