Chapter 1 insurance quiz
all of the following are examples of risk retention except?
premiums
adverse selection is a concept best defined as
risks with higher probability of loss seeking insurance more often than other risks
Who might receive dividends from a mutual insurer?
Policyholders
an insurance contract must contain all of the following to be considered legally binding except?
beneficiary's consent
After issuing a policy, an insurance company discovers that the policyholder concealed information on the application. The insurance company wants to cancel the policy and give back the money the policyholder has paid. This is an example of A. Rescission. B. Refund. C. Contestability. D. Renewal.
recission
a Non admitted insurer who provides unique insurance coverage that is not available from an admitted insurer is called a
surplus lines insurer
which of the following is not the consideration of a policy
the application given to a prospective insured
which of the following is a statement that is guaranteed to be true and if untrue, may breach an insurance contract
warranty
what methods do insurers use to to protect themselves against a catastrophic losses?
Reinsurance
an individual was involved in a head-on Collison while driving home one day. His injuries were not serious, and he recovered. However, he decided that in order to never be involved in another accident he would not drive or ride in a car ever again. which method of risk management does this describe?
avoidance
a producer who fails to seperate premium monies from his own personal funds is guilty of
comingling
An applicant knowingly fails to communicate information that would help an underwriter make a sound decision regarding coverage. This is an example of
concealment
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?
consideration
When an insured makes truthful statements on the application for insurance and pays the required premium, it is known as which of the following?
consideration
When would a misrepresentation on an insurance application be considered fraud?
if it is intentional and material
all of the following actions by a person could be described as risk avoidance except?
investing in the stock market
Which law is the foundation of the statistical prediction of loss upon which rates for insurance are calculated?
law of large numbers
The reduction, decrease, or disappearance of value of the person or property insured in a policy is known as what?
loss
which of the following is the basis for a claim against an insurance policy?
loss
Following a career change, an insured is no longer required to perform many physical activities, so he has implemented a program where he walks and jogs for 45 minutes each morning. The insured has also eliminated most fatty foods from his diet. Which method of dealing with risk does this scenario describe?
reduction
all of the following are marketing arrangements used by insurers except?
reinsurance system
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
which of the following produces examples of insurers financial status often used by a state department of insurance?
AM best
what is a material misrepresntation?
a statement by the applicant that upon discovery would affect the underwriting decision of the insurance company
When transacting business in this state an insurer formed under the laws of another country is known as a/an
alien insurer
A state-issued document empowering an insurance company to become an admitted insurer is called what?
certificate of authority
which of the following is not an essential element of an insurance contract?
counter offer
Installing deadbolt locks on the doors of a home is an example of which method of handling risk?
reduction
insurance policies are not drawn up through negotiations and an insured has little to say about it's provisions what contract characteristic does this describe?
Adhesion
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?
Aleatory
an insurance company sells an insurance policy over the phone in response to a TV ad which of the following best describes this act?
Direct response marketing
what term best describes the act of withholding material information that would be crucial to an underwriting decision?
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
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?
conditional
When doing business in this state, an insurance company that is formed under the laws of another state is known as which type of insurer?
foreign
In insurance transactions, fiduciary responsibility means
handling insurance funds in a trust capacity
Which insurance principle states that if a policy allows for greater compensation than the financial loss incurred, the insured may only receive benefits for the amount lost?
indemnity
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
On a participating insurance policy issued by a mutual insurance company, dividends paid to policyholders are
not taxable since the IRA treats them as a return of a portion of the premium paid
A participating insurance policy may do which of the following?
pay dividends to the policy holder
Pertaining to insurance, which of the following is an example of a producer's fiduciary responsibility?
promptly forwarding premiums to an insurance company
In what way can an agent demonstrate a high standard of ethics?
putting the client's best interests before their own
In case of a loss, the indemnity provision in insurance policies
restores an insured person to the same financial state as before the loss
which of the following is not a goal of risk retention?
to minimize the insureds level of liability in the event of loss
a tornado that destroys property would be an example of what?
a peril
the proposed insured makes the premium payment on a new insurance policy. If the insured should die, the insurer will pay the death benefit to the beneficiary, if the policy is approved. This is an example of what kind of contract?
conditional
Because an insurance contract is a legal contract, it must conform to the state law's governing contract which requires all of the following elements except?
conditions
contracts that are prepared by one party and submitted to the other party on a take-it-or-leave-it basis are called?
contracts of adhesion
ABC Insurance Company receives an incomplete application and issues the policy anyways. six month later ABC realizes the missing information
estoppel
which of the following is a unit of measurement an underwriter uses when determining the premium rates for insurance?
exposure
If only one party to an insurance contract has made a legally enforceable promise, what kind of contract is it?
unilateral
which of the following must be true regarding a risk retention group?
it is a liability insurance company owned by its members
which of the following is a basis for a claim in an insurance policy?
loss
the insurer must be able to rely on the statements in the application, and the insured must be able to rely on the insurer to pay valid claims. in the forming of an insurance contract this is referred to as
utmost good faith
An insurance company receives an application with some information missing and issues the policy anyways. what is this called?
waiver
which of the following is a statement that is guaranteed to be true and if untrue may breech an insurance contract?
warranty
in forming an insurance contract when does the acceptance usually occur
when an insurer's underwriter approves coverage
