Chapter 1

Which of the following is not a government insurance program? Medicare - Medicaid - Federal Deposit Insurance Corp - Social Security

Federal Deposit Insurance Corporation

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.

Authorized

A producer who fails to segregate premium monies from his own personal funds is guilty of

Commingling

In case of a loss, the "indemnity provision" in insurance policies...

Restores an insured person to the same financial state as before the loss.

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? A Representation B Adhesion C Consideration D Good faith

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.

What is fiduciary responsibility?

Handling insurer funds in a trust capacity.

In Insurance, a hazard is a...

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 must an insurer obtain in order to transact insurance within a given state? A Producer's certificate B Business entity license C Insurer's license D Certificate of authority

D. Certificate of authority

Events or conditions that increase the chances of an insured loss occurring are referred to as...

Hazards. Hazards are conditions or situations that increase the probability of an insured loss occurring.

Which services are associated with Standard & Poor's and AM Best? A Storing medical information collected by insurance companies B Rating the financial strength of insurance companies C Investigating violations of The Fair Credit Reporting Act D Providing employment histories for investigative consumer reports

B. Reports generated by Standard & Poor's and AM Best help prospective consumers to judge the financial security of various insurance companies.

What is an aleatory contract?

In an aleatory contract, unequal amounts are exchanged between payments and benefits. In this instance, the insured receives a large benefit for a small price.

What are contracts of adhesion?

Contracts that are prepared by one party and submitted to the other party on a take-it-or-leave-it basis.

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. Authorized. 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.

An insurance contract requires that both the insured and the insurer meet certain conditions in order for the contract to be enforceable. What contract characteristic does this describe? A Contingent B Aleatory C Unilateral D Conditional

Conditional. A conditional contract requires both the insurer and policyowner to meet certain conditions before the contract can be executed, unlike other types of policies which put the burden of condition on either the insurer or the policyowner.

What is exposure?

Exposure is a unit of measure used to determine rates charged for insurance coverage. In life insurance, all of the following factors are considered in determining rates: The age of the insured; Medical history; Occupation; and Sex.

The authority granted to an agent through the agent's contract is referred to as A Express authority. B Apparent authority. C Implied authority. D Absolute authority.

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

Courts will interpret any ambiguity in an insurance contract A Through arbitration. B Based on the prudent person rule. C In favor of the insured. D In favor of the insurer.

Insurance policies are contracts of adhesion. The insurer writes the contract and the insured accepts the contract as it is written. When ambiguities exist, courts generally rule in favor of the insured.

What is a definition of a unilateral contract? A One author: the company wrote the contract; the insured must accept it as written. B If one party makes a condition, the other party can counteroffer. C One-sided: only one party makes an enforceable promise D Two or more parties go into a contract understanding there may be an unequal exchange of value

C. In a unilateral contract, only one of the parties to the contract is legally bound to do anything. The insured makes no legally binding promises. However, an insurer is legally bound to pay losses covered by a policy in force.

A tornado that destroys property would be an example of which of the following? A A peril B A pure risk C A loss D A physical hazard

Peril

The causes of loss insured against in an insurance policy are known as A Losses B Risks C Hazards D Perils

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

What is the Law of Large Numbers?

States that the larger a group is, the more accurately losses reported will equal the underlying probability of loss, is the basis for statistical prediction of loss upon which rates for insurance are calculated.

What is Concealment?

Concealment is the legal term for the intentional withholding of information of a material fact that is crucial in making a decision. In insurance, concealment is the withholding of information that will result in an imprecise underwriting decision.

Something of value that is transferred between the two parties to form a legal contract.

Consideration

The reduction, decrease, or disappearance of value of the person or property insured in a policy by a peril insured against is known as A Exposure. B Hazard. C Risk. D Loss.

Loss is the reduction, decrease, or disappearance of value of the person or property insured in a policy by a peril insured against.

Pure Risk VS Speculative Risk?

Pure risk refers to situations that can only result in a loss or no change. There is no opportunity for financial gain. Pure risk is the only type of risk that insurance companies are willing to accept. Speculative risk involves the opportunity for either loss or gain. An example of speculative risk is gambling. These types of risks are not insurable.

What is adverse selection?

The insuring of risks that are more prone to losses than the average risk. Poorer risks tend to seek insurance or file claims to a greater extent than better risks. To protect themselves from adverse selection, insurance companies have an option to refuse or restrict coverage for bad risks, or charge them a higher ra