FINA 456 Ch. 7-10
Best's rating
All of the following are rating methods used in property and casualty insurance EXCEPT:
both I and II
Insurance companies are regulated I. to ensure reasonable rates II. to make insurance available
rates must provide large profits to insurers
States have rating laws that require insurance rates to meet certain standards. these standards include all the following EXCEPT
class rating
Under one type of property and casualty insurance rate making, exposures with similar characteristics are placed in the same underwriting category, and each is charged the same rate.
true
a principle is responsible for the acts of an agent when the agent is acting within the scope of his or her authority
False
a property and liability premium can be describes as earned when its paid to the insurance company
true
a straight deductible requires the insured to bear a portion of each loss before the insurer has any liability
endorsement or rider
a written provision that adds to, deletes from, or in some other way alters an insurance contract is called:
false
actual cash value coverage on your personal property costs more than replacement cost coverage
uniformity of laws
all of the following are advantages of state regulation of insurance EXCEPT:
policy loan
all of the following are assets that you might find on the balance sheet of a property and casualty insurance company EXCEPT:
actual cash value insurance
all of the following are exceptions to the principle of indemnity EXCEPT:
schedule rating method
all of the following are methods of estimating the size of the reserve for reported property and liability losses EXCEPT the:
contract must be in writing
all of the following must be met to form a binding property insurance contract EXCEPT:
true
an aggregate deductible may be based on losses that occur during a calendar year
retaliatory tax law
assume that the premium tax rate is 2.5% in florida and 3% in georgia. if insurers domiciled in florida are required to pay a 3% tax on premiums written in georgia, florida requires insurers domiciled in georgia to pay a 3% premium tax on business written in florida even though the premium tax rate in florida is 2.5%. this scenario illustrates:
condition
ben purchased fire insurance on his dwelling. shortly thereafter, he began to manufacture fireworks in his basement, newr the furnace. when fire severly damaged his home, the insurer denied liability because the policy stated "we will not be liable for any losses directly attributed to a material increase in hazard" this clause is an example of:
estoppel
bill called his insurance agent to check whether his auto insurance would apply to a rental car. the agent said "no sweat, youre covered" bill was involved in an accident while driving the rental car. the claim submitted to his insurer was denied. bill may be able to collect because of the doctrine of:
conditional contracts
brad's homeowners insurance excludes losses if there is a "material increase in hazard". after buying the policy, brad started to make fireworks in the basement. a spark from the wood stove ignited some gunpowder, and the home burned to the ground. which legal characteristic of insurance contracts may prevent brad from collecting under his policy
true
cancellation rights and subrogation provisions are miscellaneous provisions in insurance contracts
aggregate deductable
carson company purchased a commercial property insurance policy. under one provision of the policy, carson would pay all covered losses until the sum paid reached $50,000, then the insurer would cover all future losses. this provision is
true
case reserves are loss reserves established for each individual claim when the claim is reported
rebating
cathy is a life insurance agent. she was trying to sell a policy to frank. in an effort to "close the deal" cathy offered to give frank a share of her commission if he purchased the policy. this practice, which is illegal in almost all states, is called
false
coinsurance in property and coinsurance in health insurance operate in the same way
true
deductibles are not used in life insurance
to provide a physical description of the property to be insured
exclusions are used in insurance contracts for all of the following reasons EXCEPT:
true
federal regulation of insurance would provide greater uniformity of laws from state to state
false
if a state is using a file-and-use rating law, state regulatory officials must approve the rates before an insurer can use them
true
if an individual claims to represent an insurer but gives you no proof of agency relationship, you should not presume the individual is an agent for the insurer
true
if an insurer voluntarily waives a legal right under the contract, it cannot later deny payment of a claim on the ground that the legal right was violated
false
if the national association of insurance commisioners (NAIC) drafts a model law, all states must adopt the law
principle of adhesion
if there is ambiguity in an insurance contract, it is constructed in the favor of the insured because of which legal characteristic of insurance contracts?
true
if you interfere with your insurer's subrogation rights against a third part, you jeopardize your right to collect from your insurer
false
if you knowingly withhold information that will affect the underwriting decision, you have committed misrepresentation
prior-approval
in a certain state, all insurance rates must be approved by the state insurance department before the rates can be used. this type of rating law is:
true
in general, property insurance agent have greater authority to bind the companies they represent than do life insurance agents
true
in property insurance, you can purchase insurance based on the expectation of an insurable interest
false
individuals must be mentioned by name in order to be covered under insurance contracts
to reduce premiums
insurable interest is required for all of the following reasons EXCEPT:
false
insuranc policies written on an all-risk (open-perils) basis cover all perils
the number of policies sold
insurance companies are subject to many laws and regulations. the principal areas regulated include all of the following EXCEPT:
false
insurance contracts are characterized by an equal exchange of value by the parties to the contract
II only
insurance contracts have which of the following legal characteristics: I. they are bilateral contracts II. they are aleatory contracts
true
insurance guaranty funds provide for the payment of unpaid claims of insolvent insurers
true
insurance is regulated primarily at the state level
false
its better for insurance applicants to have their statement constructed as warranties rather than as representations
false
just as auto makers often offer rebates to car purchasers, rebating in insurance is a widespread sales practice in all states
when kate received the policy and paid the first premium
kate completed a life insurance application. her agent forwarded the application to the insurer. the insurer issued the policy. the agent delivered the policy to kate. when kate recieved the policy, she paid the premium. when was the offer accepted in this case?
