Ch. 2

Every producer must maintain a place of business in this state?

Accessible to the public. "The place of business must be where the re principally conducts transactions under the license."

Which of the following best describes the concept that the insured pays a small amount of premium for a large amount of risk on the part of the insurance company?

Aleatory. "An insurance contract is an aleatory contract in that it requires a relatively small amount of premium for a large risk."

What is reinsurance?

An agreement between a ceding insurer an assuming insurer. "The originating company that procures insurance on itself in another insurer is called the ceding insurer. The other insurer is called assuming insurer."

An insurance contract must contain all of the following to be considered legally binding EXCEPT?

Beneficiary's consent. "The four essential elements of all legal contracts are offer and acceptance, consideration, competent parties, and legal purpose."

An insurance producer just sold an insurance policy to his sister. What kind of business is this?

Controlled. "When producers sell policies on themselves, their family, or their coworkers, this is called controlled business. Controlled business is legal as long as premiums paid on these policies do not exceed the premiums that the producer writes for other business."

An insurance company receives an application with some information missing and issues the policy anyway. What is this called?

Waiver. In insurance policies, a waiver is giving up one's known right or privilege."

An agent makes a sales pitch that contains blatant lies about the insurer and its competitions. Who will ultimately be held legally responsible for this?

The insurer. "Every insurer is bound by any act of its agent performed in this state that is within the agent's apparent authority. In other words, the insurer is liable for the acts of its agents."

If reasonably possible, a notice of proof of loss claim must be provided to the insurer within what period after the time required by the policy?

12months "A notice of proof of loss claim must be provided as soon as reasonably possible to the insurer and within 1 year after the time required by the policy."

How often must insurers provide a current copy of the privacy policy and practices to each customer?

Annually. "A current copy of the privacy policy and practices must be given to each consumer at least once every 12 months (annually)."

Which of the following terms describes a situation in which an agent and policyholder act together to defraud the insurer?

Collusion "Collusion is when an agent and policyholder or insured act together to deceive or defraud the insurer. The sections on specific knowledge do not apply in this case nor if the policyholder or insured knew that the agent was acting beyond the scope of their authority."

The XYZ Insurance Company markets standard accident and health policy as a Medicare supplement policy. The company is guilty of?

Misrepresentation. "Misrepresentation is saying a policy is something it is not."

A person who does not lock the doors or does not repair leaks shows an indifferent attitude. This person presents what type of hazard?

Morale. "A morale hazard is someone who has an indifferent attitude towards an insurance company. He is careless or irresponsible because he knows his loss will be covered by insurance."

Which of the following is NOT correct regarding false statements by a person engaged in the business of insurance?

Only written statements can be considered fraud. "According to Title 18, Sections 1033 & 1034 of the US Code, any oral or written statements by any person engaged in the business of insurance that are false or any omissions of material fact are considered unlawful insurance fraud."

The causes of loss insured against in an insurance policy are known as?

Perils. "Perils are the causes of loss insured against in an insurance policy."

All of the following are examples of risk retention EXCEPT?

Premiums. "Retention is a planned assumption of risk, or acceptance of responsibility for the loss by an insured through the use of deductibles, copayments, or self-insurance."

What is the maximum annual billing for an insurer?

1% of net premiums earned. "All domestic insurers subject to this rule will be billed an amount equivalent to the insurer's share of the estimated cost of conducting the examination during that year. The amount is determined by a formula related to related to premiums written in the state. The maximum annual billing for any insurer cannot exceed 1% of net premiums earned.

When the appointment of an individual agent is terminated, the insurer must notify the Office of the Commissioner with appropriate forms within how many days after the termination date?

30. "The insurer has 30days to notify the Office of the Commissioner."

A claim is considered overdue if NOT paid within how many days after the insurer receives written notice?

30days. "Unless otherwise provided by law, every insurer must promptly pay every insurance claim. A claim is considered overdue if not paid within 30 days after the insurer received full or partial written notice, If the insurer can provide a reasonable proof that the claim is not their responsibility, payment is not required."

What is the maximum number of insurance risks an agent can place with a single insurer in on calendar year if the agent is not listed with that insurer?

5 "Unless proven otherwise, an agent is presumed to have exceeded the occasional exchange of business if he/she places more than 5 insurance risks per calendar year with a single insurer with which he/she is not listed as an agent, or exchanges more than 25 insurance risks per calendar year with all insurers."

