Chapter 1: General Insurance
A nonadmitted insurer who provides insurance coverages that are not available from an admitted insurer is called
surplus lines insurer
Insurance companies may be classified according to the legal form of their ownership. The type of company organized to return any surplus money to their policyholders is
a mutual insurer
Which of the following is considered a qualifying event under COBRA?
divorce
Which of the following entities regulates variable life policies?
Securities and Exchange Commission and the Insurance Department
An employee insured under a group health plan has been paying $25 monthly premium for his group health coverage. The employer has been contributing $75, for the total monthly cost of $100. If the employee leaves the company, what would be his maximum monthly premium for COBRA coverage?
$102
The main purpose of ERISA is to ensure that
employees receive the pension and other benefits promised by their employers
Events in which a person has both the chance of winning or losing are classified as
speculative risk
What is the major difference between a stock company and a mutual company?
ownership
An insurance company sells an insurance policy over the phone in response to a TV ad. Which of the following best describes this act?
direct response marketing
An agent accepts the premium payment 35 days after it is due, telling the insured that there will not be a problem keeping the policy in force. This is an example of what type of agent authority?
apparent - an agent who accepts a premium after the end of the grace period appears to the client to have the authority to prevent the policy from lapsing when they in fact, have no such power
What is reinsurance?
an agreement between a ceding insurer and an assuming insurer
When applying for an individual life insurance policy, an applicant states that he went to the doctor for nausea, but fails to mention that he was also having severe chest pains. This is an example of
concealment
In what way can an agent demonstrate a high standard of ethics?
putting the client's best interests before their own
Which of the following may NOT be included in an insurance company's advertisement?
that its policies are covered by a state Guaranty Association (this is illegal to state)
An insurance contract requires that both the insured and the insurer meet certain conditions in order for the contract to be enforceable. What contract characteristic does this describe?
conditional
Something of value exchanged between the insurer and the insured is considered a
consideration
An insured stated on her application for life insurance that she had never had a heart attack, when in fact she had a series of minor heart attacks last year for which she sought medical attention. Which of the following will explain the reason a death benefit claim is denied?
material misrepresentation
For the purpose of insurance, risk is defined as
the uncertainty or chance of loss
The insurer must be able to rely on the statements in the application, and the insured must be able to rely on the insurer to pay valid claims. In the forming of an insurance contract, this is referred to as
utmost good faith
When an insured makes truthful statements on the application for insurance and pays the required premium, it is known as which of the following?
consideration
The formation and recommendation of model insurance legislation and regulations designed to bring uniformity from state to state is one of the purposes of
the NAIC
Which of the following coverages is NOT monitored by the Employee Retirement Income Security Act (ERISA)?
golden parachutes
If a consumer requests additional information concerning an investigative consumer report, how long does the insurer or reporting agency have to comply?
5 days
An agent is acting ethically in all of the following situations except
always representing the insured
An insurance company assures its new policyholders that their premium costs will not increase for a period of at least five years. However, due to increasing financial strain, they plan to raise premium costs for all insured by 10% over the next two years. What term best describes this act?
fraud
Which of the following entities protects policyowners, insureds, and beneficiaries under insurance contracts when insurers fail to perform contractual obligations due to financial impairment?
insurance guaranty association
Which of the following protects consumers against the circulation of inaccurate or obsolete personal or financial information?
the Fair Credit Reporting Act
When an individual purchases insurance, what risk management technique is he or she practicing?
transfer
When transacting business in this state, an insurer formed under the laws of another country is known as an
alien insurer
Which insurance principle states that if a policy allows for greater compensation than the financial loss incurred, the insured may only receive benefits for the amount lost?
indemnity
Which of the following is NOT a goal of risk retention?
to minimize the insured's level of liability in the event of loss
What is a definition of a unilateral contract?
one-sided: only one party makes an enforceable promise
Which of the following is an example of a producer's fiduciary duty?
The trust that a client places in the producer in regard to handling premiums.
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
ABC insurance company receives an incomplete application and issues the policy anyways. Six months later ABC realizes the missing information. What term is used that prevents ABC from forcing the policyowner to answer further questions?
estoppel - ABC waived its right once the policy was issued (they are estopped from enforcing those waived rights)
Which of the following best describes the aleatory nature of an insurance contract?
exchange of unequal values
When doing business in this state, an insurance company that is formed under the laws of another state is known as which type of insurer?
foreign
Events or conditions that increase the chances of an insured loss occurring are referred to as
hazards
The Federal Fair Credit Reporting Act
regulates consumer reports
Which of the following would be a qualifying event as it relates to COBRA?
termination of employment due to downsizing
