Chapter 1-General Life

1. Insurance policies are not drawn up through negotiations, and an insured has little to say about its provisions. What contract characteristic does this describe? a. Adhesion b. Unilateral c. Conditional Personal

Adhesion-A contract of adhesion is prepared by only the insurer; the insured's only option is to accept or reject as it is written.

1. An insurance producer who is bound by contract is bound to write insurance for only one company is classified as a/an a. Broker b. Independent producer c. Captive agent Solicitor

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

1. Which of the following best describes an insurance company that has been formed under the laws of this state? a. Foreign b. Domestic c. Sovereign d. Alien

Domestic-A company is domestic when doing business within the state in which it is incorporated.

Events or conditions that increase the chances of an insured loss occurring are referred to as a. Perils b. Hazards c. Exposures d. Risks

Hazards-Conditions such as lifestyle and existing health, or activities such as scuba diving are hazards and may increase the chance of a loss occurring.

1. Which of the following is considered to be a morale hazard? a. Engaging in illegal activities b. Driving recklessly c. Smoking d. Working as a firefighter

driving recklessly-Morale hazards arise from a state of mind that causes indifference to loss, such as carelessness.

1. What is material misrepresentation? a. A statement by the applicant that, upon discovery, would affect the underwriting decision of the insurance company b. Any misstatement made by an applicant for insurance c. Any misstatement by a producer d. Concealment

A statement by the applicant that, upon discovery, would affect the underwriting decision of the insurance company

1. Which of the following produces evaluations of insurers' financial status often by state departments of insurance? a. NAIC b. Consumer's guide c. SEC d. AM Best

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

1. Which of the following is the most precise synonym for an "authorized" insurer? a. Admitted b. Certified c. Domestic d. Legal

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.

1. What is a foreign insurer? a. An insurer with a home office in another state b. An insurer with a home office in another country c. An insurer with licensed agents doing business in other countries d. An insurer with licensed agents who are citizens in more than one country

An insurer with a home office in another state-A domestic insurer's home office is in this state, a foreign insurer's is in another state, and an alien insurer's is in another country.

1. When must insurable interest exist in a life insurance policy? a. At the time of application b. At the time of policy delivery c. When there is a change of the beneficiary d. At the time of loss

At the time of application- In life insurance, insurable interest must exist at the time of application.

1. If an insurer meets the State's financial requirements and is approved to transact business in the state, it is considered to be a. Authorized b. Certified c. Qualified d. Approved

Authorized-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.

1. An individual was involved in a head-on collision while driving home one day. His injuries were not serious, when he recovered. However, he decided that in order to never be involved in another accident, he would not drive or ride in a car ever again. Which method of risk management does this describe? a. Reduction b. Sharing c. Retention d. Avoidance

Avoidance-Avoidance is a method of risk management by which a person tries to eliminate risk of loss by avoiding any exposure to an event that could give rise to such loss. Risk avoidance is effective but seldom practical.

1. An insurance contract must contain all of the following to be considered legallyt binding EXCEPT a. Beneficiary's consent b. Offer and acceptance. c. Consideration d. Competent parties

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

1. In order for an insurer to legally transact insurance, it must obtain which of the following? a. Power of Authority b. Director's decree c. Authorization of Power d. Certificate of Authority

Certificate of Authority- Certificate of Authority is required in order to transact insurance.

1. What term best describes the act of withholding material information that would be crucial to an underwriting decision? a. Withholding b. Leading c. Breach of warranty d. Concealment

Concealment-Concealment occurs when a person withholds a material fact that is crucial to making a decision. In insurance, this involves withholding information that would be important for making underwriting decisions.

1. 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? a. Unilateral b. Conditional c. Contingent d. Aleatory

Conditional-A conditional contract requires both the insurer and policyowner to meet certain conditions before the contract can be executed, unlike other types of policies which put the burden of the condition on either the insurer or the policyowner.

1. When an insured makes a truthful statements on the application for insurance and pays the required premium, it is known as which of the following? a. Acceptance b. Consideration c. Legal purpose d. Contract of adhesion

Consideration- Consideration is something of value that each party gives to the other. The consideration on the part of the insured is the payment of premium and the representations on the application.

1. An insurer neglects to pay legitimate claim that is covered under the terms of the policy. Which of the following insurance principles has the insurer violated? a. Good faith b. Representation c. Adhesion d. Consideration

Consideration-The binding force in any contract is consideration. Consideration on the part of the insured is the payment of premiums and the health representation made in the application. Consideration on the part of the insurer is the promise to pay in the event of loss.

1. Because an insurance policy is a legal contract, it must conform to the state laws governing contracts which require all of the following elements EXCEPT a. Offer and acceptance b. Conditions c. Consideration d. Legal purpose

Considerations-Conditions are part of the policy structure. Consideration is an essential part of a contract.

1. Which of the following is NOT an example of a valid insurable interest? a. Debtor in the life of the creditor b. Business partners in each other's lives c. Employer in key employee's life d. Child in parent's lives

Debtor in the life of the creditor-The three recognized areas in which insurable interest exists are as follows: a policyowner insuring their own life, the life of a family member (relative or spouse), or the life of a business partner, key employee, or someone who has a financial obligation to the policyowner. A debtor does not have an insurable interest in the creditor.

1. An insurance company sells an insurance policy over the phone in response to a TV ad. Which of the following best describes this act? a. Illegal b. Insurance telemarketing c. Direct response marketing d. Independent agency marketing

Direct response marketing-A direct response marketing system effectively bypasses the insurance agent. Business is conducted over the phone, through the mail, or online. This is a perfectly legal approach to selling insurance. It is not mandatory in all situations for the insured to physically sign any documents in order for coverage to go into effect.

1. What insurance concept is associated with the names Weiss and Fitch? a. Policy dividends b. Types of Mutual Companies c. Index used by stock companies d. Guides describing company financial integrity

Guides describing company financial integrity- Because an insurance company's strength and stability are two very crucial factors in it sustainability, independent rating services have formed regular updates on the financial integrity of different insurance companies. Weiss & Fitch are two of these services, although there are many more.

1. Which statement regarding insurable risks is NOT correct? a. Insureds cannot be randomly selected b. Insurance cannot be mandatory c. The insurance risk needs to be statistically predictable d. An insurable risk must involve a loss that is definite as to cause, time, place, and amount.

