General Insurance 1

According to the Law of Agency, who represents the principal?

Agent or Producer

According to the Law of Agency, who represents the principal?

Agent or producer

Beneficiary

person who receives benefits of an insurance policy

Premium

the money paid to the insurance company for the insurance policy

Policyowner

the person entitled to exercise the rights and privileges in the policy

Insured

A person covered by an insurance policy. This person may or may not be the policy owner

What is consideration on the part on the insurer?

A promise to pay in the event of a loss.

What documentation grants express authority to an agent?

Agent's contract with the principal

What is a foreign insurer?

An insurer with a home office in another state

ABC insurance company receives an incomplete application and issues the policy anyway. Six months later ABC realizes the missing information. What term is used that prevents ABC from forcing the policyowner to answer further questions.

Estoppel

When would a misrepresentation on the insurance application be considered fraud?

If it is intentional and material

Which statement regarding insurable risk is NOT correct.

Insured cannot be randomly selected

Untrue statements on a application unintentionally made by insureds that, if discovered, would alter the underwriting decision of the insurance company, are called

Material misrepresentations

All of the following are examples of risk retention EXCEPT

Premiums

A situation in which a person can only lose or have no change represents

Pure risk

Wagering on a sporting event is know what type of risk?

Speculative

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

The loss must be catastrophic

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.

Which of the following is NOT a goal of risk retention?

To minimize the insured's level of liability in the event of a loss.

When an individual purchases insurance, what risk management technique is he or she practicing?

Transfer

Insurance policies are not drawn up through negotiations, and an insured has little to say about its provisions. What contact characteristic does this describe?

Adhesion

Which of the following is another term for an authorized insurer.

Admitted

What is a warranty in an insurance contract?

An absolutely true statement upon which the validity of the policy depends

What is a warranty in an insurance contract?

An absolutely true statement upon which the variety of the policy depends.

An insurance producer who by contract is bound to write insurance for only one company is classified as a/an

Captive agent

To legally transact insurance in the state, an insurer must obtain which of the following?

Certificate of Authority

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

Concealment

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

Which of the following is NOT true regarding a Certificate of Authority?

It is issued to group insurance participants

On participating insurance policy issued by a mutual insurance company, dividends paid to policyholders are

Not taxable since the IRS treats them as a return of a portion of the premium paid.

insurance policy

a contract between a policy owner (and/or insured) and an insurance company which agrees to pay the insured or the beneficiary for loss caused by specific events

Agent/Producer

a legal representative of an insurance company; the classification of producer usually includes agents and brokers; agents are the agents of the insurer

Reciprocity/Reciprocal

a mutual interchange of rights and privileges

When transacting business in this state and insurer formed under the laws of another country is known as a/an

Alien

What provision states that if a policy allows for greater benefits than the financial loss incurred, the insured may be compensated only for the amount lost?

Indemnity

Insurance is a contract by which one seeks to protect another from.

Loss

When would a misrepresentation on an insurance application be considered fraud?

When it is intentional and material

Application or proposed insured

a person applying for insurance

Broker

an insurance producer not appointed by an insurer and is deemed to represent the client

What insurance concept is associated with the name Weiss and Fitch?

A guides describing company financial integrity

Because an agent is using stationary with the logo of an insurance company, applicants for insurance assume that the agent is authorized to transactbon behalf of that insurer. What type of agent authority does this describe?

Apparent

An insurance contract must contain all of the following to be considered legally binding EXCEPT.(Offer and acceptance, Consideration, competent parties.)

Beneficiary's Consent.

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

Commingle

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

Express and implied

Which of the following entities is not an insurer but an organization formed to provide insurance benefits for members of an affiliated lodge or religious organization?

Fraternal benefit society

Which of the following individuals would probably NOT have insurable interest in insured property?

Neighbor

A tornado that destroyed a property would be an example of what?

Peril

What are the three types of hazards?

Physical, Moral, Morale

Pertaining to insurance, which of the following is an example of a producer's fiduciary responsibility?

Promptly forwarding premiums to the insurance company

Adverse selection is a concept best described as

Risks with higher probability of loss seeking insurance more often than other risks.

What does indemnity mean in insurance?

To restore an insured to the same financial status as before of loss.

What is a risk?

Uncertainty of loss

What does the term reasonable expectations mean in insurance?

Certain expectations for coverage that a reasonable person would have based on sources other than just the policy language.

What document is required for an insurance company to transact insurance?

Certificate of Authority

Which of the following best describes the aleatory nature of an insurance contract?

Exchange of unequal values

Which is a unit of measurement an underwriter uses when determining the premium rates for insurance?

Exposure

Which authority is NOT stated in an agent's contract but is required for the agent to conduct business?

Implied

What is consideration in an insurance contact?

Is something of value that each party gives to the other. Consideration on the part of the insurer is binding.

For the reported losses of an insured group to become more likely to equal the statistica probability of loss for that particular class, the insured group must become.

Larger

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

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

Insurance is transfer of

Risk

What are the methods of managing risk?

