Chapter 1 General Insurance

A life insurance applicant's answers on the application indicate that they in good health. In fact, the applicant actually has a disease that they are not aware of. The statement on the application is considered:

A A representation

Each of the following is an element of a legal contract, except:

A Agreement B Legal Purpose C Consideration D Indemnity

What is the correct term for a contract written by one party without input from or negotiation with the other party?

A Contract of Adhesion

Insurers that are incorporated in another state, but doing business in this state, are considered:

A Foreign

___________ manufacture and sell insurance coverage in the form of policies or contracts of insurance.

A Insurers

A warranty is defined as which of the following?

A Statement in the application that is guaranteed to be true

What gives an insurer the authority to operate within this state?

A certificate of authority

Misrepresentations

A false statement contained in the application is considered a misrepresentation. If it is material to the issuance of coverage, meaning the insurer would not have issued a policy had the misrepresentation not been made, or premiums charged would have been higher, or coverage limited, coverage does not apply. A material misrepresentation may void the policy.

An insurer that is authorized to do business in this state MUST be:

An admitted insurer

Insurance Contract

An insurance policy is a legal contract between two parties, purchased by the insured and stating that the insurance company promises to make payment for a loss arising from an unexpected event. The contract involves the exchange of a relatively small and definite expense (known as premium) for the promise of payment for a large uncertain loss.

Domestic Insurer

An insurer organized under the laws of a state in which it is placing business is considered a domestic insurer in that particular state. An insurer can only be domestic to the state in which it is incorporated. Example: An insurer organized under the laws of New York is considered domestic to New York.

Foreign Insurer

An insurer placing business anywhere within the United States OTHER THAN the state, district, or territory in which it was organized and incorporated is considered a foreign insurer in that jurisdiction. Example: An insurer incorporated in New York is considered foreign to Kansas.

Alien Insurer

An insurer placing business within the United States which was organized under the laws of another country is considered an alien insurer within the U.S. jurisdiction. Example: An insurer incorporated in Ontario, Canada, is considered alien to New York.

Agreement (Offer and Acceptance)

An offer is made when the applicant submits an application for insurance with initial premium to the insurer. The offer is accepted after it has been approved by the insurer

For life and health insurance, insurable interest must exist at the time of:

Application

Dividends issued by mutual insurance companies:

Are non-taxable refunds (returns) of unused or surplus premiums

An organization that transacts insurance only with its own members is a(n):

B Fraternal Benefit society

Mutual insurance companies are owned by:

C Policyowners

What happens if an applicant discovers that there has been inaccurate or incomplete information in any report used during the underwriting process for life insurance?

C The applicant has the right to challenge the inaccurate or incomplete information

Consideration

Consideration is the exchange of value that makes a contract binding. The insured's consideration is the payment of premium, along with an agreement to abide by the conditions of the contract. The insurer's promise to indemnify in the event of a loss is its consideration, as is specified in the insuring clause of the policy.

Which of the following best describes a conditional contract?

D Both parties must perform specified duties in order for the contract to be enforceable

Fraternal insurance companies are owned by:

D Members

What is the correct insurance term for a statement that is guaranteed to be true?

D Warranty

Which branch of the state government is responsible for enforcing the existing statutes that have been put in place?

Executive

A federal regulation called the ______________ protects consumer privacy.

Fair Credit Reporting Act

USA PATRIOT Act and Anti-Money Laundering (AML)

Financial institutions are required to report any activity they believe or even have reason to suspect is an effort to launder money. A Currency Transaction Report (CTR) must be filed with FINCEN (Financial Crimes Enforcement Network) through the Department of Treasury for every cash transaction that exceeds $10,000 and wire transfers in excess of $3,000.

An insurer authorized to do business in State A, which was incorporated in State B, is considered what type of insurer in State A?

Foreign

Fraternal insurers are known as

Fraternal Benefit Societies

______ are primarily social organizations that engage in charitable and benevolent activities consisting of members of a given faith, lodge, or order, and are usually organized as non-profits.

Fraternal Benefit Societies

Which principle states that an insured may be reimbursed up to the amount of the actual loss?

Indemnity

Legal Purpose

Insurance may not be issued for an illegal activity or immoral purpose. Intentional acts that cause a loss to collect from a policy, such as arson or murder, remove the legal aspect of purchasing insurance. Since an insurable interest must exist between the applicant and the insured, a contract must be issued in good faith that the owner is not looking to gain from a loss.

The ___________ branch is responsible for interpreting and determining the constitutionality of the statutes.

Judicial

Which branch of the government is responsible for writing and passing state insurance laws, or statutes, to protect the insuring public?

Legislative

A ______________ insurance company is owned by its policyholders.

Mutual

An insurer NOT authorized to do business within this state is considered what type of insurer?

