General Insurance Questions

What is consideration on the part of the insurer?

A promise to pay in the event of a loss

what is the 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

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

Authorized

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

Domestic, Foreign, and alien

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

If it is intentional and material

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

Indemnity

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

Insurance

What insurers are owned by stockholders

Stock

What is risk?

Uncertainty of loss

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

Unequal values are exchanged between the parties to a contract

What are the four elements of an insurance contract?

agreement (offer and acceptance) consideration, competent parties, and legal purpose

What produces evaluations of insurers' financial status often used bu the state departments of insurance?

AM Best

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

Apparent

What are the three types of agent authority?

Express, implied and apparent

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

Transfer

What are 5 characteristics of an ideally insurable risk?

1. Due to chance 2. Definite and measurable 3. Statistically predictable 4. Not Catastrophic 5. Randomly selected

What does the term unilateral contract mean?

A unilateral contact is a one sided contact. This means only one party makes an enforceable promise

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

Agent of Producer

What documentation grants express authority to an agent?

Agent's contract with the principal

what best describes the concept that the insured pays a small amount of the premium for a large amount of risk on the part of the insure company?

Aleatory

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

Apparent

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

Authorized or admitted

What are methods of managing risk?

Avoidance, transfer, sharing, retention, and reduction

What are the methods of managing risk?

Avoidance, transfer, sharing, retention, and reduction

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

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

Commingling

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

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

What is consideration in an insurance contract?

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

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

Counteroffer

A 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

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

Express Authority

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

Foreign

What entity is not an insurer but an organization to provide insurance benefits for members of an affiliated lodge or religious organization?

Fraternal benefit society

An insurance company assures its new policyholders that their premium costs will not increase for a period of at least 5 years, however, due to increasing financial strain, they plan to raise premium costs for all insured by 10% over the next two years. What term best describes this act?

Fraud

An insured falsely reports the theft of a valuable item in order to collect payment from the insurance policy. This is an example of

Fraud

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

Guides describing company financial integrity

Conditions that increase the chance of loss are?

Hazards

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

Implied

Courts will interpret any ambiguity in an insurance contract

In favor of the insured

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

Insurer

On a 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 the premium paid

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

Peril

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

Peril

What are the three types of hazards?

Physical, Moral, Morale

Who might receive dividends from a mutual insurer?

Policyholders

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

Pure Risk

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

What is the term which best describes when a person develops a formal program identifying, evaluating, and funding its losses?

Self-Insuring

Wagering on a sporting event is known as what type of risk?

Speculative

Events in which a person has both the chance of winning or losing are classified as...

Speculative Risk

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

What is an example of a producers fiduciary duty?

The trust that a client places in the producer in regard to handling premiums

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

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

What does indemnify mean in insurance?

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

In insurance contracts, 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

What is the most common way to transfer risk?

purchase insurance