LA PnC: General Insurance

All of the following are examples of hazards EXCEPT

A fire in the kitchen of a home = A fire is a Peril

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

Principal = An agent represents the principal, acting on the entity's behalf in contractual agreements with third parties.

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 = Apparent authority (also known as perceived authority) is the appearance or the assumption of authority based on the actions, words, or deeds of the principal or because of circumstances the principal created.

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

Conditions = Conditions are part of the policy structure. Consideration is an essential part of a contract.

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

Alien insurer = defined as an insurer formed under the laws of another country.

What hazard would you be concerned about if you lived next to an explosives contractor?

Physical = Living next to an operation involving explosives would be a physical hazard.

An individual was involved in a head-on collision while driving home one day. His injuries were not serious, and he recovered. However, he decided that in order to never be involved in another accident, he would not drive or ride in a car ever again. Which method of risk management does this describe?

Avoidance = Avoidance is a method of risk management by which a person tries to eliminate risk of loss by avoiding any exposure to an event that could give rise to such loss. Risk avoidance is effective but seldom practical.

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

The application given to a prospective insured = Consideration is something of value that is transferred between the two parties to form a legal contract.

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 a portion of the premium paid = With participating policies, policyowners are entitled to dividends, which, in the case of mutual companies, are nontaxable because they are considered a return of excess premiums.

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

Perils

All of the following are examples of risk retention EXCEPT

Premiums = Retention is a planned assumption of risk, or acceptance of responsibility for the loss by an insured through the use of deductibles, copayments, or self-insurance.

Which of the following insurers are owned by stockholders?

Stock = Only stock insurance companies are owned and controlled by stockholders.

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

Adhesion = A contract of adhesion is prepared by only the insurer; the insured's only option is to accept or reject the policy as it is written.

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

Apparent = Apparent authority (also known as perceived authority) is the appearance or the assumption of authority based on the actions, words, or deeds of the principal or because of circumstances the principal created.

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 = A conditional contract requires both the insurer and policyowner to meet certain conditions before the contract can be executed, unlike other types of policies which put the burden of condition on either the insurer or the policyowner.

A participating insurance policy may do which of the following?

Pay dividends to the policy owner = A participating insurance policy will pay dividends to the owner based upon actual mortality cost, interest earned and costs.

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

Reduction = Steps taken to prevent losses from occurring are called risk reduction.

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

Implied = Implied authority is not written in the agent's contract but is required in order for the agent to conduct business. Implied authority exists because not every single detail of an agent's authority can be written in a contract.

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

Investing in the stock market = Investing in the stock market is not an example of risk avoidance; it creates a possibility of a loss.

If an insurance company underwriter discovers that an applicant for a policy has been convicted of submitting a fraudulent claim to an insurer in the past, the application may be rejected as a

Moral Hazard = Dishonestly is classified as a moral hazard.

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

Transfer = Insurance is a transfer of the risk of financial loss from a covered peril from the insured to the insurance company.

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 = A personal insurance contract is written between an insurance company and an individual, and the company has a right to decide with whom it will and will not do business. An insured can transfer an insurance contract to another person, but he or she must first obtain the written consent of the insurer.

What term best describes the act of withholding material information that would be crucial to an underwriting decision?

Concealment: Concealment occurs when a person withholds a material fact that is crucial to making a decision. In insurance, this involves withholding information that would be important for making underwriting decisions.

The owner of a small business applies for a fire insurance policy with limits equal to 100% of the property's value. The owner has huge unsold inventories and a large personal gambling debt. From an underwriting standpoint, this might indicate

A moral hazard = exists when an insured could stand to gain financially by incurring a loss.

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

Putting the client's best interests before their own = The needs of the client(s) are the priority to a highly ethical agent.

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

Fiduciary responsibility = Money collected with respect to an insurance transaction must be held in a position of trust by the agent or broker.

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

Express Authority

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 = Insurance policies are written by the insurer and submitted to the insured on a take- it-or-leave-it basis. The insured does not have any input into the contract, but simply adheres to the contract.

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

Exposure = Exposure is a unit of measurement used to determine rates charged for insurance coverage.

What is surplus lines insurance?

Insurance placed with an unauthorized insurer

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

Foreign: A foreign insurer is domiciled in one state and transacts insurance in another. A domestic insurer transacts insurance in the domicile state (in this case, Montana). An alien insurer is domiciled in one country and transacts insurance in another.

What is a definition of a unilateral contract?

One-sided: only one party makes an enforceable promise = An insurance contract is unilateral in that only one of the parties to the contract is legally bound to do anything.

In insurance transactions, fiduciary responsibility means

Handling insurer funds = in a trust capacity. An agent's fiduciary responsibility includes handling insurer funds in a trust capacity.

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

Domestic: A company is domestic when doing business within the state in which it is incorporated.

Pertaining to insurance, what is the definition of a fiduciary responsibility?

Promptly forwarding premiums to the insurance company = Fiduciary refers to a position of trust. When an agent is handling the premiums that belong to an insurance company, they are acting in a fiduciary capacity.

In terms of parties to a contract, which of the following does NOT describe a competent party?

The person must have at least completed secondary education = The parties to a contract must be capable of entering into a contract in the eyes of the law. Generally, this requires that both parties be of legal age, mentally competent to understand the contract, and not under the influence of drugs or alcohol.