Insurance ExamFX - Chapter 2: General Insurance

What is a foreign insurer?

An insurer with a home office in another STATE

What is an alien insurer?

An insurer with a home office in another country

A producer who fails to segregate premium money from his own personal funds is guilty of what?

Commingling

What does fiduciary responsibility mean?

Handling insurer

What is the definition of a unilateral contract?

One-sided: Only one party makes an enforceable promise

What describes the specific information about a policy?

Policy summary

In insurance, an offer is usually made when what happens?

When an applicant SUBMITS an application to the insurer.

What documentation grants express authority to an agent?

Agents contract with the principal

When applying for an individual life insurance policy, an applicant states that he went to the doctor for nausea but fails to mention that he was also having severe chest pains. What is this 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

In insurance transactions, what does fiduciary responsibility mean?

Handling insurer funds in a trust capacity.

What is a gross annual premium?

Net premium + expenses = gross annual premium

What is the risk of loss classified as?

Pure and speculative risk

What factors are considered by an underwriter when determine the premium rates for an individual seeking insurance?

Age, medical history, and sex

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

Guides describing company financial integrity.

What is risk?

The uncertainty or chance of loss

When an individual purchases insurance what risk management techniques are they practicing?

Transfer

What is the decrease of value of the person or property insured in a policy by a peril insured against?

Loss

Are premiums taxable in a key-person life insurance policy?

No

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

Reinsurance - A method where the reinsurer indemnifies the ceding insurer for part of ll of the losses it sustained related to a policy issued previously.

What is a domestic insurer?

An insurer with a home office in this state

What type of agent authority is also called "perceived authority"?

Apparent

Is worker's compensation a business use of insurance?

No, only key person, buy-sell funding, and executive bonuses are.

An insurance contract requires that both the insured and the insurer meet certain conditions in order for the contract to be enforced. What is this called?

Conditional

What is the authority granted to an agent through the agents contract referred to as?

Express Authority

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

Implied authority

What are goals of risk retention?

Improve cash flow, increase control of claim deserving and claims settlements and to fund losses that cannot be insured

How will courts interpret ambiguity in an insurance contract?

In favor of the INSURED

After issuing a policy, an insurance company discovers that the policy concealed information on the application. The insurance company wants to cancel the policy and give back the money the policyholder has paid. What is this an example of?

Rescission

What is adverse selection?

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

What is the purpose of a conditional receipt?

It is intended to provide coverage on a date prior to the policy issue.

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

Larger - According to the Law of Large Numbers the larger a group becomes the easier to predict losses.

What is the concept where the insured pays a small amount of premium for a large amount of risk on the part of the insurance company?

Aleatory

What is it called when an insured makes truthful statements on the application for insurance and pays the require premium?

Consideration

What principal 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 a policy?

Mutual - Funds not paid out after paying claims and other operating costs are returned to the policy owners in the form of a dividend. If all funds are paid out no dividends are paid.

What insurance option is considered a risk-sharing arrangement?

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