Life insurance multiple choice

Taking a defensive driving course or installing deadbolt locks on the doors of a home are examples of which of the following? a. Loss avoidance b. Risk transfer c. Self-insurance d. Risk reduction

(D) Steps taken to prevent losses from occurring are called risk reduction.

7. Which of the following is an example of apparent authority of an agent appointed by an insurer? a. The agent has business cards and stationery printed. b. The agent puts up a sign with the insurer's logo without express permission. c. The agent accepts a premium payment after the end of the grace period. d. The agent accepts a premium payment during the grace period.

( C ) An agent who accepts a premium after the end of the grace period appears to the client to have the authority to prevent the policy from lapsing. In fact, the agent has no such power. The power to use business cards, stationery and signage may be either express (written) or implied (not written), but in either case, it is allowed.

An insurer incorporated in which of the following locations would be considered a foreign insurer in Washington D.C.? a. Mexico b. Canada c. Washington D.C. d. Maryland

( D) A foreign insurer is an insurance company that is incorporated in another state or territorial possession. Mexico and Canada are foreign countries, so their insurers will be considered alien. An insurer that is incorporated and that operates in Washington D.C. would be considered domestic.

The causes of loss insured against in an insurance policy are known as a. Losses b. Risks c. Hazards d. Perils

(D) Perils are the causes of loss insured against in an insurance policy.

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

(A) The basis of insurance is sharing risk between a large homogeneous group with similar exposure to loss.

Which of the following is NOT a goal of risk retention? a. To fund losses that cannot be insured b. To minimize the insured's 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) 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.

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. Warranty b. Aleatory c. Adhesion d. Subrogation

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

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

( C ) A material misrepresentation is a statement that, if discovered, would alter the underwriting decision of the insurance company.

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

(A) Alien insurer is defined as an insurer formed under the laws of another country.

Which of the following is an example of an agent's fiduciary responsibilities? a. Promptly forwarding premiums to the insurance company b. Helping clients to file claims c. Performing a review of the agent's client's coverage d. Offering additional coverage to his client

(A) 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.

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? a. Unilateral b. Unidirectional c. Aleatory d. Conditional

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

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

(B) 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.

If a loss occurs, insurance policies pay the proceeds to a. Insurer b. Agent c. Beneficiary d. Applicant

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

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

( C ) 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.

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 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.

Which of the following insurance providers would be considered a risk sharing arrangement? a. Reciprocal b. Stock c. Mutual d. Surplus Lines

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