Chapter 1 Quiz

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

An applicant knowingly fails to communicate information that would help on underwriter make a sound decision regarding coverage. This is an example of

Concealment In insurance, concealment is the withholding of information that will result in an imprecise underwriting decision.

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 Consideration is something of value that each party gives to the other. The consideration on the part of the insured is the payment of premium and the representations made in the application.

Which of the following are the authorities that an agent can hold?

Express and implied The powers and authorities that an agent holds are express and implied. Apparent authority is the appearance of, or the assumption of, authority based on the actions, words, or deeds of the principal or because of circumstances the principal created.

Not all losses are insurable, and there are certain requirements that must be met before a risk is a proper subject for insurance. These requirements include all of the following EXCEPT

The Loss May Be Intentional To insure intentional losses would be against public policy.

Which of the following is an example of apparent authority of an agent appointed by an insurer?

The agent accept a premium payment after the end of the grace period An agent who accepts a premium after the end of the grace period appears to the client to have the authority to prevent the policy from lapsing. In fact, the agent has no such power. The power to use business cards, stationery and signage may be either express (written) or implied (not written), but in either case it is allowed.

Which of the following insurance options would be considered a risk-sharing arrangement?

Reciprocal When insurance is obtained through a reciprocal insurer, the insureds are sharing the risk of loss with other subscribers of that reciprocal.

In an insurer meets the state's financial requirements and is approved to transact business in the state, it is considered to be...

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.

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

Counteroffer In order for insurance contracts to be legally binding, they must have four essential elements: agreement (offer and acceptance), consideration, competent parties, and legal purpose. Counteroffer is not required.

In insurance, an offer is usually made when

The completed application is submitted In insurance, the offer is usually made by the applicant in the form of the application. Acceptance takes place when an insurer's underwriter approves the application and issues a policy.

An agent tries to sell insurance over the phone to an applicant who appears to be confused, but is eventually able to give enough information for the application to be completed. After the policy was issued, the agent talked to the insured's family and they explained that the insured was recovering from a surgery and might have been under the influence of medication at the time of application

The policy may be voided if it can be proven that the applicant was not capable of making a buying decision at the time of application. When an insurer and insured enter into a contract, both parties must be of legal age and mentally competent. Because the applicant was confused, it is possible she was suffering from pain or could have been affected by medication, or was having other issues; therefore, if it can be proven that the applicant was incapable of making a buying decision during the application and acceptance process, the policy could be voided.

Which of the following is NOT a characteristic of an insurable risk?

The loss must be catastrophic In order to be characterized as pure risk, the loss must be due to chance, definite, measurable, and predictable, but not catastrophic.

Which of the following is considered to be a morale hazard?

Driving Recklessly Morale hazards arise from a state of mind that causes indifference to loss, such as carelessness.