Ch 1
A hazard is best defined as: A The loss itself B A reduction in, decrease in, or disappearance of, value C Something that increases the chance of a loss D The possibility of a loss
C. Something that increases the chance of a loss
Which kind of agent enters into agreements with more than one insurer? A Captive B Direct C Exclusive D Independent
D. An independent agent may represent many insurers at the same time.
Which of the following is not a function of insurance? A To transfer risk from the insured to the insurer B To exchange a small certain expense for a large uncertain loss C To protect against uncertainty and reduce anxiety D To act as an investment vehicle for the insured
D. Investment entails speculative risk, which is not insurable.
Which is not true of Fair Credit Reporting Act 1. Consumer can obtain information in the reporting agency file 2. Consumer is protected from unwelcome personal info collection 3. Consumer must be informed when insurance denied due to adverse report 4. Error in the report can only be changed by court action
4. Not true - Error in the report can only be changed by court
Which term is described as the relinquishment of a legal right? A Waiver B Liability C Rescission D Estoppel
A. Waiver is the voluntary relinquishment of a legal right.
The voluntary surrender of a right is known as which of the following? A Liability B Waiver C Estoppel D Tort Law
B. Waiver is the voluntary relinquishment of a legal right.
An organization that writes liability insurance to cover the liability exposure for the mining engineers that belong to its associations is: A The Industry Placement Facility B A mine subsidence insurer C A risk retention group D A risk purchasing group
C. A risk retention group writes the liability coverage and retains the risk itself, as is the case here. A reciprocal insurance company has subscribers who assume a part of the risk of all other subscribers. Mine subsidence is property insurance, and a risk purchasing group buys insurance from another carrier for its members.
An insurer that is not approved by the state Department of Insurance to transact insurance is called which type of insurer? A Fraternal B Authorized C Non-admitted D Domestic
C. An admitted insurer has a Certificate of Authority issued by the Department or Division of Insurance to transact insurance.
When both parties to a contract must perform certain duties in order to make the contract enforceable, this is known as a(n): A Conditional contract B Unilateral contract C Contract of adhesion D Aleatory contract
A. A conditional contract requires that both parties perform certain duties.
A false statement in the application for insurance is called a: A Misrepresentation B Representation C Warranty D Concealment
A. A misrepresentation can render the contract void if the misrepresentation is material to the risk.
Which statement defines a peril? A It is the specific cause of loss B It is a condition that may increase a loss C It is an indirect loss D It is defined as a risk of financial loss
A. A peril is defined as the specific cause of a loss.
A Stock Insurance Company is: A An insurance company owned by stockholders B Any insurance company incorporated in and having its home office in this state C An insurance company owned by the policyholders D An insurance company incorporated in some other state, but having its executive or home office in this state
A. An insurance company owned by stockholder
Which of the following is not true about insurance? A It eliminates risk B It is a means of sharing loss C It protects against uncertainty D It transfers risk
A. Insurance transfers, but does not eliminate risk.
A contract that binds only one party to future performance, is a(n): A Aleatory contract B Unilateral contract C Contract of adhesion D Conditional contract
B. A unilateral contract is one in which one party makes a promise of performance, without receiving a promise of performance in return.
An applicant makes a statement on the insurance application, which becomes part of the contract, that she has an alarm system which qualifies her for a premium discount. This statement is considered a: A Representation B Warranty C Endorsement D Provision
B. A warranty is a statement that is guaranteed to be true, as opposed to a representation of something that is true to the best of one's knowledge.
A state requiring that the commissioner agree that a company's rates are appropriate before they are made effective uses which type of rating approval? A Mandatory B Prior approval C Open Competition D File and use
B. Prior approval requires that the rates cannot be used until the commissioner approves the rate, or until a set time period has expired after the filing.
All of the following are restricted from entering into an insurance contract, except: A People under the influence of drugs or alcohol B Minors C Retired persons D Mentally incompetent persons
C. Persons without legal capacity to enter an agreement are minors, the mentally incompetent, and those under the influence of an intoxicant.
The uncertainty of loss from fire, wind, or hail is a type of: A Speculative risk B Physical hazard C Pure risk D Risk retention
C. Pure risk
Which of the following statements is not correct regarding rates and premiums? A The rate is the amount charged for a particular unit of insurance B Rates are considered inadequate when they do not cover projected losses and expenses C Rates may only be excessive if the insurer is making up for lost reserves D A premium is the total cost for the amount of insurance purchased
C. Rates may not be excessive or unfairly discriminatory for any reason.
Possibility of loss is called: A An insurable interest B A hazard C A risk D A peril
C. Risk, simply defined, is uncertainty concerning a loss. Without the possibility of loss, no such uncertainty exists.
Which statement defines estoppel? A Estoppel is the intentional misrepresentation of a material fact B Estoppel is the intentional abandonment of a known right C Estoppel is the failure to disclose known facts D Estoppel prevents the denial of a fact previously established to be true
D. Estoppel is the principle that prevents an insurer from denying a fact or a promise that has been already settled.
Which type of insurance provides coverage when insurance is not available from an admitted carrier? A Facultative B Foreign C Residual D Surplus
D. Surplus, Non-admitted business must be transacted through a Surplus Lines broker or producer.
Each participant of a Lloyds association: A Is individually liable for each risk they assume B Insures against every risk that is underwritten C Participates on every policy issued D Is legally liable for the unpaid part of any loss sustained by all defaulting underwriters
A. Each member is individually liable only for the particular risk they assume -- not all risks underwritten.
Where can an insured find insurance coverage after being rejected by Insurer A due to claims history? A Reinsurance market B Risk retention insurer C Residual market D Lloyd's of London
C. The residual market is a coverage source of last resort for businesses and individuals who have been rejected by voluntary market insurers.