Non-Admitted

Insurance is regulated primarily at the _____ level

State

Which person or entity issues a Certificate of Authority enabling an insurer to conduct insurance business within a particular state?

State insurance Commissioner or Director

The insurance industry is primarily regulated at the:

State level

Representations

Statements made by the applicant on the insurance application that are believed to be true, but are not guaranteed to be true.

Dividends issued by stock insurers are paid to:

Stockholders

Contract of Adhesion

The contract is written by one party, the insurance company, without any input from the applicant. The insurer prepares the contract and presents it to the applicant on a "take-it-or-leave-it" basis. Because the insured has no input regarding the terms of the contract, it is not negotiable.

Under the Fair Credit Reporting Act, which of the following statements is correct?

The reporting company can provide confidential information to anyone requesting it B The Act is designed to protect reporting agencies from the public C If an individual is denied coverage, they can request a copy of the report D The reporting agency has no responsibility to investigate inaccurate information

Fraternal Insurers

They are primarily social organizations that engage in charitable and benevolent activities that provide primarily life insurance to its members. They are usually organized on a nonprofit basis. Membership is typically drawn from members of a given religious organization, lodge, order, or society.

The contract type in which only one party is legally bound to its contractual obligations after a premium is paid is a(n)_______ contract.

Unilateral

When it comes to life insurance, insurable interest on one's own life is:

Unlimited

An applicant completes the application and submits it to the insurer along with a premium check. When is the applicant's offer considered accepted?

When the insurer issues a policy

Insurable Interest

a financial or economic hardship in the event of a loss due to an accident, sickness, or death of the insured. Insurable interest must exist between the person buying the insurance, the policyowner, and the person insured under the policy. Each person also has an unlimited insurable interest in his/her own life. insurable interest must exist at the time of the application, not the time of the loss

Warranties

are material statements in the application or stipulations in the policy that are guaranteed true in all respects. If warranties are later discovered untrue or breached, coverage and the contract may be voided.

Stockholders elect

board of directors

Based on the Principle of Indemnity

insurance is designed to restore an insured to the same physical or financial condition which existed prior to the loss, without a profit or gain

An admitted or authorized insurer

is approved to transact insurance in a given state if it has been granted a Certificate of Authority from that state's Department of Insurance. This authorization is not related to the insurer's domicile.

A non-admitted or unauthorized insurer

is not authorized to transact insurance in a given state, either by failing to comply with state requirements or by not seeking admission.

Judicial Branch

is responsible for interpreting and determining the constitutionality of the statutes

National Association of Insurance Commissioners (NAIC)

is the regulatory support organization created and governed by the chief insurance regulators and commissioners from the 50 states

Executive Branch

is to enforce the existing statutes that have been put in place

Competent Parties

must have the legal capacity to enter into a contract. Parties are assumed to be competent unless they are one of the following: Minors - For the purposes of insurance, a minor is a person under age 16. Mentally incompetent Under the influence of drugs or alcohol

stock insurers issue

non-participating policies

if declared by the Board, policyholders may receive

non-taxable dividends as a return of unused premium.

Conditional Contract

one in which both parties must perform certain duties to make the contract enforceable. The insured can only collect if there has been a covered loss, and the insurer has a list of conditions stated in the contract that must be met before a claim will be paid. As long as the specified conditions or duties are performed, the insurer must pay the claim.

Unilateral Contract

one in which only one party is legally bound to the contractual obligations. As long as all the conditions are met by the insured, the insurer makes an enforceable promise of future performance and can be charged with a breach of contract if those obligations are not met. The insured has the right to cancel the policy at any time and cannot be legally forced to pay the premiums.

Aleatory Contract

one that is based on an uncertain event, or "by chance". It can't be known in advance whether the insurer will have to pay a loss during the policy term, or whether the insured will make premium payments without receiving anything in return. Both parties agree to the terms of the contract, despite the uncertainty. It is very likely that there will be an unequal exchange of consideration by either party, depending on if a loss actually occurs and to what extent.

Mutual insurers typically issue

participating policies

A mutual insurer is owned by

policyholders (customers)

Domicile

refers to the location, or jurisdiction (state, district, territory, or country), where an insurer is formed or incorporated. The three kinds of insurer domicile are domestic, foreign, and alien.

A stock insurer is owned by

stockholders

The Fair Credit Reporting Act (FCRA) protects the consumer's right to

the privacy of credit and financial information, ensuring that all collected data is confidential, accurate, relevant and properly used. Under the FCRA, credit reports may be obtained only to determine the financial and moral status of an applicant, such as for employment screening or loan approval, or to assist in underwriting by an insurer.

legislative branch

writes and passes state insurance laws, or statutes, designed to protect the insuring public.