According to the rule of readability of insurance policies in this state, what is a required minimum score on the Flesch reading ease test for Medicare supplement policies?

50 "Minimum standards for policy readability approval is a minimum score of 40 on the Flesch (a formula used to determine the ease of reading) reading ease test or equivalent. The minimum score for Medicare supplement policies is 50."

The rule relating to insurance policy readability applies to which of the following?

: All Insurance policies issued in this state. "The rule relating to the readability of insurance policies went into effect in 1980 and applies to consumer insurance policies issued or delivered in Wisconsin."

Because an agent is using stationery with the logo of an insurance company, applicants for insurance assume that the agent is authorized to transact on behalf of that insurer. What type of agent authority does this describe?

Apparent. "Apparent authority (also known as perceived authority) is the appearance or the assumption of authority based on the actions, words, or deeds of the principal or because of circumstances the principal created."

All of the following actions by a person could be described as risk avoidance EXCEPT?

Investing in the stock market. "Investing in the stock market is not an example of risk avoidance; it creates a possibility of a loss."

For the reported losses of an insured group to become more likely to equal the statistical probability of loss for that particular class, the insured group must become?

Larger. "According to the law of large numbers, the larger a group becomes, the easier it is to predict losses. Insurers use this law in order to predict certain types of losses and set appropriate premiums."

Which of the following is an example of a producer's fiduciary responsibilities?

Promptly forwarding premiums to the insurance company. "The funds received in the fiduciary capacity must be promptly accounted for and paid to the insured, insurer, or producer as entitled."

In terms of parties to a contract, which of the following does NOT describe a competent party?

The person must have at least completed secondary education. "The parties to a contract must be capable of entering into a contract in the eyes of the law. Generally, this requires that both parties be of legal age, mentally competent to understand the contract, and not under the influence of drugs or alcohol."

Which of the following is another term for an authorized insurer?

Admitted. "Insurers who meet the state's financial requirements and are approved to transact business in the state are considered authorized or admitted into the state as a legal insurer."

Which of the following includes information regarding a person's credit, character, reputation, and habits?

Consumer report. "Consumer reports include written and/or oral information regarding a consumer's credit, character, reputation, and habits collected by reporting agency from employment records, credit reports, and other public sources.

The insurer may suspect that a moral hazard exists if the policyholder?

Is not honest about his health on an application insurance. "Moral hazards refer to those applicants that may lie on an application for insurance, or in the past, have submitted fraudulent claims against an insurer."

All funds collected by an intermediary for prompt payment to insureds. Insurers, or producers as entitled are received in what is known as?

Fiduciary capacity. "The funds received in the fiduciary capacity must be promptly accounted for and paid to the insured, insurer, or producer as entitled."

An insured purchased an insurance policy 5 years ago. Last year, she received a dividend check from the insurance company that was not taxable. This year, she did not receive a check from the insurer. From what type of insurer did the insured purchase the policy?

Mutual. "Funds not paid out after paying claims and other operating costs are returned to the policyowners in the form of a dividend. If all funds are paid out, no dividends are paid."

An applicant is denied insurance because of information found on a consumer report. Which of the following requires that the insurance company supply the applicant with the name and address of the consumer reporting company?

Fair Credit Reporting Act "The Fair Reporting Act governs what information can be collected and how the information can be used."

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

The application given to a prospective insured. "Consideration is something of value that is transferred between the two parties to form a legal contact."

Which of the following is NOT a characteristic of an insurable risk?

The loss must be catastrophic. "In order to be characterized as pure risk, the loss must be due to chance, definite, measurable, and predictable, but not catastrophic."

Which of the following is NOT a goal of risk retention?

To minimize the insured's level of liability in the event of loss. "Retention usually results from three basic desires of the insured: to reduce expenses and improve cash flow, to increase control of claim reserving and claims settlements, and to fund losses that cannot be insured."

If a consumer requests additional information concerning an investigative consumer report, how long does the insurer or reporting agency have to comply?

5 days. "Consumers must be advised that they have a right to request additional information concerning investigative consumer reports, and the insurer or reporting agency has 5 days to provide the consumer with the additional information.

Any licensed person whose activities affect interstate commerce and who knowingly makes false statements related to the business of insurance may be imprisoned for up to?