All of the following are characteristics of a Mutual Insurance Company, except: A They provide insurance to members B Profits are returned as dividends C Policyholders elect the Board of Directors D Stockholders have ownership
D. Stockholders have ownership (Mutual Insurance Company is owned by policyholders)
Under the Fair Credit Reporting Act, which of the following statements is correct? A If an individual is denied coverage, they can request a copy of the report B The reporting company can provide confidential information to anyone requesting it C The Act is designed to protect reporting agencies from the public D The reporting agency has no responsibility to investigate inaccurate information
A. The FCRA is designed to protect the public and requires the reporting agency to investigate disputed information. The applicant has the right to request a copy of the report from the reporting agency. This act protects confidential information.
Which insurance company department determines the probability of loss and sets the premium rates? A Sales B Underwriting C Actuarial D Claims
C. The Actuarial Department interprets the statistical information used in rate making, whereas the Underwriting Department is responsible for risk selection.
Which type of producer authority is not spelled out in the contract, but is necessary for carrying out the producer's duties? A Assumed B Implied C Admitted D Express
B. Implied authority is not specifically listed in the contract, but is considered necessary for the producer to carry out their duties. Example: a producer has the express authority to transact insurance business--this implies the authority to provide quotes and collect premiums.
Insurance Company C has decided that it is insuring too many homes in a particular area. Therefore, it decides to reinsure Mr. R's Homeowners Policy because of the high value of his dwelling. The reinsurance contract can best be described as: A An agreement between Mr. R, Insurance Company C, and the reinsurer B An agreement between Mr. R and the reinsurance company C An agreement between Mr. R's agent and Insurance Company C D An agreement between Insurance Company C and the reinsurer
D. A reinsurance contract is between the insuring company and the reinsurer, and does not involve the insured.
Under aleatory contracts the exchange of values may be: A Waived B Rescinded C Equal D Unequal
D. An aleatory contract is contingent on particular events, such a covered loss. Under an insurance policy, the insurer's obligation to pay a loss depends on uncertain events, while the insured must pay a fixed premium during the policy period. Thus, the exchange of values is likely to be unequal between any given insurer and insured.
If an insurer is incorporated in Rhode Island, but primarily does business in New York, what type of insurer would it be considered in New York? A Nonadmitted B Domestic C Alien D Foreign
D. An insurer that is incorporated under the laws of another state is considered a foreign insurer.
Rates are referred to as which of the following when the insurance company files for approval and then implements the rates? A Prior Approval B Open Competition C Mandatory D File and Use
D. Rates must be filed with the state insurance department, but the insurance company can use the new rates once they are filed.
When an insurance policy is not clear, the court will usually interpret in favor of the insured because of which characteristic? A The policy is a contract of adhesion B The policy is a bilateral contract C The policy is a conditional contract D The policy is an aleatory contract
A. A contract of adhesion is a contract between two parties that is written on a 'take it or leave it' basis. Because the other party has no control over the terms of the contract, any ambiguity is usually construed against the party who drew it up.
All of the following are true of the Fair Credit Reporting Act, except: A A report can be changed by court action only B A consumer has the right to obtain the substance of the information in the reporting agency file C The Act protects the rights of the individual from overly intrusive information collection practices D A consumer who was investigated must be informed whenever credit or insurance was denied because of an adverse report
A. If a consumer says that certain information is incorrect, the reporting agency must reinvestigate the facts and make changes as necessary.
The Reasonable Expectations Doctrine states that the insured: A Is entitled to coverage that a reasonable and prudent buyer can expect B May reasonably expect that all claims submitted will be paid C Must fully cooperate with the insurer during the investigation of a claim in order to determine coverage for a loss D May expect the insurer to be reasonable in its consideration of a claim
A. Reasonable Expectations doctrine is 'What a reasonable and prudent policyowner would expect. The reasonable expectations of policyowners are honored by the Courts, although the strict terms of the policy may not support these expectations.'
Which of the following best describes a surplus lines broker? A A surplus lines broker accepts business only from non-resident agents B A surplus lines broker deals with admitted carriers only C A surplus lines broker deals with direct writing companies only D A surplus lines broker places risks with nonadmitted insurers when coverage cannot be placed with admitted insurer carriers
D. States regulate the procurement of business from nonadmitted carriers by regulating the brokers who place business with these carriers. These brokers are known as surplus lines brokers.
An agent that enters into agreements with more than one insurer is which of the following? A Exclusive B Direct C Captive D Independent
D. The independent agent may represent many insurers at the same time.
An individual faces the risk of economic loss in the event of property damage because of which of the following? A Indemnity B Subrogation C Limit of recovery D Insurable interest
D. Typically, if there is a risk of financial loss, there must be an insurable interest.