chpter 1 A.D BANKER
What gives an insurer the authority to operate within this state?
A Certificate of Authority from the Department or Division of Insurance grants an insurer the right to operate within a state.
Which of the following best describes a conditional contract?
A conditional contract is one in which both parties must perform certain duties in order for the contract to be enforceable.
Insurers that are incorporated in another state, but doing business in this state, are considered:
An insurer operating in this state but incorporated in another state is referred to as foreign.
Apparent authority is:
Apparent authority is the demonstrated appearance that authority exists. Example: A producer using letterhead and business cards with the insurer's company logo is demonstrating apparent authority.
An insurer that is authorized to do business in this state MUST be _____.
"Admitted" only means the insurer is authorized to do business in this state. Admittance is not the same as domicile. Admitted insurers might have domestic, foreign, or alien domicile.
This organization is licensed in one state and may insure members in other states consisting of a large number of similar units with similar risk exposures such as theme parks, go-cart tracks, or water slides is known as a(n) _________.
A risk retention group is a group owned insurer that primarily assumes and spreads the liability of related risks of its members with each member assuming a portion of the risks insured.
Gambling, such as placing a bet or playing a casino game, involves which type of risk?
A speculative risk has the chance for loss, but also for gain. Speculative risks are never insurable.
Insurance ____________ are captive or independent organizations that recruit, contract with, train, and support insurance producers.
Agencies are responsible for recruiting, contracting, training, and supporting insurance producers.
T owns his own insurance agency and is authorized to represent 12 different insurers. T must be:
An independent agent is not limited as to the number of insurers they represent. A broker represents the consumer, NOT the insurer.
The Fair Credit Reporting Act guarantees which of the following?
Applicants' right to information held about them by any reporting agency, The Fair Credit Reporting Act gives consumers the right to any information held about them by any reporting agency, excluding medical and investigative source information.
When both parties must perform certain duties and follow certain rules of conduct to make a contract enforceable, this is known as a(n) __________ contract.
Conditional,...The enforceability of an insurance contract is conditional on both parties performing certain duties. As long as the insured has complied with all policy terms and conditions, the insurer must pay claims.
Which type of producer authority is specifically stated in the producer's contract?
Express authority is the authority stated or written in the producer's or agent's contract.
It is the _________ who issues a Certificate of Authority enabling an insurer to conduct insurance business within a particular state
In order for an insurer to operate as an admitted or authorized insurer, the insurer must hold a Certificate of Authority issued by the State Insurance Commissioner, Superintendent, or Director.
What is the correct term for a contract written by one party without input from or negotiation with the other party?
Insurance contracts are contracts of adhesion, meaning that one party (the insurer) writes the contract without input from the other party (the insured). The other party must adhere to the contract on a "take-it-or-leave-it" basis.
Which of the following manufactures and issues insurance policies and contracts?
Insurers issue insurance policies or contracts.
An applicant inaccurately representing information on the application is guilty of:
Misrepresentation is a false statement contained in the application. Fraud is an intentional deception of the truth in order to induce another to part with something of value or to surrender a legal right. Concealment is the willful holding back or secretion of material facts pertinent to the issuance of insurance or a claim. Waiver and Estoppel are terms that apply to the insurer, not the applicant.
If a producer is acting as an agent, whom do they represent?
Producers that function as an agent always represent the insurance company. (Only a broker may represent the insured.)
All of the following are types of insurers, except:
Proprietary insurer is not a type of insurer.
All of the following are essential elements of a legal contract, EXCEPT:
Representation is not one of the four essential elements of a legal contract. (Offer and Acceptance is the fourth essential element.)
The McCarran-Ferguson Act of 1945:
The McCarran-Ferguson Act of 1945 gives states the authority to regulate insurance without interference from federal regulation, unless federal law specifically provides otherwise.
An applicant completes the application and submits it to the insurer along with a premium check. When is the applicant's offer considered accepted?
The applicant's offer to be insured is accepted when the insurer issues a policy.
Which of the following is NOT one of the essential elements of any legal contract?
The essential elements of a contract are offer and acceptance, consideration, competent parties, and legal purpose.
For the most part, the highest authority for insurance regulation is:
The individual states....States have the authority to regulate insurance without interference from federal regulation, unless federal law specifically provides otherwise.
The relationship of a person who acts on behalf of a company whereby the person's actions can bind the company is known as:
The law of agency states the principal is responsible for acts of their agents.
What are the two types of risk?
The two types of risk are speculative and pure.
Risk may be defined as:
The uncertainty of loss,...Risk is the chance of loss. It must be uncertain. A hazard increases the likelihood of a loss occurring. A peril is a cause of a loss.
When two parties rely upon the statements and promises of the other and assume no attempt to conceal or deceive was made, this means the contract was entered into on the basis of:
This is the definition of "utmost good faith"--one of the characteristics of an insurance contract.
The Underwriting Department of an insurer is charged with the responsibility of:
Underwriting is responsible for risk selection, classification, and rating.
What is the correct insurance term for a statement that is guaranteed to be true?
Warranties are statements guaranteed to be true. Representations are statements made to the best of one's knowledge.
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,...An application accompanied by a premium check is a legal offer. Policy issuance is a legal acceptance. In other words, the offer is not accepted until the insurer issues a policy.
Which of the following is considered a field underwriter?
a producer
A producer must be ______ by an insurer in order to act as agent for that insurer.
appointed,. An agent must have an appointment with an insurer in order to represent that insurer. Licenses are granted by the state, not by insurance companies.
In a reinsurance transaction, the company that wishes to transfer all or a portion of the financial risk of loss is known as the _______ company.
ceding,...The ceding or primary company is the one looking to transfer some or all of the financial risk of loss it faces over to a reinsurer.
A legal contract must be between _________ in order to be valid.
competent parties ...All parties involved must be considered legally competent in order to form a valid legal contract.
A ____________ agreement is a reinsurance agreement that allows the reinsurance company an opportunity to reject coverage for individual risks, or price them higher due to their substandard (higher risk) nature.
falculative
The ____________ market is a private source of coverage of last resort for individuals or businesses that have been rejected by voluntary market insurers.
residual
You can purchase a life insurance policy on all of the following persons, EXCEPT:
Insurable interest (meaning, the potential for financial hardship in the event of loss) is a required element of any valid insurance contract. Insurable interest is not present between you and your neighbor.
Statements made on the application by the applicant that are believed to be true to the best of the applicant's knowledge are called:
Representations,...Statements made on the application by the applicant are known as representations. Representations are believed to be true to the best of the applicant's knowledge. Warranties are statements that are guaranteed to be true.
All of the following are responsibilities the producer owes to the applicant, EXCEPT:
The cheapest policy may not necessarily be suitable, it might not meet the applicant's true need for coverage.
The National Association of Insurance Commissioners (NAIC):
Has no legal authority over insurance regulation,...The NAIC does not have legal authority over insurance regulation, but promotes uniformity in the interpretation of insurance legislation and regulation.
J has been insured with XYZ Insurance Company for many years. J's policy includes an accidental death benefit if death occurs within 90 days of an accident. J has an accident, and dies 91 days later. XYZ Company chooses to pay the accidental death benefit even though they are not legally bound to do so. This is an example of:
Waiver is the voluntary surrender of a legal right or privilege. When an insurer decides not to enforce a contract condition, they are "waiving" their right to enforce it.