10years. "Anyone engaged in the business of insurance whose activities affect interstate commerce, and who knowingly makes false material statements may be fined, imprisoned for up to 10years or both. If the activity jeopardized the security of the accompanied insurer, the punishment can be up to 15years."

State law specifically prohibits using illegal inducements in the marketing of insurance. All of the following would be considered illegal inducements EXCEPT?

Inviting prospective clients to the grand opening of the company's new office. "Inducement is an illegal practice. It involves offering anything of value to a prospective client that is not specified in the policy as an incentive to buy insurance. Stock, bonds, benefit certificates, dividends or profits could be used as inducement."

: Which of the following is NOT true regarding a Certificate of Authority?

It is issued to group insurance participants. "Before insurers may transact business in a specific state, they must apply for a license or Certificate of Authority from the state department of insurance and meet any financial (capital and surplus) requirements set down by the state."

If a court ordered payment for a loss that was not covered in the policy even if it was clearly worded, it would be an example of which legal concept?

Reasonable expectations. "If, because of advertising or sales literature or statements by an agent, an insured could reasonably expect the coverage, the courts have held that the insurer must provide that coverage."

All of the following are true regarding rebates EXCEPT?

Rebates are allowed if it is the best interest of the client. A rebate is an illegal act which involves returning something of value to the client as an inducement to buy, such as the commission. Rebates are only allowed if specifically stated in the policy. Insurance dividends are not considered rebates as the IRS considers it as a return of overpaid premium.

Installing deadbolt locks on the doors of a home is an example of which method of handling risk?

Reduction. "Steps taken to prevent losses from occurring are called risk reduction."

Which of the following is a characteristic of a Reciprocal Insurance Exchange?

The chief administrator of the insurer is called an "attorney-in-fact". "A "reciprocal" is an unincorporated aggregation of individuals, called subscribers, who exchange insurance risks. If the premiums charged for coverage are not sufficient to pay the losses of the group, subscribers may be assessed an additional premium. A reciprocal is administered by an attorney-in-fact who is empowered to bind each subscriber to assume a share of the losses of the group."

An intermediary has just placed insurance on himself. He can receive compensation for this transaction only if he has placed insurance on other individuals with the same insurer within the last?

12months. "Intermediaries may not receive compensation from an insurer for placing insurance on themselves unless they have also placed insurance on others with the same insurer within the preceding 12 months. The total of other premiums must exceed the premium received for themselves."

A tornado that destroys property would be an example of which of the following?

A peril. "A peril is the cause of loss insured against in an insurance policy."

Which of the Following is a statement made in an insurance application by the insured that is the absolute truth?

A warranty "is a statement made in an insurance application by the insured that is the absolute truth. The validity of the contract depends on the parties agreeing that the policy will not be binding unless the statement is literally true.?

Which of the following produces evaluations of insurers' financial status often used by state departments of insurance?

AM Best. "AM Best & Company assigns ratings to life, property and casualty insurance companies based upon the financial stability of the insurer.

Which of the following would NOT be a violation of state insurance regulations?

Agent C uses her license to write only business other than controlled. "The purpose of a license is to primarily write business other than controlled business."

If an insurance company wishes to order a consumer report on an applicant to assist in the underwriting process, and if a notice of insurance information practices has been provided, the report may contain all of the following information EXCEPT the applicants?

Ancestry "The Fair Credit Reporting Act regulates what information may be collected and how the information may be used. Consumer Reports include written and/or oral information regarding a consumer's credit, character, reputation, and habits collected by a reporting agency from employment records, credit reports, and other public sources. Ancestry is not a relevant factor assessed in these reports."

Forcing a client to buy insurance from a particular lender as a condition of granting a loan is defined as?

Coercion. "These are all considered to be Unfair Trade Practices, which are major violations that can lead to heavy penalties. Coercion, for example, is when the bank won't give you an auto loan unless you agree to buy auto insurance from them.

If an insurer develops a new policy form, which authority must approve it?

Commissioner "Unless specifically exempt under the statutes, no policy form may be used in Wisconsin unless it has been filed with and approved by the commissioner.

Which of the following reports will provide the underwriter with the information about an insurance applicant's credit?

Consumer report. "Consumer reports include written and/or oral information regarding a consumer's credit, character, reputation, or habits collected by a reporting agency from employment records, credit reports, and other public sources.