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

1. 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 a. Larger b. Smaller c. Older d. More active

Larger- According to the law of large numbers, the larger the 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.

1. Which of the following is the basis for a claim against an insurance policy? a. Hazard b. Misrepresentation c. Loss d. Material change

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

1. On a participating insurance policy issued by a mutual insurance company, dividends paid to the policyholders are a. Taxable as ordinary income b. Guaranteed c. Not taxable since the IRS treats them as a return of a portion of the premium paid d. Paid at a fixed rate every year.

Not taxable since the IRS treats them as a return of a portion of the premium paid-With participating policies, policyowners are entitled to dividends, which, in the case of mutual companies, are nontaxable because they are considered a return of excess premiums.

1. What is the major difference between a stock company and a mutual company? a. Number of producers b. Types of policies issued c. Ownership d. Amount of benefits

Ownership-Mutual companies are owned by policyholders, while stock companies are owned by stockholders.

1. A participating insurance policy may do which of the following? a. Pay dividends to the stockholder b. Require 80% participation c. Pay dividends to the policyowner d. Provide group coverage.

Pay dividend to the policyholder-A participating insurance policy will pay dividends to the owner based upon actual morality cost, interest earned and cost.

1. Which of the following is the most common way to transfer risk? a. Lessen the possibility of loss b. Name a beneficiary c. Purchase insurance d. Increase control of claims

Purchase insurance-The most effective way to handle risk is to transfer it so that the loss is borne by another party. Insurance is the most common method of transferring risk from an individual or group to an insurance company.

1. A situation in which a person can only lose or have no change represents a. Hazards b. Pure risk c. Speculative risk d. Adverse selection

Pure Risk-Pure risk refers to situations that can only result in a loss or no change. Pure risk is the only type of insurance companies are willing to accept.

1. Which of the following factors is NOT considered by an underwriter when determining the premium rates for an individual seeking insurance? a. Age b. Medical history c. Sex d. Race

Race-Age, medical history, and sex provide sound statistical data for determining the probability of loss. Race, religion, sexual orientation, etc., are some of the factors that cannot be used because there is not sound statistical data to show that they effect the probability of loss; therefore, they are considered to be discriminatory.

1. Installing deadbolt locks on the doors of a home is an example of which method of handling risk? a. Self-insurance b. Reduction c. Avoidance d. Transfer

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

1. In case of a loss, the indemnity provision in insurance policies a. Restores an insured person to the same financial state as before the loss b. Allows the insured to collect 20% more than the actual loss c. Pays the insured a percentage of loss above and beyond the loss d. Pays the insured as much as 95% of the loss

Restores an insured person to the same financial state as before the loss-Indemnity (sometimes referred to as reimbursement) is a provision in an insurance policy that states that in the event of a loss, an insured or a beneficiary is permitted to collect only to the extent of the financial loss, and is not allowed to gain financially because of the existence of an insurance contract

1. Events in which a person has both the chance of winning or losing are classified as a. Pure risk b. Retained risk c. Speculative risk d. Insurable

Speculative risk-Speculative risk involves the chance of gain or loss and is not insurable

1. Which of the following insurers are owned by stockholders? a. Mutual b. Reciprocal c. Fraternal d. Stock

Stock-Only stock insurance companies are owned and controlled by stockholders.

1. Which of the following is NOT consideration in a policy? a. Something of value exchanged between parties b. The premium amount paid at the time of application c. The promise to pay covered losses d. The application given to a prospective insured

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

1. In terms of parties to a contract, which of the following does NOT describe a competent party? a. The person must be of legal age b. The person must be mentally competent to understand the contract c. The person must have at least completed secondary education d. The person must not be under the influence of drugs or alcohol

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 contact and not under the influence of drugs or alcohol.

1. Which of the following is NOT a characteristic of an insurable risk? a. The moss must be due to chance b. The loss must be measurable c. The loss exposure must be large d. They must be catastrophic

They 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.

1. When an individual purchases insurance, what risk management technique is he or she practicing? a. Transfer b. Avoidance c. Sharing d. Retention

Transfer-Insurance is a transfer of the risk of financial loss from a covered peril from the insured to the insurance company.

1. An application does not disclose important medical information on his application. What insurance concept does this violate? a. Utmost Good Faith b. Unilateral Contract c. Reasonable Expectations d. Competent Parties

Utmost Good Faith-The concept of Utmost Good Faith entails that the insured and insurer must be able to rely n one another for valid critical information.

1. In forming an insurance contract, when does acceptance usually occur? a. When an insurer receives an application b. When an insured submits an application c. When an insurer's underwriter approves coverage d. When an insurer delivers the policy

When an insurer's underwriter approves coverage-In insurance, the offer is usually made by the applicant in the form of the application. Acceptance takes place when an insurer's underwriter approves the application and issues a policy.

1. A tornado that destroys property would be an example of which of the following? a. A physical hazard b. A peril c. A pure risk d. A loss

a peril-A peril is the cause of loss insured against in an insurance policy

1. What is a definition of a unilateral contract? a. One-sided: only one party makes an enforceable promise b. Two or more parties go into a contract understanding there may be an unequal exchange of value c. One author: the company wrote the contract; the insured must accept it as written d. If one party makes a condition, the other party can counteroffer.

a. One-sided: only one party makes an enforceable promise-An insurance contract is unilateral in that only one of the parties to the contract is legally bound to do anything.

1. Which services are associated with Standard & poor's and AM Best? a. Rating the financial strength of insurance companies b. Investigating violations of The Fair Credit reporting Act c. Providing employment histories for investigative consumer reports d. Storing medical information collected by insurance companies

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

1. Which law is the foundation of the statistical prediction of loss upon which rates for insurance are calculated? a. Law of averages b. Law of group evaluation c. Law of large numbers Law of masses

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

1. The reduction, decrease, or disappearance of value of the person or property insured in a policy by a peril insured against is known as a. Risk b. Loss c. Exposure d. Hazard

loss-Loss is the reduction, decrease, or disappearance of value of the person or property insured in a policy by a peril insured against.

