Chapter 1 - General Insurance

W's cost for coverage is $5 per thousand. W applies for $100,000 of coverage. What is the total annual premium for W's coverage?

$500

Larry and his insurance company disagree over some ambiguous language in Larry's life insurance policy. If the parties end up in court, which principle would direct the court to rule in favor of Larry?

Adhesion

Insurance ____________ are captive or independent organizations that recruit, contract with, train, and support insurance producers.

Agencies

A person who negotiates insurance contracts with insurers on behalf of an applicant is known as a(n):

Broker

If a policy is written with unclear definitions, conditions and provisions which are hidden in the contract, and the insured files a law suit. In the court of law, the contract would be construed in favor of the insured because it is a:

Contract of adhesion

Tom submits an application and a premium check. Six days later, the insurer issues the policy as applied for and mails it overnight to Tom's producer. Tom picks up the policy at his producer's office the next day. When did Tom's coverage begin?

The day Tom submitted his application

What gives an insurer the authority to operate within this state?

A Certificate of Authority

Which of the following is an accurate definition of pure risk?

A chance of loss or no loss, but no chance of gain

Which of the following best describes a Conditional Contract?

A contract in which both parties must perform specified duties in order for the contract to remain enforceable

According to the Law of Agency, insurers are responsible for the actions of their producers, UNLESS:

A producer acts outside the scope of their authority

Which of the following has the primary responsibility of determining acceptable risks?

Underwriter

When two parties rely upon the statements and promises of the other and assume no attempt to conceal or deceive means that the contract was entered into upon the basis of:

Utmost good faith

A statement that a person makes and guarantees to be true is a:

Warranty

An insurer which is formed under the laws of another country is a(n):

Alien insurer

An insurance company based out of Europe approved to do business in your state would be considered a/an:

Alien, admitted

If a producer is acting as an agent, whom do they represent?

Always the insurer

T owns his own insurance agency and is authorized to represent 12 different insurers. T must be:

An independent agent

A producer using business cards and letterheads that feature an insurance company's logo is an example of _________.

Apparent authority

In a reinsurance transaction, the company that wishes to transfer all or a portion of the financial risk of loss is known as the _______ company.

Ceding

A legal contract must be between _________ in order to be valid.

Competent parties

When both parties must perform certain duties and follow certain rules of conduct to make a contract enforceable refers to a(n) __________ contract.

Conditional

In a legal sense, an insurance premium is the insured's _______.

Consideration

The State's __________ branch enforces the existing statutes that have been put in place.

Executive

A ____________ agreement is a reinsurance agreement that allows the reinsurance company an opportunity to reject coverage for individual risks, or price them higher due to their substandard (higher risk) nature.

Facultative

Insurers that are incorporated in another state, but doing business in this state, are considered:

Foreign

What is the concept of being restored to the same financial situation or economic condition that existed prior to a loss?

Indemnification

Which of the following is NOT one of the essential elements of any legal contract?

Indemnity

___________ manufacture and sell insurance coverage in the form of policies or contracts of insurance.

Insurers

The ___________ branch is responsible for interpreting and determining the constitutionality of the statutes.

Judicial

The ___________ branch writes and passes state insurance laws, or statutes, to protect the insuring public.

Legislative

An applicant inaccurately representing information on the application is guilty of:

Misrepresentation

A company owned by stockholders that does NOT pay dividends to policyholders is considered:

Nonparticipating

Why is a policy considered to be a contract of adhesion?

One party prepares the contract with little or no input or negotiation from the other party

A life insurance policy is a unilateral contract, because:

Only one party can be charged with breach of contract

Which of the following is considered a field underwriter?

Producer

example of a non-type of insurer is _____

Proprietary insurers

Which of the following is a sound legal method of minimizing adverse selection?

Quality underwriting practices

An unincorporated organization that is formed by individuals, firms, and business corporations that exchange insurance on one another and whose members are known as subscribers is called a:

Reciprocal Insurance Company

What are the two types of risk?

Speculative and pure

Gambling, such as placing a bet or playing a casino game, involves which type of risk?

Speculative risk

Lloyd's of London is not an insurance company, but consists of groups of underwriters called _________, each of which specializes in insuring a particular type of risk.

Syndicates

The relationship of a person who acts on behalf of a company whereby the person's actions can bind the company is known as:

The law of agency

Which of the following would be considered a speculative risk?

The possibility the painting you bought might be a long-lost masterpiece

An insurance contract ___________.

Transfers risk from the insured to the insurer

You can purchase a life insurance policy on all of the following persons, EXCEPT:

Your neighbor

Insurance does not :

eliminate risk

When the owner of the policy and insurer must meet certain conditions in order for the health insurance policy to be enforceable, it is referred to as a(n):

Conditional contract

A person who wants to work in the insurance industry, but who has a prior relevant felony conviction must apply for ________

Consent to work

Under the Fair Credit Reporting Act, which of the following statements is correct?

If an individual is denied coverage, they can request a copy of the report

Which type of producer authority is not spelled out in the contract, but is necessary for carrying out the producer's duties?

Implied

The ability of an individual to meet an insurance company's underwriting requirements is known as:

Insurability

Which of the following is not true about a Reciprocal Insurance Company?

Reciprocal companies may only transact liability insurance

The transfer of some or all of the financial risk of loss from one insurer to another insurer or insurers is best described as:

Reinsurance

Statements made on the application by the applicant that are believed to be true to the best of his/her knowledge are:

Representations