Life Insurance

According to the Code, how many separate requirements should an insurance policy have?

6

Which of the following best defines an insurance policy?

A contract between an insured and an insurer that guarantees payment for loss caused by a specific event

The legal definition of "person" would NOT include which of the following?

A family

A tornado that destroys property would be an example of which of the following?

A peril

A contract between an insured and an insurance company which agrees to pay the insured for loss caused by specific events is

A policy

The protection of the insurer from adverse selection is provided in part by

A profitable distribution of exposures

Which of the following best describes a misrepresentation?

A statement intended to distract, mislead, or deceive a party to a contract

An insured pays a $100 premium every month for his insurance coverage, yet the insurer promises to pay $10,000 for a covered loss. What characteristic of an insurance contract does this describe?

Aleatory

In insurance, an offer is usually made when

An applicant submits an application to the insurer

All of the following are insurable events as defined in the Insurance Code EXCEPT

An insured loses a large sum in a poker game

Which of the following would qualify as an implied warranty in an insurance contract?

An oral representation by the applicant

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

The risk management technique that is used to prevent a specific loss by not exposing oneself to that activity is called

Avoidance

If a loss occurs, insurance policies pay the proceeds to

Beneficiary

The violation of a material warranty or other material provision of a policy allows

Both the insurer and the insured to rescind

When both parties to a contract must perform certain duties and follow rules of conduct to make the contract enforceable, the contract is

Conditional

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

Conditions

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

Which of the following best describes the policy nonrenewal?

Discontinuance of an insurance policy by the insured on the policy anniversary date

Which of the following is considered to be a morale hazard?

Driving recklessly

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

Exchange of unequal values

A set of legal regulatory conditions that affect an insurer's ability to collect premiums commensurate with the level of risk incurred would be considered a (n):

Legal Hazard

An insured stated on her application for the life insurance that she had never had a heart attack, when in fact she had a series of minor heart attacks last year for which she sought medical attention. Which of the following will explain the reason a death benefit claim is denied?

Material misrepresentation

An individual's tendency to be dishonest would be indicative of a

Moral Hazard

What other term is used to refer to unintentional torts?

Negligence

What is the definition of a unilateral contract?

One-sided: only one party makes an enforceable promise

During the grace period, the policyowner can

Pay a late premium without penalty

To achieve the profitable distribution of exposures,

Preferred risks and poor risks are balanced, with average risks in the middle

Profitable distribution of exposures serves the purpose of

Protecting the insurer against adverse selection

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

Pure risk

The risk loss may be classified as

Pure risk and speculative risk

Which of the following factors is NOT considered by an underwriter when determining the premium rates for an individual seeking insurance?

Race

The price of insurance for each exposure unit is known as

Rate

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

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

Reduction

Insurance is the transfer of

Risk

Adverse selection is a concept best described as

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

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

The person must have at least completed secondary education

For the purpose of insurance, risk is defined as

The uncertainty or chance of loss

Which of the following is the best reason to purchase life insurance rather than annuities?

To create an estate

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

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

What is a wrongful act or the violation of someone's rights that leads to legal liability called?

Tort

Hazards

are conditions or situations that increase the probability of an insured loss occurring.

Physical hazards

are individual characteristics that increase the chances of the cause of loss. Due to physical condition, past medical history, or a condition at birth, such as blindness.

Moral hazards

are tendencies towards increased risk. Refers to applicants who may lie on an application for insurance.

Speculative Risk

involves the opportunity for either loss or gain. They are NOT insurable. EX: gambling

Life Insurance

is a coverage upon a person's life, and granting, purchasing or disposing of annuities.

Broker

is an insurance producer not appointed by the insurer and represents the client

Policyowner

is the person who is entitled to exercise the rights and privileges in the policy and who may or may not be insured.

Beneficiary

is the person who receives the benefits from the policy of insurance.

In addition to penalties, fines and possible imprisonment for violating the provision relating to misrepresentation, the Commissioner may suspend the license of such a person for a period up to

3 years

A person caught violating provisions regarding misrepresentations could be subject to

A fine up to $25,000

What is a material misrepresentation?

A statement by the applicant that, upon discovery, would affect the underwriting decision of the insurance company

Insurance policy is

A written instrument in which a contract of insurance is set forth

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

Adhesion

Which of the following would be covered by contract law?

An insured suing the insurer for failure to provide promised benefits

Which of the following is a term for a person who seeks insurance from an insurer?

Applicant

Representations are written or oral statements made by the applicant which

Are considered true to the best of the applicant's knowledge

If found material for underwriting, a misrepresentation

Can void a contract

The act of revoking or terminating an insurance policy is called

Cancellation

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

Concealment

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

Consideration

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

Hazards

Units with the same or similar exposure to loss are referred to as

Homogeneous

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

If it is intentional material

The key factor of representation that allows the injured party to rescind the contract is

If the representation is false in a material point

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?

Indemnity

A contract which one party undertakes to indemnify another against loss is called

Insurance

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

Insurance

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

Investing in the stock market

The insurer may suspect that a moral hazard exists if the policyholder

Is not honest about his health on an application for insurance

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

Which law is the foundation of the statistical prediction of loss upon which rates for insurance are calculated?

Law of large numbers

Kayla's husband died in a plane crash. She needs a new source of funding that will help put her child through daycare. Which of the following would be the best source?

Life insurance proceeds

Which of the following is NOT true regarding the needs approach method of determining the value of an individual's life?

Need is predicted using the number of years until the insured's retirement

When may a representation be withdrawn?

Prior to the insurance policy

What describes a situation when poor risks are balanced with preferred risks, and average risks are in the middle?

Profitable distribution of exposures

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

Purchase insurance

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

Reciprocal

An intentional or unintentional concealment entitles the affected party to which of the following?

Rescission of a contract

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

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

Hazard is best defined as

Something that increases the risk of loss

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

Speculative Risk

All of the following are reasons an insurer or an insured would have the right to rescind a policy EXCEPT

The amount of paid claims exceeds the premiums paid

Which of the following would qualify as a competent party in an insurance contract ?

The applicant has prior felony conviction

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

The application given to a prospective insured

The title page of the policy provides a summary of the benefits and coverages provided by the policy. All of the following information is included in the title page EXCEPT

The insured's beneficiary

Which of the following does NOT need to be identified in an insurance policy?

The insurer's financial rating

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

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

Transfer

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

Which of the following would be least likely to be considered a legitimate need that would be paid by insurance proceeds?

Vacation travel expenses

If an applicant for a life insurance policy and person to be insured by the policy are two different people, the underwriter would be concerned about

Whether an insurable interest exists between the individuals

Perils

are the causes of loss insured against in an insurance policy. Life Insurance = Financial loss caused by the premature death of the insured Health Insurance = Medical expenses and/or loss of income caused by the insured's sickness or accidental injury. Property Insurance = Loss of physical property or the loss of its income-producing abilities. Casualty Insurance = Loss and/or damage of property and resulting liabilities.

Morale hazards

arise from the state of mind that causes indifference

Insurance Policy

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

Insurance

is a contract whereby one undertakes to indemnify another against loss, damage, or liability arising from a contingent or unknown event. It is a transfer of risk of loss from an individual or a business entity to an insurance company, which spreads the costs of unexpected losses to many individuals.

Agent

is a person who acts for another person or entity with regard to contractual arrangements with third parties. Agents of the insurer.

Pure Risk

is a situation that can only result in a loss or no change where there is no opportunity for financial gain. The ONLY type of risk that insurance companies are willing to accept.