1. Which of the following is NOT a goal of risk retention? a. To reduce expenses and improve cash flow b. To increase control of claim reserving and claims settlements c. To fund losses that cannot be insured d. To minimize the insured's level of liability in an event of loss.

to minimize the insured's level of liability in an 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

1. An insured pays $100premium 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? a. Conditional b. Aleatory c. Good health d. Adhesion

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

1. Which of the following is a term for a person who seeks insurance from an insurer? a. Agent b. Insured c. Producer d. Applicant

Applicant-The applicant is the person who is seeking insurance form an insurer.

1. The risk management technique that is used to prevent a specific loss by not exposing oneself to that activity is called a. Reduction b. Sharing c. Avoidance d. Transfer

Avoidance-Risk avoidance is elimination of risk of loss by avoiding any exposure to an event that could give rise to such loss.

1. Insurance policies ensure that after a loss proceeds will go to the a. Insurer b. Agent c. Beneficiary d. Applicant

Beneficiary-The beneficiary is the person who receives the benefits from the insurance policy.

1. All of the following are personal uses of life insurance EXCEPT a. Survivor protection b. Estate creation c. Cash accumulation d. Buy-sell agreement

Buy-sell agreement- Personal uses of life insurance include survivor protection, estate creation and conservation, and liquidity. A buy-sell agreement is for business uses of life insurance.

1. Representations are written or oral statements made by applicant that are a. Considered true to the best of the applicant's knowledge b. Guaranteed to be true c. Found to be false after further investigation d. Immaterial to the actual acceptability of the insurance contract

Considered true to the best of the applicant's knowledge-Representations are statements made by an applicant that they believe to be true.

1. Contracts that are prepared by one party and submitted to the other party on a take-it-or-leave-it bases are classified as a. Unilateral contracts b. Aleatory contracts c. Binding contracts d. Contracts of adhesion

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.

1. An insurance company is domiciled in Montana and transacts insurance in Wyoming. Which term best describes the insurer's classification in Wyoming? a. Foreign b. Alien c. Domestic d. Unauthorized

Foreign-A foreign insurer is domiciled in one state and transacts insurance in another. A domestic insurer transacts insurance in the domicile state (in this case, Montana). An alien insurer is domiciled in one country and transacts insurance in another.

1. Which of the following is NOT true regarding a Certificate of Authority? a. It is issued by the state department of insurance b. It is issued to group insurance participants c. It may be necessary for transacting business in a specific state d. It is equivalent of insurance license.

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.

1. Insurance is a contract by which one seeks to protect another from a. Loss b. Exposure c. Uncertainty d. Hazards

Loss-Insurance will protect a person, business or entity from loss.

1. The risk of loss may be classified as a. Certain risk and uncertain risk b. Named risk and un-named risk c. High risk and low risk d. Pure risk and speculative risk

Pure risk and Speculative risk- Pure risks involve the probability or possibility of loss with no chance for gain. Pure risks are generally insurable. Speculative risks involve uncertainty as to whether the final outcome will be gain or loss. Speculative risks are generally uninsurable.

1. 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? a. Cease and desist b. Nonforfeiture c. Indemnity d. Reasonable expectations

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.

1. Insurance is the transfer of a. Risk b. Loss c. Hazard d. Peril

Risk-Insurance is a transfer of risk of loss from an individual or a business entity to an insurance company. Hazards are conditions that increase the probability of an insured loss occurring, and perils are the causes of loss. Losses cannot be transferred.

1. Which of the following would qualify as a competent party in an insurance contract? a. The applicant has a prior felony conviction b. The applicant is intoxicated at the time of application c. The applicant is a 12-year-old student d. The applicant is under the influence of a mind-impairing medication at the time of application.

The applicant has a prior felony conviction-When an insurer and insured enter into a contract, both parties must be of legal and mentall competent. It is legal for a person convicted of a felony to buy an insurance contract. An intoxicated person, however, may not be mentally competent, a 12-year-old student is considered to be underage in most states and a person under mind-impairing medication most likely would not be mentally competent.

1. An insured wants to transfer his personal insurance policy to a friend. Under what conditions would this be possible? a. The insured would have to surrender his policy to the insurer, and his friend could then ask to buy it. b. The insured can transfer the policy to his friend and then notify the insurer of the change c. The insured would need written consent of the insurer d. It is impossible to transfer a policy

The insured would need written consent of the insurer- A personal insurance contract is written between an insurance company and an individual, and the company has the right to decide with whom it will and will not do business. An insured can transfer an insurance contract to another person, but he or she must first obtain the written consent of the insurer.

1. Peril is most easily defined as a. The chance of a loss occurring b. Something that increases the chance of loss c. The cause of loss insured against d. An unhealthy attitude about safety

the cause of loss insured against-Perils are the causes of loss insured against in an insurance policy

1. When transacting business in this state an insurer formed under the laws of another country is known as a/an a. Foreign insurer b. Admitted insurer c. Alien insurer d. Domestic insurer

Alien insurer-Alien insurer is defined as an insurer formed under the laws of another country

1. What does "liquidity" refer to in a life insurance policy? a. Cash values can be borrowed at any time b. The death benefit replaces the assets that would have accumulated if the insured had not died c. The policyholder receives dividend checks each year d. The insured receives payments each month in retirement

Cash value can be borrowed at any time-Liquidity in life insurance refers to availability of cash to the insured through cash values.

1. 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? a. Mutual company b. Stock company c. Reciprocal association d. Fraternal benefit society

Fraternal Benefit society- Fraternal insurers operate on the basis of a lodge or charitable organization, but they must 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 with the purpose of providing insurance.

1. Units with the same or similar exposure to loss are referred to as a. Insurable risks b. Law of large numbers c. Homogeneous d. Catastrophic loss exposure

Homogeneous-The basis of insurance is sharing the risk between a large homogeneous group with similar exposure to loss.

1. All of the following actions by a person could be described as risk avoidance EXCEPT a. Refusing to scuba dive b. Never flying in an airplane c. Not driving after being in an accident d. Investing in the stock market

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

1. Who might receive dividends from a mutual insurer? a. Agents b. Policyholders c. Subscribers d. Stockholders

Policyholders- A mutual insurer has no stock, and is owned by the policyholders. Since they may receive a dividend (not guaranteed), such policies are known as participating policies. Dividends received by policyholders of a mutual insurer are not taxable.