Contracts that are prepared by one party and submitted to the other party on a take-it-or-leave-it basis are classified as?

Contracts of adhesion. "Insurance policies are written by the insurer and submitted to the insured on a take- it-or-leave-it basis. The insured does not have any input into the contract, but simply adheres to the contract."

: According to the Fair Credit Reporting Act, all of the following would be considered negative information about a consumer EXCEPT?

Disputes regarding consumer report information. "As defined by the Act, negative information includes information regarding a customer's delinquencies, late payments, insolvency or any other form of default. Customer disputes are not considered negative information, and, in fact, must be included in consumer reports."

Which of the following entities is not an insurer but an organization formed to provide insurance benefits for members of an affiliated lodge or religious organization?

Fraternal benefit society. "Fraternal insurers operate on the basis of a lodge or charitable organization, but they may also sell formal insurance plans for the benefit of their members. Reciprocal insurers are also associations that provide insurance for their members, but they are formed only for the purpose of providing insurance."

An insurer devises an intimidation strategy in order to corner a large portion of the insurance market. Which of the following best describes this practice?

Illegal. "It is illegal to participate in any boycott, coercion, or intimidation that is intended to restrict fair trade or create a monopoly."

Which statement regarding insurable risks is NOT correct?

Insureds cannot be randomly selected. "Granting insurance must not be mandatory, selecting insureds randomly will help the insurer to have a fair proportion of good risks to poor risks. All other statements are true."

Federal law makes it illegal for any individual convicted of a crime involving dishonesty or breach of trust to work in the business of insurance affecting interstate commerce?

Without receiving written consent from an insurance regulatory authority. "Title 18, US Code, sections 1033-1034 makes it illegal for any individual convicted of a crime involving dishonesty or breach of trust to work in the business of insurance affecting interstate commerce without receiving written consent from an insurance regulatory authority."

What term is used for replacing insurance policies for the sole purpose of making commissions?

Churning. "Churning is defined as replacing insurance policies for the sole purpose of making commissions."

What method do insurers use to protect themselves against catastrophic losses?

Reinsurance. "Insurers use reinsurance to protect themselves from catastrophic losses. This is a method where the reinsurer indemnifies the ceding insurer for part or all of the losses it sustains related to a policy issued previously."

Which of the following insurance options would be considered a risk-sharing arrangement?

Reciprocal. "When insurance is obtained through a reciprocal insurer, the insureds are sharing the risk of loss with other subscribers of that reciprocal."

Under the Fair Credit Reporting Act, if the consumer challenges the accuracy of the information contained in his or her report, the reporting agency must?

Respond to the consumer's complaint. "The consumer has the right to request the information on the report, the reasons for turn down and any adverse underwriting decisions. The reporting agency is required to respond to the consumer's complaint, and if necessary, to reinvestigate the report."

Which of the following protects consumers against the circulation of inaccurate or obsolete personal or financial information?

The Fair Credit Reporting Act. "The purpose of the Fair Credit Reporting Act is to protect consumers against the circulation of inaccurate or obsolete information and to ensure that consumer reporting are fair and equitable in their treatment of consumer."

Following a career change, an insured is no longer required to perform many physical activities, so he has implemented a program where he walks and jogs for 45 minutes each morning. The insured has also eliminated most fatty foods from his diet. Which method of dealing with risk does this scenario describe?

Reduction. "The insured's change in lifestyle and habits would likely reduce the chances of health problems."

The Federal Fair Credit Reporting Act?

Regulates consumer reports. "The Federal Fair Credit Reporting Act regulates consumer reports, also known as consumer investigative reports, or credit reports."

Which of the following is a unit of measurement an underwriter uses when determining the premium rates for insurance?

Exposure. "Exposure is a unit of measurement used to determine rates charged for insurance coverage."

Which law is the foundation of the statistical prediction of loss upon which rates for insurance are calculated?

Law of large numbers. "The law of large numbers, which states that the larger a group is, the more accurately losses reported will equal the underlying probability of loss, is the basis for statistical prediction of loss upon which rates for insurance are calculated."

Which of the following is the basis for a claim against an insurance policy?

Loss. "Claims result from losses by a peril insured against in an insurance policy."

Which services are associated with Standard & Poor's and AM Best?

