Casualty Part 1

Myron, who is 16, signs a contract to lease a car. This would probably not be considered a valid contract under the law because

Myron is not a competent party

The insured's policy is nearing the expiration date. The insurer doesn't want to continue the insured's coverage, so it sends the insured a notice that the policy will not continue beyond the expiration date. This is an example of

Nonrenewal

The initial premium paid at the time of application constitutes which part of the insurance contract?

Offer

One of the most important risks covered by insurance policies in the casualty line is the risk that

You will become liable for damage to others

A document that summarizes a policy's coverage and is used to provide proof that insurance coverage has been written is called

a certificate of insurance

Under a unilateral contract, which parties are legally bound to perform under the contract?

Insurer only

A nonexclusive agent

Is an independent businessperson

A person may NOT act as a Minnesota insurance producer unless he

Is appointed by at least one insurer

Which on of these statements concerning an insurance application is NOT correct?

It may be used to provide temporary insurance protection

Which of the following is NOT an essential element of a contract?

It must be oral

One of your clients owned a small restaurant. He leaves the door unlocked because he knows if anything is stolen it will be covered by his insurance policy. Which type of hazard is exhibited by this action?

Morale

What type of insurance company pays dividends to its policyholders?

Mutual

Judgement rating is based on

An evaluation of the characteristics of the individual risk

Business reputation, habits, lifestyle, and personal character are all part of what report?

Fair Credit Reporting Act

The Minnesota Insurance Guaranty Association

protects insured's against insurer insolvencies

What rating method makes modifications to manual rates to reflect the unique characteristics of each risk?

Merit

Which insurance company department is responsible for accepting and rejecting applications based on company standards?

Underwriting

Ben bought an automobile four years ago for $15,000. Today it is worth $6,000. According to the principle of indemnity, how much should Ben receive if the car is totally demolished?

$6,000

Harry Arne and his cousin each own 50% of a $160,000 duplex. Suppose Harry purchases $160,000 of insurance on the home. if it burns to the ground, how much would Harry collect?

$80,000

A temporary license issued by the Commissioner is effective for

180 days

The required number of continuing education credit hours that an agent needs per 2 year reporting period is

24 credit hours

Which of the following statements best defines an exposure?

A condition that presents the possibility of a loss

An insurance policy is prepared by the insurance company and is not negotiable by the insured. This means that an insurance policy is

A contract of adhesion

On May 16, Providence, Inc. files a new policy with the state insurance department. Providence begins issuing this policy to insureds on the same day. Two months later, the Commissioner rejects the policy because it is not in compliance with state insurance law, and orders Providence to stop using the policy. This is an example of

A file and use state

Each of the following is an element of fraud EXCEPT

A person thinks that she will be hurt by a lie

A risk that involves both the possibility of loss and the possibility of gain is

A speculative risk

The Commissioner of Commerce is

Appointed by the Governor

Benson Pharmaceutical Company decides not to manufacture a new drug after determining that it has serious potential side effects. This is an example of which risk management method?

Avoidance

LaTonya purchases a house from John. She borrows $75,000 from First City Bank which, along with her $25,000 down payment, equals the $100,000 purchase price of the home. Who has an insurable interest in this home?

Both LaTonya and First City Bank

Endorsements are used to do all of the following EXCEPT

Cancel the entire policy

The Actuarial department

Collects and analyzes data to determine the rates to be charged for insurance

All of the following are contained in an insurance policy EXCEPT

Competent parties

Which part of an insurance policy describes the responsibilities and obligations of both the insurance company and the insured under the policy?

Conditions

Which of the following parts of a legal contract is defined as a value exchange for a promise?

Consideration

At DEF Insurance Company, agents are employees of the company who are paid a salary plus commissions. This is an example of what type of insurance marketing system?

Direct writer

State Insurance Departments audit admitted companies to

Ensure admitted companies are in compliance with state regulations and will be able to meet their financial obligations to insureds

f an agent states or indicates by his actions that a particular loss is covered, this is an example of

Estoppel

Barbara received a written binder from her agent on January 15 providing coverage for 90 days. On February 1, Barbara's policy is issued. On what date will coverage under the binder terminate?

February 1

Which of the following increases the chances of a loss?

Hazard

All are sources of underwriting and application EXCEPT

Medical history

A mutual insurance company

Pays dividends to its policyholders

All of the following are ways to manage risk EXCEPT

Preclude

Which of the following types of risk is insurable?

Pure risk

Agent Blondell is offering a free television to every applicant who agrees to buy insurance through his agency. In most states, this is considered to be illegal practice known as

Rebating

A factual statement on an application is made to the best of one's knowledge is

Representation

Benson Pharmaceutical Company decides NOT to purchase insurance to protect itself from potential lawsuits. This is an example of which risk management method?

Retention

Since she has always been in good health, Donna decides to cancel her health insurance policy. This is an example of which risk management method?

Retention

J&M Industries does not have a group health insurance plan for its employees. Instead, it pays employees' medical expenses out of a fund specifically created for this purpose. This is an example of

Self-insurance

Who is responsible for licensing insurance agents?

State insurance department

The law of large numbers

States that the more examples used to develop a statistic, the more reliable the statistic will be.

All of the following statements regarding the law of large numbers is correct EXCEPT

The fewer examples used to develop any statistic, the more reliable the statistic will be

Which of the following is an element of insurability?

The risk of loss is a pure risk

Which of these statements concerning regulations of the insurance industry is correct?

The state insurance department is responsible for controlling insurance matters within the state

Which of the following is NOT an element of an insurable risk?

There must not be an insurable interest.

All of the following are legal characteristics of insurance contracts EXCEPT

They are bilateral contracts

A vehicle owner buys an insurance policy on it. This represents which method of handling risk?

Transfer

Agent George persuades a prospect to let her current policy lapse and buy insurance through him. He tells the prospect that his company's policy provides more coverage at a lower premium, even though this is not true. This is an example of an illegal practice known as

Twisting

An agreement between the insured and the insurer that certain conditions will be met is

a warranty

The tendency for people with a greater-than-average exposure to loss to purchase insurance is known as

adverse selection

A contract in which there is an unequal exchange of values is known as

an aleatory contract

To void a policy, a misrepresentation by the insured must

concern material facts

An agent whose license is revoked but who wishes to become licensed again must do all of the following EXCEPT

perform 30 hours of community service

When an insured decides to cancel an insurance policy prior to the expiration date, the unearned premium is returned on a

short rate basis