1. Which of the following terms describes the fee a person pays an insurance company to receive coverage? a. Commission b. Benefit c. Premium d. Installment

Premium-The premium is what a policyholder pays the insurance company for insurance coverage.

1. In insurance policies, contract ambiguities are automatically ruled in favor of the insured. What privilege does the insurer have in order to balance this? a. The right to refute the rulings b. The right to revoke the policy c. The right to raise premiums as a result of court rulings d. The right to determine the wording of the policy

The right to determine the wording of the policy-In contracts in which only the insurer has the right to determine the wording of a policy, the policyholder will receive benefits denied die to contract ambiguity.

1. For the purpose of insurance, risk is defined as a. The cause of loss b. An event that increases the amount of loss c. The uncertainty or chance of loss d. The certainty of loss

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

1. Which of the following is the best reason to purchase life insurance rather than annuities? a. To create an estate b. To liquidate a sum of money over a period of years c. To create regular income payments d. To liquidate a sum of money over a lifetime

To create an estate-With insurance, the death benefit creates an immediate estate should the insured die.

1. If only one party to an insurance contract has made a legally enforceable promise, what kind of contract is it? a. Adhesion b. Conditional c. A legal (but unethical) contract d. Unilateral

Unilateral-In a unilateral contract, only one of the parties to the contract is legally bound to do anything.

1. If an applicant for a life insurance policy and person to be insured by the policy are two different people, the underwriter would be concerned about a. The type of policy requested b. Which individual will pay the premium c. Whether an insurable interest exists between the individuals d. The gender of the applicant

Whether an insurable interest exists between the individuals-An insurable interest must exist at the time the policy is issued. Some relationships are automatically presumed to qualify an insurable interest, e.g., parents, children, and certain business relationships.

1. An insurer that holds a Certificate of Authority in the state in which it transacts business is considered a. An authorized insurer b. A local insurer c. A certified insurer d. An approved insurer

an authorized insurer- 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.

1. The insurer may suspect that a moral hazard exists if the policyholder a. Is indifferent to activities that may be dangerous b. Always drives over the speed limit c. Is not honest about his health on an application for insurance d. Is prone to depression

is not honest about his health on and application for 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

1. Which of the following insurance options would be considered a risk-sharing arrangement? a. Mutual b. Surplus lines c. Reciprocal d. Stock

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

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

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

1. Within how many days of requesting an investigative consumer report must an insurer notify the consumer in writing that the report will be obtained/ a. 3 days b. 5 days c. 10 days d. 14 days

3 days-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.

1. The authority granted to an agent through the agent's contract is referred to as a. Implied authority b. Absolute authority c. Express authority d. Apparent authority

Express authority-Express powers are written into the contract between the insurer and the agent

1. In insurance transactions, fiduciary responsibility means a. Commingling premiums with agent's personal funds b. Handling insurer funds in a trust capacity c. Maintaining a good credit record d. Being liable with respect to payment of claims

Handling insurer funds in a trust capacity-An agents fiduciary responsibility includes handling insurer funds in a trust capacity.

1. Which authority is NOT stated in an agent's contract but is required for the agent to conduct business? a. Express b. Implied c. Apparent d. Assumed

Implied-Implied authority is not written in the agent's contract but is required in order for the agent to conduct business. Implied authority exists because not every single detail of an agent's authority can be written in a contract.

1. Which of the following statements regarding HIV testing for life insurance purposes is NOT true? a. Insurers are barred from requesting HIV testing b. Positive test results will be forwarded to the state's Department of Health if a physician is not selected by the applicant c. The testing practices must meet criteria of the U.S. Department of Health and Human Services d. HIV testing is regulated at the state level

Insurers are barred from requesting HIV testing-It is common for insurers to require HIV testing when an applicant seeks a policy with a large face amount. The insurer must abide by a variety of rules created by its respective state.

1. Kayla's husband died in a plane crash. She needs a new source of funding that will help put her child through daycare. Which of the following would be the best source? a. Life insurance proceeds b. State education waiver c. Viatical settlement d. Estate conservation

Life insurance proceeds-There are many legitimate need-based expenses that can be paid by life insurance proceeds, from groceries to retirement income. Daycare is considered to be among these expenses.

1. Which of the following information about the applicant is NOT included in the General Information section of the application for insurance? a. Medical background b. Gender c. Occupation d. Marital status

Medical background-Part 1- General Information of the application includes the general questions about the applicant, including name, age, address, birth date, gender, income, marital status, and occupation. The applicants medical background is addressed in Part 2-Medical Information.

1. Which part of an insurance application would contain information regarding the cause of death of the applicant's deceased relatives? a. General information b. Medical information c. Inspection report d. Agent's report

Medical information-Part 2- Medical information of the application includes information on the prospective insured's medical background, present health, any medical visits in recent years, medical status of living relatives, and causes of death of deceased relatives.

1. Attempting to determine how much insurance a family would require based upon their financial objectives is known as a. Estate planning b. Viatical approach c. Needs approach d. Human life value approach

Needs approach-Needs method determines how much benefit would be necessary to replace the loss income and increased expense should the insured die prematurely.

1. Part 2 of the application for life insurance provides questions regarding all of the following EXCEPT a. Recent surgeries b. Other insurance coverages c. Family health history d. Alcohol and tobacco consumption

Other insurance coverages-Part 2 of the application contains questions regarding the applicants' health history. Part 1 of the application includes questions regarding current coverage being applied for as well as any other insurance coverage with the same or other insurers.

1. What describes the specific information about a policy? a. Policy summary b. Illustrations c. Buyer's guide d. Producer's report

Policy Summary-A policy summary describes the features and elements of the specific policy for which a person is applying.

1. Which of the following best details the underwriting process for life insurance? a. Solicitation, negotiation, and sale of policies b. Issuance of policies c. Reporting and rejection of risks d. Selection, classification, and rating of risks

Selection, classification, and rating of risks-The underwriting process is accomplished by reviewing and evaluating information about an applicant and applying what is known of the individual against the insurer's standards and guidelines for insurability and premium rates.

1. Which of the following statements is correct about a standard risk classification in the same age group and with similar lifestyles? a. Standard risk representative of the majority of people b. Standard risk pays a higher premium than a substandard risk c. Standard risk requires extra rating d. Standard risk is also known as high exposure.

