Life Insurance Questions
A tornado that destroys property would be an example of which of the following?
A peril
Insurance policies are not drawn up through negotiations, and an insured has little to say about provisions. What contract characteristic does this describe?
Adhesion
When risks with higher probability of loss are seeking insurance more often than other risks, this is known as what?
Adverse selection
What document is required for an insurance company to transact insurance?
Certificate of Authority
Insurers are classified according to their domicile. What are the three types of insurers?
Domestic, foreign, and alien
Which of the following are the authorities that an agent can hold?
Express and implied
What are the three types of agent authority?
Express, implied and apparent
a life insurance policy has a legal purpose if both of which of the following elements exist?
Insurable interest and consent
What 2 elements are necessary for a life insurance contract to have a legal purpose?
Insurable interest and consent.
What do individuals use to transfer their risk of loss to a larger group?
Insurance
Whom does an insurance agent represent?
Insurance company
In the agent/insurer relationship, who is considered the principal?
Insurer
When agents act within the scope of their contract, their actions will be assumed to be the acts of whom?
Insurer
What entities make up the Medical Information Bureau?
Insurers
Insurance is a contract that protects the insured from what?
Loss
A person who does not lock the doors to his or her house shows an indifferent attitude. This person presents what type of hazard?
Morale
An insurance policy paid a nontaxable dividend to the insured one year, and nothing the next. From what type of insurer did the insured purchase the policy?
Mutual
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?
Mutual
The type of insurance company organized to return any surplus money to its policyholders is known as what?
Mutual company
On a participating insurance policy issued by a mutual insurance company, dividends paid to policyholders are
Not taxable since the IRS treats them as a return of a portion of the premium paid.
If a court ordered payment for a loss that was not covered in the policy even if it was clearly worded, it would be an example of which legal concept?
Reasonable expectations
Which of the following insurance options would be considered a risk-sharing arrangement?
Reciprocal
What are the strategies used by underwriters to prevent adverse selection?
Restriction of coverage, refusal to accept a risk, and accepting a risk at a higher rate.
What is the best way to handle incomplete insurance applications?
Return the application to the applicant for completion.
If an agent fails to obtain the applicant's signature on the insurance application, what must the insurer do?
Send the application back to the applicant for signature.
Wagering on a sporting event is known as what type of risk?
Speculative
which of the following insurers are owned by stockholders?
Stock
Which of the following is an example of a producer's fiduciary duty?
The trust that a client places in the producer in regard to handling premiums.
For the purpose of insurance, what is risk?
Uncertainty of loss
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 forming an insurance contract, when does acceptance usually occur?
When an insurer's underwriting approves coverage
When would a misrepresentation on an insurance application be considered fraud?
When it is intentional and material.
In insurance, when is the offer usually made on a contract?
When the insurance application is submitted.
In forming an insurance contract, when does an acceptance usually occur?
When the insurer approves a prepaid application.
When does an insurance policy go into effect?
When the policy is delivered and the premium is paid.
In insurance, an offer is usually made when
An applicant submits an application to the insurer
The risk management technique that is used to prevent a specific loss by not exposing oneself to that activity is called
Avoidance
When a change needs to be made on the application for insurance, which is the best method for correcting the information?
Complete a new application or ask the applicant to initial the correct on the original application.
An applicant knowingly fails to communicate information that would help an underwriter make a sound decision regarding coverage. This is an example of
Concealment
When both parties to a contract must perform certain duties and follow rules of conduct to make the contract enforceable, the contract is
Conditional
the authority granted to an agent through the agents contract is referred to as
Express authority
The requirement that agents must account for and promptly remit all insurance funds collected is known as what type of agent responsibility?
Fiduciary
The requirement that agents not commingle insurance monies with their own funds is known as
Fiduciary responsibility
An insurance company is domiciled in California and transacts insurance in Nevada. What is this insurer's classification in Nevada?
Foreign
An insurance company that is formed under the laws of another state is known as what type of insurer?
Foreign
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
Larger
The reduction, decrease, or disappearance of value of the person or property insured in a policy is known as what?
Loss
What are the five characteristics of an ideally insurable risk?
Loss must be 1. due to chance, 2. definite and measurable, 3. statistically predictable, 4. not catastrophic, and 5. coverage cannot be mandatory.
An applicant conceals relevant health information on the application. The applicant presents what type of hazard?
Moral
What is a definition of a unilateral contract?
One-sided: only one party makes an enforceable promise.
The insurer organized to return a profit to the stockholders is what type of insurer?
Stock company.
Who owns stock companies?
Stockholders
According to the Law of Agency, a principal is represented by whom?
Agent or producer
What documentation grants express authority to an agent?
Agent's contract with the principal
What are the four elements of an insurance contract?
Agreement (offer and acceptance), consideration, competent parties, and legal purposes.
An insured pays a $100 premium every month for his insurance coverage, yet the insurer promises to pay $10,000 for a covered loss. What characteristic of an insurance contract does this describe?
Aleatory
What type of insurer is formed under the laws of another country?
Alien
When transacting business in this state an insurer formed under the laws of another country is known as a/an
Alien insurer
What is a warranty in an insurance contract?
An absolutely true statement upon which the validity of the policy depends
which of the following types of agent authority is also called perceived authority?
Apparent
If an insurer meets the state's financial requirements and is approved to transact business in the state, it is considered what type of insurer?
Authorized or admitted
A state-issued document empowering an insurance company to become an admitted insurer is called
Certificate of authority
Conditions that increase the chance of a loss are known as what?
Hazards
Which authority is NOT stated in an agent's contract but is required for the agent to conduct business?
Implied
What is the term for the causes of loss insured against in an insurance policy?
Peril
What are the three types of hazards?
Physical, moral and morale
Who might receive dividends from a mutual insurer?
Policyholders
Pertaining to insurance, which of the following is an example of a producer's fiduciary responsibility?
Promptly forwarding premiums to the insurance company.
A situation in which a person can only experience a loss and no gain presents what type of risk?
Pure risk
What type of risk is insurable?
Pure risk
Whose responsibility is it to determine that all the questions on an insurance application are answered?
The agent's
If an applicant does not receive his or her insurance policy, who would be held responsible?
The agent.
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