Life Insurance- Chapter 1: General Insurance

What are the FOUR required elements of an insurance contract?

(1) Offer and acceptance, (2) consideration, (3) legal purpose, and (4) competent parties.

What are the THREE types of producer authority?

Express Implied Apparent

What type of risk is insurable?

Only pure risk that results in a loss or no change

A tornado that destroys property would be an example of which of the following? a. A peril b. A pure risk c. A loss d. A physical hazard

a. A peril

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 methos of risk management does this describe? a. Avoidance b. Reduction c. Sharing d. Retention

a. Avoidance

To legally transact insurance in this state, an insurer must obtain which of the following? a. Certificate of Authority b. Power of Attorney c. Business entity license d. Certificate of Insurance

a. Certificate of Authority

Representations are written or oral statements made by the applicant that are a. Considered true to the best of the applicant's knowledge b. Guaranteed to be true c. Found to be false after further investigation d. Immaterial to the actual acceptability of the insurance contract

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

A participating insurance policy may do which of the following? a. Pay dividends to the policyowner b. Provide group coverage c. Pay dividends to the stockholder d. Require 80% participation

a. Pay dividends to the policyowner

A situation in which a person can only lose or have no change represents a. Pure risk b. Speculative risk c. Adverse selections d. Hazard

a. Pure risk

Installing deadbolt locks on the doors of a home is an example of which method of handling risk? a. Reduction b. Avoidance c. Transfer d. Self-insurance

a. Reduction

Which of the following insurers are owned by stockholders? a. Stock b. Mutual c. Reciprocal d. Fraternal

a. Stock

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 is otherwise competent. He has also been hospitalized for drug abuse, but does not remember this when applying for insurance. The insurer issues the policy and learns of his history one year later. what will probably happen? a. The policy will not be affected b. The policy will be voided c. The Insurer will sue the insured for committing fraud d. Because the insured is currently not a drug user, his policy will not be affected

a. The policy will not be affected

Which of the following is a statement that is guaranteed to be true, and if untrue, may breach an insurance contract? a. Warranty b. Concealment c. Indemnity d. Representation

a. Warranty Warranty: something guaranteed to be true. Representations: statements that are true to the best of the applicant's knowledge

Which of the following types of agent authority is also called "perceived authority"? a. Fiduciary b. Apparent c. Express d. Implied

b. Apparent

A producer who fails to separate premium monies from his own personal funds is guilty of a. Theft b. Commingling c. Larceny d. Embezzlement

b. Commingling

All of the following actions by a person could be described as a risk avoidance EXCEPT a. Not driving after being in an accident b. Investing in the stock market c. Refusing to scuba dive d. Never flying in an airplane

b. Investing in the stock market

Which of the following insurance options would be considered a risk-sharing arrangement? a. Surplus lines b. Reciprocal c. Stock d. Mutual

b. Reciprocal

In terms of parties to a contract, which of the following does NOT describe a competent party? a. The person must be mentally competent to understand the contract b. The person must have at least completed secondary education c. The person must not be under the influence of drugs or alcohol d. The person must be of legal age

b. The person must have at least completed secondary education

The insurer must be able to rely on the statements in the application, and the insured must be able to rely on the insurer to pay valid claims. In the forming of an insurance contract, this is referred to as a. Implied warranty b. Utmost good faith c. Reasonable expectations d. A warranty

b. Utmost good faith

In forming an insurance contract, when does acceptance usually occur? a. When an insured submits an application b. When an insurer's underwriter approves coverage c. When an insurer delivers the policy d. When an insurer receives an application

b. When an insurer's underwriter approves coverage

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? a. Representation b. Adhesion c. Consideration d. Good faith

c. Consideration

When an insured makes truthful statements on the application for insurance and pays the required premium, it is known as which of the following? a. Contract of adhesion b. Acceptance c. Consideration d. Legal purpose

c. Consideration

The requirement that agents not commingle insurance monies with their own funds is known as a. Express authority b. Accepted accounting principal c. Fiduciary responsibility d. Premium accountability

c. Fiduciary responsibility

Which authority is NOT stated in an agent's contract but is required for the agent to conduct business? a. Assumed b. Express c. Implied d. Apparent

c. Implied

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 lost? a. Consideration b. Reasonable expectations c. Indemnity d. Stop-loss

c. Indemnity

Insurance is a contract by which one seeks to protect another from a. Uncertainty b. Hazards c. Loss d. Exposure

c. Loss

Which of the following is NOT a goal of risk retention? a. To increase control of claim reserving and claims settlements b. To fund losses that cannot be insured c. To minimize the insured's level of liability in the event of loss d. To reduce expenses and improve cash flow

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

Which of the following is another term for an authorized insurer? a. Certified b. Licensed c. Legal d. Admitted

d. Admitted

What is a foreign insurer? a. An insurer with a home office in another country b. An insurer with licensed agents doing business in other countries c. An insurer with licensed agents who are citizens in more than one country d. An insurer with a home office in another state

d. An insurer with a home office in another state

Which insurance principle states that if a policy allows for greater compensation that the financial loss incurred, the insured may only receive benefits for the amount lost? a. Stop-loss b. Consideration c. Reasonable expectations d. Indemnity

d. Indemnity

Which of the following is NOT true regarding a Certificate of Authority? a. It may be necessary for transacting business in a specific state b. Ut us equivalent to an insurance license c. It is issued by the state department of insurance d. It is issued to group insurance participants

d. It is issued to group insurance participants

Insurance is the transfer of a. Loss b. Hazard c. Peril d. Risk

d. Risk

Which of the following would qualify as a competent party in an insurance contract? a. The applicant is intoxicated at the time of application b. The applicant is a 12-year-old student c. The applicant is under the influence of a mind-impairing medication at the time of application d. The applicant has a prior felony conviction

d. The applicant has a prior felony conviction

Which of the following is an example of a producer's fiduciary duty? a. An obligation to state every known fact about the policy the producer is selling b. A duty to base all transactions upon the principle of Utmost Good Faith c. The obligation to tell the truth to the best of one's knowledge d. The trust that a client places in the producer in regard to handling premiums

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