Chapter 1 general insurance

What are the five characteristics of an ideally insurable risk?

1) Due to chance; 2) Definite and measurable; 3) Statistically predictable; 4) Not catastrophic; and 5) Randomly selected

Which of the following would not be classified as personal property for insurance purposes

A house. Personal property is property that is moveable; real property is nonmoveable

What is consideration on the part of the insurer?

A promise to pay in the event of a loss

What does the term unilateral contract mean?

A unilateral contract is a one-sided contract. This means only one party makes an enforceable promise

What type of liability would a person who owns wild animals have?

Absolute liability Any conduct that is inherently dangerous, such as using explosives or keeping wild animals, imposes absolute liability. The claimant does not have to prove anything.

According to the Law of Agency, who represents the principal?

Agent or producer

What are the four elements of an insurance contract

Agreement (offer and acceptance), consideration, competent parties, and legal purpose

Reinsurance

Agreement between a ceding insurer am assuming insurer

An insured pays a $100 premium every month for his insurance coverage, yet the insurer promises to pay $10,000 for a covered loss. What characteristic of an insurance contract does this describe?

Aleatory In an aleatory contract, unequal amounts are exchanged between payments and benefits. In this instance, the insured receives a large benefit for a small price.

What is a warranty in an insurance contract?

An absolutely true statement upon which the validity of the policy depends

Which of the following types of agent authority is also called "perceived Authority"

Apparent authority

If an insurer holds a Certificate of Authority, it is known as what type of insurer?

Authorized or admitted

What are the methods of managing risks?

Avoidance, transfer, sharing, retention, and reduction

What does the term reasonable expectations mean in insurance?

Certain expectations for coverage that a reasonable person would have based on sources other than just the policy language

What document is required for an insurance company to transact insurance?

Certificate of Authority

What is consideration in an insurance contract?

Consideration is something of value that each party gives to the other. Consideration on the part of the insurer is binding.

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.

What is the purpose of the coinsurance clause found in property insurance policies

Encourage the insured to insure the property closer to its full value In return for the insureds promise to insure the property to some certain percent of its value, the insurer agrees to give the insured a reduced rate per hundred on the insurance and pay partial losses in full

In insurance terms what are components?

Factors that determine rates

The requirement that agents not commingle insurance monies with their own funds is known as

Fiduciary responsibility

Conditions that increase the chance of a loss are known as what?

Hazards

What provision states that if a policy allows for greater benefits than the financial loss incurred, the insured may be compensated only for the amount lost?

Indemnity

Which of the following lists all the required elements for establishing a charge of neglect?

Legal duty owed, standard of care, proximate cause, damages.

Rates that are established based on the similarities of the risk with other risks are known as

Manual rates or class rates

What are three types of hazards?

Physical, Moral, Morale

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.

Which method of loss valuation is contrary to the basic concept of indemnity?

Replacement cost it may provide the insured with a settlement in excess of the property's actual cash value

Liability insurance company owned by its members. The members are exposed to similar liability risks by virtue of being in the same business or industry.

Risk retention group (RRG)

What does indemnify mean in insurance?

To restore an insured to the same financial status before a loss

What is a risk

Uncertainty of loss

Insurance contracts are aleatory in nature. What does that mean?

Unequal values are exchanged between the parties to a contract

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. The insurer must be able to rely on the statements given by the insured in the application. The insured must be able to rely on the insurer's promise to pay covered losses.

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*

When would a misrepresentation on an insurance application be considered fraud?

When it is intentional and material

In insurance contracts, when is the offer usually made?

When the insurance application is submitted

In insurance contracts, when does acceptance usually occur?

When the insurer approves a prepaid application

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

What type of authority is based on the agent's actions, or words?

apparent

A couple bought tickets to a college hockey tournament. At the game, a stray puck flies into the stands and hits the wife in the face, breaking her nose. Which legal defense may bar her from recovering damages for the injury she received at the hockey game?

assumption of risk

Insurers are classified according to their domicile. What are the three types of insurers?

domestic, foreign, alien

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

exposure

The authority granted to an agent through the agents contract is referred to as

express authority

What are three types of agent authority?

express, implied, apparent

What do individuals use to transfer their risk of loss to a larger group?

insurance

In the agent/insurer relationship, who is considered the principal?

insurer

A tornado that destroys a property would be an example of what?

peril

What is the term for the cause of loss insured against in an insurance policy?

peril

A situation in which a person can experience only a loss and no gain presents what type of risk?

pure risk

Wagering on a sporting event is known as what type of risk?

speculative