Avoidance, Retention, Sharing, Reduction, Transfer

Because an insurance policy is legal contract, it must conform to the state laws governing contracts which require all of the following EXCEPT

Conditions

When an insured makes a truthful statement on the application for insurance and pays the required premium, it is known as which of the following.

Consideration

Which of the following is NOT true regarding a Certificate of Authority?

It is issued to group insurance participants.

What is the term of the causes of loss insured against in an insurance policy?

Peril

The causes of loss insured against in an insurance policy are known as

Perils

Which services are associated with Standard & Poor's and AM Best?

Rating the financial strength of insurance companies.

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

Reciprocal

If an insurer holds a certificate of Authority, it is known as what type of insurer?

Admitted/ Authorized

The authority granted to an agent through the agent's contract is referred to as

Express authority

Insurer (principal)

the company who issues an insurance policy

What are the four elements of an insurance contact?

Agreement ( offer and acceptance), Consideration, Competent parties, Legal purpose

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

Which of the following must an insurer obtain in order to transact insurance within a given state?

Certificate of Authority

Representations are written or oral statements made by the applicant that are

Considered true to the best of the applicant's knowledge.

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

Contracts of adhesion

The loss ratio compares

Earned premium to losses

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

After issuing a policy, an insurance company discovered 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 example of

Rescission

An insurance company receives an application with some information missing and issues the policy anyway. What is this called?

Waiver

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 respond marketing

What are the three types of agent authority

Express, Implied, Apparent

What type of authority is based on the agent's actions, or words?

Apparent

Which types of agent authority is also called "perceived authority"?

Apparent

What is a definition of unilateral contract?

One-sided: Only one party makes an enforceable promise.

What is the major difference between a stock company and a mutual company?

Ownership

In property and casualty insurance, insurable interest must exist

At the time of loss

In insurance transactions, fiduciary responsibility means

Handling insurer funds in a trust capacity

What method do insurers use to protect themselves against catastrophic losses?

Reinsurance

For the purpose of insurance, risk is defined as

The uncertainty or chance of loss

Insurance contracts are aleatory in nature. What does that mean?

Unequal values are exchanged between the parties to a contract

In insurance contacts, when is the offer usually made?

When the insurance application is submitted.

In insurance contracts, when does acceptance usually occur?

When the insurer approves a prepaid application.

A nonadmitted insurer who provides unique insurance coverage that is not available from an admitted insurer is called a/an

Surplus lines insurer

Which of the following is a statement that is guaranteed to be true, and if untrue, maybe breach an insurance contract?

Warranty

Installing deadbolt locks on the doors of a home is an example of which method of handling risk?

Reduction

What does the term unilateral contact mean?

A one-sided contract. ( Only one party makes an enforceable promise)

What is the term for the entity that an agent represents regarding contractual agreements with third parties?

Principal

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

Authorized

A contractor who builds homes has never made a claim on his business insurance policy. His agent discovers that his policy is written on a scheduled rating. If the contractor changes to an experience rating policy, which is most likely?

Premiums would go down

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

Concealment

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

An insurance company is domiciled in Montana and transacts insurance in Wyoming. Which term best describes the insurer's classification in Wyoming?

Foreign

Which of the following best describes an insurance company that has been formed under the laws of this state?

Domestic

Insurers are classified according to their domicile. What are the three types of insurers

Domestic, Foreign, Alien

What type of insurer is formed under the laws of another state?

Foreign

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

Hazard

Conditions that increase the chance of a loss are known as what?

Hazards

Which statement regarding insurable risk is NOT correct?

Insurance cannot be randomly selected

All of the following actions by a person could be described as risk avoidance EXCEPT

Investing in the stock market

In what way can an agent demonstrate a high standard of ethics?

Putting the client's be interests before their own.

Which of the following is NOT the consideration in a policy?

The application given to a pro

What are the methods of managing risk?

Avoidance, retention, sharing, reduction, and transfer

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 of lost?

Indemnity

In the agent/insurer relationship, who is considered the principal?

Insurer

Which of the following is the most common way to transfer risk?

Purchase insurance

Which of insurers are owned by stockholders?

Stock

An Insured wants to transfer his personal insurance policy to a friend. Under what conditions would this be possible?

The insured will need a written consent of the insurer.

What are the five characteristics of an ideally insurable risk?

Due to chance,definite and measurable,Statistically predictable,Not catastrophic, Randomly selected

The requirement that agents not commingle insurance monies with their own funds is known as

Fiduciary responsibility

What do individuals use to transfer their risk of loss to a larger group?

Insurance

A situation in which a person can experience only a loss and no gain presents what type of risk?

Pure risk

An individual applies for a life policy. Two years ago he suffered a head injury from an accident, so he cannot remember parts of his past, but otherwise competent. He has also been hospitalized for drug abuse, but does not remember this when applying for insurance. The insurer issus the policy and learns of his history one year later. What will probably happen?

The policy will not be affected

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