Standard risk representative of the majority of people-Standard risks are representative of the majority of people in their age with similar lifestyles. They are the average risk.

1. An individual applied for an insurance policy and paid the initial premium. The insurer issued a conditional receipt. 5 days later the applicant had to submit to a medical exam. If the policy is issued, what would be the policy's effective date/ a. The date of issue b. The date of application c. The date of medical exam d. The date of policy delivery

The date of medical exam-If the company acknowledges receipt of the premium with a conditional receipt, the policy is in effect on the date of the application or the date of the medical exam (whichever is later), provided that the applicant is found insurable at the rate applied for.

1. An insurance company receives an application with some information missing and issues the policy anyway. What is this called? a. Waiver b. Estoppel c. Subrogation d. Aleatory

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

1. 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? a. Stock b. Mutual c. Reciprocal d. Nonprofit service organization

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.

1. Hazard is best defined as a. Something that increases the risk of loss b. The uncertainty of loss c. Neglect to communicate material fact d. A deliberate attempt to deceive

Something that increases the risk of loss-Hazards are conditions or situations that increase the probability of an insured loss occurring.

1. Telemarketing organizations are required to consult the National Do Not Call Registry at least every a. 2 weeks b. 31 days c. 6 months d. Year

31 days-To keep in compliance with the Do Not Call rules, organizations must consult the registry every 31 days.

1. What documentation grants express authority to an agent? a. State provisions b. Agents contract with the principal c. Agents insurance license d. Fiduciary contract

Agents contract with the principal-The principal grants authority to an agent through the agent's contract

1. If an insurance company wishes to order an inspection report on an applicant to assist in the underwriting process, and if a notice of insurance information practices ahs been provided, the report could contain all of the following information, EXCEPT the applicant's a. Credit history b. Habits c. Prior insurance d. Ancestry

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 public sources. Ancestry is not a relevant factor assessed in these reports.

1. Which of the following best describes gross annual premium? a. Annual costs of mortality plus expenses b. Annual loading c. Basic insurance rate plus commissions d. Expense premium

Annual costs of mortality plus expenses-Gross annual premium is the one year cost for mortality, plus expense loading.

1. Because an agent is using stationary with the logo of an insurance company, applicants for insurance assume that the agent is authorized to transact on the behalf of that insurer. What type of agent authority does this describe? a. Express b. Implied c. Assumed d. Apparent

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

1. In classifying a risk, the Home Office underwriting department will look at all of the following EXCEPT a. Applicant's medical history b. Applicants present physical condition c. Applicant's present occupation d. Applicant's past income

Applicant's past income-In classifying a risk, the Home Office underwriting department will look at the applicant's past medical history, present physical condition, occupation, habits, and morals.

1. Which of the following is the basic source of information used by the company in the risk selection process? a. Application b. Agent's report c. Warranty d. Consumer report

Application-The application is the basic source of information an insurer uses in the risk selection process.

1. What document describes an insured's medical history, including diagnoses and treatments? a. Comprehensive Medical history b. Attending Physician's Statement c. Physician's Review d. Individual Medical Summary

Attending Physician's Statement-An Attending Physician's Statement (APS) is the best way for an underwriter to evaluate an insured's medical history. The report includes past diagnoses, treatments, length of recovery time, and prognosis.

1. Which of the following is a generic consumer publication that explains life insurance in general terms in order to assist the applicant in the decision making process? a. Buyer's guide b. Insurance index c. Policy summary d. Illustrations

Buyer's Guide-The Buyer's guide is consumer publication that explains life insurance in general terms in order to assist the applicant in the decision making process. It is a generic guide that does not address the specific policy of the insurer, instead explaining life insurance in a way that the average consumer can understand.

1. If an applicant for a life insurance policy is found to be a substandard risk, the insurance company is most likely to a. Refuse to issue the policy b. Charge a higher premium c. Require a yearly medical examination d. Lower is insurability standards

Charge a higher premium-The premium rate will be adjusted to reflect the insurer's increased risk.

1. A producer who fails to separate premium monies from his own personal funds is guilty of a. Embezzlement b. Theft c. Commingling d. Larceny

Commingling-It is illegal for insurance producers to commingle premiums collected from the applicants with their own personal funds.

1. Which of the following includes information regarding a person's credit, character, reputation, and habits? a. Consumer Report b. Consumer History c. Insurability report d. Comprehensive Insurability Risk Analysis

Consumer reports-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.

1. If an insured changes his payment plan from monthly to annually, what happens to the total premium? a. Increases b. Decreases c. Stays the same d. Doubles

Decreases-Because the insurer would have the entire premium to invest for full year, they would reduce the premium amount.

1. A producer agent must do all of the following when delivering a new policy to the insured EXCEPT a. Explain the rating procedure if the policy is rated differently than applied for b. Disclose commissions earned from the sale of the policy c. Explain the policy provisions, riders, and exclusions d. Collect any premium due

Disclose commissions earned from the sale of the policy-A producer must explain policy provisions, exclusions, and riders at the time of delivery, as well as the rating procedures, especially if the policy rated differently than applied for. The producer must also collect any due premium and have the insured sign the statement of continued good health.

1. All of the following information about the applicant is identified in the General Information section of a life insurance application EXCEPT a. Age b. Gender c. Occupation d. Education

Education-Education is not an underwriting factor nor is it information included on the application.

1. Which of the following is NOT a type of information that needs to be gathered in order to determine the value of someone's life when using the needs approach? a. Outstanding debt b. Mortgages c. Expenses d. Estimated longevity

Estimated longevity-There are 4 main types of information that an insurer needs to obtain in order to determine the value of someone's life: debt status, income, mortgage, and expenses. Longevity is not a factor in the personal financial planning process.

1. ABC insurance company receives an incomplete application and issues the policy anyway. 6 months later ABC realizes the missing information. What term is used that prevents ABC from forcing the policyowner to answer further questions? a. Consideration b. Estoppel c. Adhesion d. Unilateral

Estoppel-ABC had waived its right to receive answers to the missing information once the policy was issued; therefore, they are estopped from enforcing those waived rights.

