General Insurance

Insurance policies are not drawn up through negotiations, and an insured has little to say about its provisions. What contract characteristic does this describe?

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

Because the 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 the insurer. What type of agent authority does this describe? A. Express B. Implied C. Assumed. D. Apparent

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

The risk of loss may be classified as

Pure risk and speculative risk

In insurance, an offer is usually made when

an applicant submits an application to the insurer 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.

With respect to the business of insurance, a hazard is

Any condition that increases the possibility of loss A hazard is any condition or exposure that increases the possibility of loss occurring. Hazards are generally classified as either physical, moral, or morale.

Which of the following produces evaluations of insurers financial status often used by state departments of insurance? A. SEC B. AM Best C. NAIC. D. Consumers Guide

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

A participating insurance policy may do which of the following? A. Require 80% participation B. Pay dividends to the policy owner C. Provide group Coverage D. Pay dividends to the stockholder

B. Pay dividends to the policy owner A participating insurance policy will pay dividends to the owner based upon actual mortality cost, interest earned and costs.

Which of the following is not a goal of risk retention? A. To fund losses that cannot be insured B. To minimize the insureds level of liability in the event of loss C. To reduce expenses and improve cash flow D. To increase control of claim reserving and claims settlements

B. To minimize the insureds level of liability in the 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.

An insurer neglects to pay a legitimate claim that is covered under the terms of the policy. Which of the following insurance principles has the insurer violated?

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

In insurance transactions, fiduciary responsibility means A. maintaining a good credit record B. being liable with respect to payment of claims C. Commingling premiums with agent's personal funds D. Handling insurer funds in a trust capacity

D. Handling insurer funds in a trust capacity An agent's fiduciary responsibility includes handling insurer funds in a trust capacity.

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

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

When an insured makes truthful statements on the application for insurance and pays the required premium, it is known as which of the following? A. Consideration B. Legal purpose C. Contract of adhesion D. Acceptance

A. 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 made in the application.

All of the following are examples of risk retention EXCEPT A. self-insurance B. Premiums C. Deductibles D. Copayments

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

Which document grants express authority to an agent?

Agent's contract with the principal The principal grants authority to an agent through the agent's contract.

An insured wants to transfer his personal insurance policy to a friend. Under what conditions would this be possible?

The insured will need a written consent of the insurer A personal insurance contract is written between an insurance company and an individual, and the company has a 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.

What is a foreign insurer?

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.

In insurance policies, the insured is not legally bound to any particular action in the insurance contract, but the insurer is legally obligated to pay losses covered by the policy. What contract element does this describe?

Unilateral In a unilateral contract, the insured is not legally bound to do anything. The insurer, however, must pay losses covered by the policy.

WHICH AUTHORITY IS NOT STATED IN A AGENT'S CONTRACT BUT IS REQUIRED TO CONDUCT BUSINESS A. Apparent B. Assumed C. Expressed. D. Implied

D. 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.

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. Subrogation B. Warranty C. Aleatory D. Adhesion

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