false
life insurance is an example of a named-perils coverage
foreign insurer
mutual of omaha is domiciled in nebraska and has been admitted to write coverage in Tennessee. in Tennessee, mutual of omaha is considered an
false
once insurers calculate rates for a given exposure, the rates are never adjusted
pro rate liability
one other-insurance provision assesses the liability of an insurer in relation to the proportion that the company's insurance bears to the total amount of insurance in force. the other-insurance provision is:
true
other-insurance provisions are designed to prevent profiting from insurance and violating the principle of indemnity
false
policy reserves are considered an asset of the insurance company
policyholders' surplus
regulators are concerned with a number of financial characteristics of insurers. one measure is the difference between an insurer's assets and its liabilities. this measure is known as an insurer's:
true
requiring insurers to satisfy risk-based capital requirment helps to reduce the risk of insurer insolvencies
true
riders and endorsements are used to amend insurance contracts
$1920
sandy purchased renter's insurance that covered personal property on an actual cash value basis. she paid $2000 for a living room set three years ago. when the living room set was destroyed by fire, it was 20% depreciated. a comparable new living room set will cost $2400. how much will sandy collect from her insurer?
true
some automobile and homeowners insurers are using an applicant's credit record for the purposes of underwriting and rating
warranties
ted owns an auto parts store. in exchange for a premium discount from his insurer, he promised that no cash would be kept on the premise overnight and that two guard dogs would patrol the grounds at night. ted's promises were incorporated into the insurance contract. his promises are:
policyholders' assets
the amount of new business an insurer can write is limited by the insurer's
false
the balance sheet us prepared for a specific period, the income and expense statement is prepared for a specific time
false
the cover page of an insurance contract is called a binder
false
the decision in the south-eastern underwriters association case affirmed the right of states to regulate insurance
systemic risk
the dodd-frank act created financial stability oversight council. one concern of the council is treating risk which could lead to the collapse of the financial system. such risk is called
false
the federal insurance office, created under the dodd-frank act, has replaced state insurance departments as the primary regulator of insurance
loading
the gross insurance premium consists of the pure premium plus the:
paul v. virginia
the landmark court decision that established the right of states to regulate insurance was
insuring agreement
the part of an insurance contract that can be written on a named-perils or all risk (open-perils) basis is the
true
the primary purpose of the premium tax is to raise revenues for the state, not to provide funds for insurance regulations
false
the rating system should be independent of loss control efforts
II only
to collect for a covered loss under a property insurance contract, when must an insurable interest exist? I. at the inception of the contract II. at the time of the loss
false
to determine if a peril is covered under an all-risk (open-perils) policy, you have to read the list of covered perils
elimination (waiting) period
tom was disabled and unable to work. before he was able to collect benefits under his disability income insurance policy, he was required to serve a two-week period during which no benefits were paid. this two-week period is called:
True
two major sources of revenue for a property and casualty insurance company are premiums and investment income
true
under a primary and excess other-insurance settlement, it is possible that only one insurer will be required to pay when a loss occurs
true
under class rating, exposures with similar characteristics are placed in the same underwriting class and each is charged the same rate
True
under experience rating, the insured's prior loss experience determines the actual premium for this period
retrospective rating
under one form of merit rating, the insured's loss experience during the current policy period determines the actual premium for that period. this type of merit rating is called:
true
under schedule rating, each exposure is rated individually with a basic rate that is adjusted for desirable and undesirable physical features
misrepresentation
when ellen completed her life insurance application, she answered "no" to the question, "have you ever had hepatitis?" she had hepatitis two years ago. if ellen dies shortly after the policy is issued, the insurer may be able to deny the claim because of the doctrine of
I only
which statement about the principle of indemnity is correct? I. the principle of indemnity reduces moral hazard II. replacement cost insurance supports the principle of indemnity
both I and II
which statement is true about subrogation? I. subrogation supports the principle of indemnity II. subrogation helps to keep insurance premiums lower
neither I or II
which statement is true about the conditions section of an insurance policy? I. it provides a description of the property or life that is insured II. it explains what types of perils, losses, and property are not covered under the contract
both I and II
which statement is true with regard to a life insurance company's balance sheet: I. assets are equal to liabilities plus policyholders' surplus II. policy reserves are a major liability of a life insurance company
II only
which statement is true with regard to deductibles? I. property insurance premiums are unrelated to deductibles II. deductibles help to eliminate small claims
both I and II
which statement is true with regard to endorsements? I.if there is a conflict between the endorsement and the underlying contract, the endorsement usually takes precedence II. an endorsement can be used to add coverage for additional perils
II only
which statement is true with regard to insurance regulation? I. the federal government plays no role in regulating insurance II. insurance is regulated primarily by the states
I only
which statement is true with regard to property and casualty insurance profitability I. the combined ratio compares an insurers losses and expenses to its premiums. II. a combined ratio in excess of 1 (or 100%) indicated underwriting profitability
II only
which statement is true with regard to property and casualty insurance rate making? I. under the pure premium method, the pure premium is the rate charged insureds. II. Judgement rates are determined largely by the underwriters judgement
false
while insurers are except from income taxes, they are required to pay a tax on premiums written that average about 10&
false
while the applicant for insurance coverage gives consideration in the form of the premium, the insurance company does not give any consideration