1. The factor added to the net premium to cover the costs of the insurer in obtaining and maintaining the business is called a. Premium tax b. Expenses c. Legal reserve d. Dividend accumulation

Expenses-Loading is another term for expenses. Net premium (mortality minus interest earned) plus expenses (or loading) equal the gross premium. {mortality-interest earned=Net premium}{net premium+expenses=gross premium}

1. Which of the following are the authorities that an agent can hold? a. Express and implied b. Apparent and allowed c. Authorized and admitted d. Primary and secondary

Express and Implied-The powers and authorities that an agent holds are express and implied. Apparent authority is the appearance of, or the assumption of, authority based on the actions, words, or deeds of the principal or because circumstances the principal created.

1. Which of the following regulatory authorities participated in creating the National Do Not Call Registry? a. FTC b. SEC c. NAIC d. BBB

FTC-The Federal trade Commission (FTC) and the Federal Communications Commission (FCC) created the National Do Not Call Registry, allowing consumers to include their telephone numbers on the list which solicitation calls cannot be made by telemarketers.

1. 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? a. Fair Credit Reporting Act b. Consumer Privacy Act c. Conditional Receipt d. Disclosure Rule

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

1. When Bob dies unexpectedly, leaving his wife Susan and his twin daughters who are only 10 years old, what income period is Susan now in? a. Family dependency period b. Greatest income period c. Retirement period d. Preretirement period

Family dependency period-The Family Dependency Period is the period when, should the insured die prematurely, the surviving spouse will have dependent children to support. The family's income need will be the greatest during this period.

1. The requirement that agents not commingle insurance monies with their own funds is know as a. Fiduciary responsibility b. Premium accountability c. Express authority d. Accepted accounting principal

Fiduciary responsibility-Money collected with respect to an insurance transaction must be held in a position of trust by the agent or broker.

1. Which of the following choices best describes the blackout period? a. From the youngest child's age 16 until the surviving spouse's age 60 b. From the youngest child's age 18 until the surviving spouse's age 59 ½ c. From the youngest child's age 21 until the surviving spouse's age 70 ½ d. From the youngest child's age 18 until the surviving spouse's age 68

From the youngest child's age 16 until the surviving spouse's age 60-Blackout period begins when the youngest child reaches the age of 16, and ends when the surviving spouse qualifies for retirement benefits, as early as age 60. No benefits are paid during this time.

1. Mortality - Interest + Expense = a. Net premium b. Gross premium c. Benefits budget d. Operating expenses

Gross premium-If "mortality" represents the cost of insured mortality, "interest" represents the interest earned by an insurer, and "expense" (or Loading) represents company operating costs, then the interest is subtracted from the cost of mortality, yielding the net premium, and the loading is added to the net premium to yield the gross premium.

1. When would a misrepresentation on the insurance application be considered fraud? a. If it is intentional and material b. Never: statements by the applicant are only representations c. When the application is incomplete d. Any misrepresentation is considered fraud

If it is intentional and material-A misrepresentation would be considered fraud if it is intentional and material. Fraud would be grounds for voiding the contract.

1. As a field underwriter, an agent is responsible for all of the following tasks EXCEPT a. Solicit business that will fall within the insurer's underwriting guidelines b. Obtain appropriate signatures on the application for insurance c. Issue the policy that is requested d. Help prevent adverse selection

Issue the policy that is requested-The agent does not issue the policy, but he or she delivers the policy. The agent has a duty to solicit business that will fall within the underwriting guidelines and represent profitable business to the insurer (help prevent adverse selection).

1. What is the purpose of a conditional receipt? a. It guarantees that a policy will be issued in the amount applied for b. It serves as proof that the applicant has been determined insurable c. It is given only to applicants who fully pay the premium d. It is intended to provide coverage on a date prior to the policy issue.

It is intended to provide coverage on a date prior to the policy issue.-Coverage commences on the date of the application or the date of a medical examination, whichever is later, on the condition that the applicant is determined to be insurable at the rate applied for.

1. In the underwriting process, it was determined that the applicant for life insurance is in poor health and has some dangerous habits. Which of the following is true concerning the policy premium? a. It will likely be lower because the applicant is a preferred risk. b. It will likely be higher because the applicant is a substandard risk c. It will likely be the average premium issued to standard risks d. The applicant's habits and health do not affect the premiums

It will likely be higher because the applicant is a substandard risk-Applicants are considered substandard risks because of physical condition, personal or family history of disease, occupation, or dangerous habits. Substandard risks are usually a higher premium than standard risks.

1. Which of the following is NOT true regarding the needs approach method of determining the value of an individual's life? a. The death of an insured must be premature b. It must be assumed that the death of the insured will occur immediately c. Need is predicted using the number of years until the insured's retirement d. Coverage is based on the predicted needs of the family.

Need is predicted using the number of years until the insured's retirement-In the needs approach method, need is determined by the predicted needs of the family after the premature death of the insured, which must be assumed will happen immediately. The policy allows for the benefits to be collected upon the insured's death.

1. A prospective insured receives a conditional receipt but dies before the policy is issued. The insurer will a. Not pay the policy proceeds under any circumstances b. Automatically pay the policy proceeds c. Pay the policy proceeds only if it would have issued the policy d. Pay the policy proceeds up to an established limit.

Pay the policy proceeds only if it would have issued the policy-The conditional receipt says that coverage will be effective either on the date of the application or the date of the medical exam, whichever occurs last, as long as the applicant is found to be insurable as a standard risk, and policy is issued exactly as applied for.

1. Which of the following documents delivered to the policyowner includes information about premium amounts, cash values, surrender values and death benefits for specific policy years? a. A buyer's guide b. A policy summary c. A notice regarding replacement d. A privacy notice

Policy summary-A policy summary usually includes all the listed information and must be delivered along with a new policy.

1. Most agents try to collect the initial premium for submission with the application. When an agent collects the initial premium from the applicant, the agent should issue the applicant a a. Premium receipt b. Statement of good health c. Backdated receipt d. Warranty

Premium receipt-When collecting the initial premium, the agent should issue the applicant a premium receipt.