Rating the financial strength of insurance companies. "Reports generated by Standard & Poor's and AM Best help prospective consumers to judge the financial security of various insurance companies."

Policies issued in this state must be presented in a meaningful sequence, be appropriately captioned, must provide definitions where appropriate, and must be printed in specified type. All these requirements refer to the rule of?

Readability. "The rule relating to the readability of insurance policies went into effect in 1980 and applies to consumer insurance policies issued or delivered in Wisconsin."

What is the maximum penalty for habitual willful noncompliance with the Fair Credit Reporting Act?

$2,500. "An individual who willfully violates this Act enough to constitute a general pattern or business practice will be subject to a penalty of up to $2,500."

Insurance regulations in this state require prompt initiation and completion of claims investigations, and delivery of necessary claims forms and assistance to the insured and claimants. What constitutes prompt action?

10 consecutive days. "According to the Wisconsin Insurance Code, "prompt or Promptly" means within 10 consecutive days of receipt of a communication concerning a claim."

The insurer decided to cancel an insurance policy to its expiration due to nonpayment of premium. When can cancellation take place?

10 days after the notice was delivered to the policyholder. "Any midterm cancellation based on permissible grounds may only be effective if a written notice was given to the policyholder at least 10 days prior to cancellation."

An agent is presumed to have exceeded the occasional exchange of business if the agent places more than how many insurance risks per calendar year with all insurers?

25 "Unless proven otherwise, an agent is presumed to have exceeded the occasional exchange of business if he/she places more than 5 insurance risks per calendar year with a single insurer with which he/she is not listed as an agent, or exchanges more than 25 insurance risks per calendar year with all insurers."

Within how many days of requesting an investigative consumer report must insurer notify the consumer in writing that the report will be obtained?

3days "Investigative consumer reports cannot be made unless the consumer is advised in writing about the report within 3 days of the date the report was requested."

In Wisconsin, producers are permitted to share or split commissions, providing that?

Both are properly licensed for the line of insurance. "For producers to receive commissions from the sale of insurance, they must be properly licensed for that line of insurance."

An insurance producer who by contract is bound to write insurance for only one company is classified as a/an?

Captive agent. "A captive/exclusive agent has agreed, by contract, to produce insurance business only for the insurer they are contracted with."

An insurance organization that does not issue insurance policies but provides a meeting place for underwriters to conduct business is known as a?

Lloyd's association. "A Lloyd's association itself does not issue insurance policies or provide insurance protection. Lloyd's associations provide a meeting facility for the individual underwriters to conduct the business of insurance.

Which of the following is the use of false, misleading, or deceptive statements to describe the terms or benefits of any policy?

Misrepresentation "A misrepresentation by an intermediary is the use of false, misleading, or deceptive oral or written statements to describe the terms or benefits of any policy."

When an insurer is given an order of liquidation, which of the following will protect the insured's unpaid claims?

The Wisconsin Insurance Security Fund "The Wisconsin Insurance Security Fund was created to provide insureds with protection against an insurer's liquidation. The Fund's money is generated by assessments against all insurers licensed to do business in Wisconsin, with limited exceptions. The Fund is administered by a board of directors that includes the Attorney General, the State Treasurer, and the Commissioner.

When an insurer is given an order of liquidation, which of the following will protect the insureds' unpaid claims?

The Wisconsin Insurance Security Fund. "The Wisconsin Insurance Security Fund was created to provide insureds with protection against an insurer's liquidation. The Fund's money is generated by assessments against all insurers licensed to do business in Wisconsin, with limited exceptions. The Fund is administered by a board of directors that includes the Attorney General, The State Treasurer, and the Commissioner."

In comparison to consumer reports, which of following describes a unique characteristic of investigative consumer reports?

The customer's associates, friends, and neighbors provide the report's data. Both consumer reports and investigative consumer reports provide additional information from an outside source about a customer's character and reputation, and both types of reports are used under the Fair Credit Reporting Act. The main difference is that the information for investigative consumer reports is obtained through an investigation and interviews with associates, friends and neighbors of the consumer.

Knowledge an actions of an agent are deemed to be of?

The insurer. "Knowledge and acts of the agent also reflect the knowledge and acts of the insurer."

For the purpose of insurance, risk is defined as?

The uncertainty or chance of loss. "Risk, or the chance of loss occurring, is the basic reason for buying insurance."