1. Pertaining to insurance, what is the definition of a fiduciary responsibility? a. Performing reviews of insured's coverage b. Offering additional coverage to clients c. Promptly forwarding premiums to the insurance company d. Helping insureds to file claims

Promptly forwarding premiums to the insurance company-Fiduciary refers to a position of trust. When an agent is handling the premiums that belong to an insurance company, they are acting in a fiduciary capacity.

1. In what way can an agent demonstrate a high standard of ethics? a. Putting the clients best interests before their own b. Making enough commissions to cover personal expenses c. Setting and meeting monthly production goals d. Recommending qualified retirement plans to each client

Putting the clients best interests before their own-The needs of the client are the priority to a highly ethical agent

1. Another name for substandard risk classification is a. Rated b. Controlled c. Declined d. Elevated

Rated-Substandard risk classification is also referred to as "rated" since these policies could be issued with the premium rated-up, resulting in a higher premium.

1. If an agent fails to obtain an applicant's signature on the application, the agent must a. Send the application to the insurer with a note explaining the absence of signature b. Return the application to the applicant for a signature c. Sign the application for the applicant d. Sign the application, stating it was by the agent

Return the application to the applicant for a signature-All applications must have the appropriate authorized signatures

1. Which of the following is a risk classification used by underwriters for life insurance? a. Standard b. Poor c. Normal d. Excellent

Standard-The three ratings classifications that denote the risk level of insureds are standards, substandard, and preferred. This classification system helps insurers to decide if an insured should pay a higher premium.

1. Which of the following types of risk will result in the highest premium? a. Substandard risk b. Standard risk c. Preferred risk d. All risks pay equal premiums

Substandard Risk-The "substandard" rating indicates that an individual represents an under-average insurance risk because of physical condition, personal or family history of disease, occupation, habits or hobbies. This rating incurs the highest premium of policy is issued.

1. The law that protects consumers against the circulation of inaccurate or obsolete information is known as a. The Fair Credit Reporting Act b. Loss Settlement Provisions c. Guaranty Association d. Consumer Report

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 agencies are fair and equitable in their treatment of consumers.

1. In comparison to consumer reports, which of the following describes a unique characteristic of investigative consumer reports? a. The customer's associates, friends, and neighbors provide the report's data b. They provide additional information from an outside source about a particular risk c. They provide information about a customer's character and reputation d. The customer had no knowledge of this action

The consumer'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 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.

1. Not all losses are insurable, and there are certain requirements that must be met before a risk is a proper subject for insurance. These requirements include all of the following EXCEPT. a. There must be a sufficient number of homogeneous exposure units to make losses reasonably predictable. b. The loss produced by the risk must be definite c. The loss may be intentional d. The loss must not be catastrophic

The loss may be intentional-To insure intentional losses would be against public policy.

1. An insurer wishes to compare the information given in an insurance application with previous insurance applications by the same applicant but for different companies. What organization can help the insurer accomplish this? a. Social Security b. The National Association of Insurance Commissioners c. The Medical Information Bureau The State Department of Insurance

The medical information bureau-Members of the Medical Information Bureau (MIB) can request a report on an applicant and receive coded information from any other applications for insurance submitted to other MIB members.

1. An individual applies for a life policy. 2 years ago he suffered a head injury from an accident, so he cannot remember parts of his past, but is otherwise competent. He has also been hospitalized for drug abuse, but does not remember this when applying for insurance. The insurer issues the policy and learns his history 1 year later. What will probably happen? a. The policy will not be affected b. The policy will be voided c. The insurer will sue the insured for committing fraud d. Because the insured is currently not a drug user, his policy will not be affected.

The policy will not be affected-In insurance, fraud is the intentional misrepresentation of material information that is crucial when deciding whether or not to write a contract for an applicant. If an insurer finds that na applicant has committed fraud, it can void the contract, providing that the discovery occurs within the first 2 years of the effective policy date. In this particular instance the applicant did not commit intentional fraud.

1. Which is generally true regarding insureds who have been classified as preferred risks? a. Their premiums are lower b. They can borrow higher amounts off their policies c. They can decide when to pay their monthly premiums d. They keep a higher percentage of any interest earned on their policies.

Their premiums are lower-The preferred risk classification indicates that an insured is in excellent physical condition and employs healthy lifestyles and habits. These individuals qualify for lower premiums than those in the other categories.

1. All of the following are requirements for life insurance illustrations EXCEPT a. They must be part of the contract b. They may only be used as approved c. They must identify nonguaranteed values d. They must differentiate between guaranteed and projected amounts

They must be part of the contract-An illustration may not be altered by an agent and must clearly state that it is not part of the contract, but they must be specifically labeled as projected, not guaranteed values.

1. What process do insurance companies use to determine whether or not a particular applicant is insurable? a. Underwriting b. Adverse selection c. Marketing d. Solicitation

Underwriting-Underwriting is the process in which an insurance company determines whether or not a particular applicant is insurable, and if so, what premium to charge.

1. Which of the following would be least likely to be considered a legitimate need hat would be paid by insurance proceeds? a. Day care b. Vacation travel expenses c. Travel expenses for family to come to the funeral d. Debt cancellation

Vacation travel expenses-There are many legitimate need-based expenses that can be paid by life insurance proceeds, from groceries to retirement income. Vacation travel expenses are most likely to be considered a luxury and not a need.

1. Which of the following is a statement that is guaranteed to be true, and if untrue, may be a breach of contract? a. Warranty b. Concealment c. Indemnity d. Representation

Warranty-A warranty in insurance is a statement guaranteed to be true. When an applicant is applying for an insurance contract, the statements he or she makes are generally not warranties but representations. Representations are statements that are true to the best of the applicant's knowledge.

1. When is the earliest a policy can go into affect? a. When the application is signed and a check is given to the agent b. When the first premium is paid and the policy has been delivered c. When the insurer approves the application d. After the underwriter reviews the policy

When the application is signed and a check is given to the agent-The policy can be effective as early as the date of the application, if the premium is submitted with the application and the policy is issued as applied for.

1. If a policy includes a free-look period of at least 10-days, the Buyer's Guide may be delivered to the applicant no later than a. Within 30 days after the first premium payment was collected b. Prior to filling out an application for insurance c. With the policy d. Upon issuance of the policy

With the policy-If a life insurance policy contains a free-look period of at least 10 days, the buyer's guide can be delivered with the policy. If it doesn't, the buyer's guide must be delivered prior to accepting the initial premium.

1. An applicant sings an application for a $25,000 life insurance policy, pays the initial premium, and receives a conditional receipt. If the applicant dies the following day, which of the following is TRUE? a. The death claim will be rejected b. The application will be voided c. The beneficiary will receive the full death benefit if it is determined that the applicant qualified for the policy d. The premium would be returned to the insureds estate because the policy was not issued

a. The beneficiary will receive the full death benefit if it is determined that the applicant qualified for the policy-The conditional receipt provides that when the applicant pays the initial premium, coverage is effective on the condition that the applicant proves to be insurable either on the date the application was signed or the date of the medical examination, if one is required.

1. Which insurance principle states that if a policy allows for greater compensation then the financial loss incurred, the insured may only receive benefits for the amount lost? a. Consideration b. Reasonable expectations c. Indemnity d. Stop-loss

indemnity- The principle of indemnity stipulates that the insured can only collect for the amount of the loss even if the policy is written with greater benefit limits.

1. All of the following are marketing arrangements used by insurers EXCEPT a. General Agency System b. Direct Response Marketing System c. Independent Agency System d. Reinsurance System

reinsurance system-Reinsurance is a method used by insurers to protect against catastrophic losses. The rest are marketing arrangements.

1. Under the Fair Credit Reporting Act, if the consumer challenges the correctness of the information contained in his/her report, the reporting agency must a. Change the report b. Send an actual certified copy of the entire report to the consumer c. Respond to the consumer's complaint d. Defend the report if the agency feels its inaccurate.

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 reinvestigate the report.

1. The National Do Not Call Registry was created to regulate a. Insurers b. Insurance solicitors c. Telemarketers d. Field underwriters

telemarketers-The National Do Not Call registry was created to allow consumers the choice to not be contacted by telemarketers.

1. 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? a. Aleatory b. Adhesion c. Subrogation d. Warranty

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

1. Which of the following must an insurer obtain in order to transact insurance within a given state? a. Insurer's license b. Certificate of Authority c. Producer's certificate d. Business entity license

Certificate of Authority-All insurers (domestic, foreign, or alien) must obtain a certificate of authority before transacting insurance within a given state.

1. Which of the following best describes the aleatory nature of an insurance contract? a. Exchange of unequal values b. Only one of the parties is legally bound by contract c. Ambiguities are interpreted in favor of the insured d. Policies are submitted to the insurer on a take-it-or-leave-it basis

Exchange of unequal values-An aleatory contract is a contract in which unequal amounts or values are exchanged. The amount of premiums the insured pays is much less than the potential loss assumed by the insurer.

1. Which of the following is NOT an essential element of an insurance contract? a. Agreement b. Legal purpose c. Counteroffer d. Consideration

Counteroffer- In order for insurance contracts to be legally binding, they must have 4 essential elements: agreement (offer and acceptance), consideration, competent parties, and legal purpose. Counteroffer is not required.

1. 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? a. Foreign b. Domestic c. Alien d. Nonadmitted

Foreign-A foreign insurer is one that is formed under the laws of another state. A nonadmitted or unauthorized insurer is an insurance company that has not been applied for, or has applied and been denied a Certificate of Authority and may not transact insurance

1. A life insurance policy has a legal purpose if both of which of the following elements exist? a. Insurable interest and consent b. Underwriting and reciprocity c. Offer and counteroffer d. Policyowners and named beneficiaries

Insurable interest and consent-To ensure legal purpose of a life insurance policy, it must both have insurable interest and consent.

1. What do individuals use to transfer their risk of loss to a larger group? a. Exposure b. Indemnity c. Insurance d. Insurable interest

Insurance-Insurance is the mechanism whereby an insured is protected against loss by a specified future contingency or peril in return for the present payment of premium. Because many other individuals with the same of similar risk of loss are paying premiums, funds are available to indemnify those who actually suffer that loss.

1. An insurance organization that does not issue insurance policies but provides a meeting place for underwriters to conduct business is known as a a. Mutual company b. Capital stock company c. Lloyd's association Fraternal society

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.

1. Untrue statements on the application unintentionally made by insureds that, if discovered, would alter the underwriting decision of the insurance company are called a. Warranties b. Common errors c. Material misrepresentations d. Fraudulent statements

Material misrepresentations-A material misrepresentation is a statement that, if discovered, would alter the underwriting decision of the insurance company.

An individual's tendency to be dishonest would be indicative of a a. Physical hazard b. Moral hazard c. Morale hazard d. Pure hazard

Moral Hazard-An applicant that is dishonest in completing an application for insurance or submitting fraudulent claims would be deemed a moral hazard and could be uninsurable from an underwriting standpoint.

1. A person who does not lock the doors or does not repair leaks shows an indifferent attitude. This person presents what type of hazard? a. Morale b. Moral c. Leal d. Physical

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.

1. Which of the following individuals must have insurable interest in the insured? a. Policyowner b. Beneficiary c. Underwriter d. Producer

Policyowner- The policyowner must have an insurable interest in the insured (his/her own life if the policyowner and the insured are the same person), or in the life of a family member or a business partner.

1. All of the following are examples of risk retention EXCEPT a. Deductibles b. Copayments c. Self-insurance d. Premiums

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

1. Which of the following statements is an accurate comparison between private and government insurers? a. Private insurers offer fewer lines of insurance than government insurers b. Private insurers provide insurance in areas that government will not c. Private insurers may be authorized to transact insurance by state insurance departments d. Insurance provided by the government is called federal insurance

Private insurers may be authorized to transact insurance by state insurance departments-Private insurers offer many lines of insurance. Government insurance programs, also known as social insurance, cover areas that private companies cannot or will not, providing programs like Medicare, Social Security, and National Flood Insurance. Government programs are funded with tax dollars and serve national causes, in contrast with private insurers.

1. Adverse selection is a concept best described as a. Poor choices of applicants covered b. Only offering coverage to good risks c. Risks with higher probability of loss seeking insurance more often than other risks d. Underwriters slanting the odds in favor of the company

Risks with higher probability of loss seeking insurance more often that other risks-Adverse selection means that there are more risks with higher probability of loss seeking to purchase and maintain insurance than the risks who present lower probability. Underwriters must guard against this.