Principles of Insurance and General Insurance

When both parties to a contract must perform certain duties and follow rules of conduct to make the contract enforceable, the contract is 1. Conditional 2. Aleatory 3. Personal 4. Unilateral

1. Conditional

The authority granted to an agent through the agent's contract is referred to as 1. Absolute authority 2. Express authority 3. Apparent authority 4. Implied authority

2. Express authority -express powers are written into the contract.

Which of the following insurance providers must be nonprofit and sell insurance only to its members? 1. Service 2. Mutual 3. Reciprocal 4. Fraternal

4. Fraternal

Which law is the foundation of the statistical prediction of loss upon which rates for insurance are calculated? 1. Law of masses 2. Law of averages 3. Law of group evaluation 4. Law of large numbers

4. Law of large numbers

The insurer may suspect that a moral hazard exists if the policyholder 1. Is not honest about his health on an application for insurance 2. Is prone to depression 3. Is indifferent to activities that may be dangerous 4. Always drives over the speed limit

1. Is not honest about his health on an application for insurance

All of the following are examples of risk retention EXCEPT 1. Copayments 2. Self-insurance 3. Premiums 4. Deductibles

3. Premiums

A participating insurance policy may do which of the following? 1. Provide group coverage 2. Pay dividends to stockholder 3. Require 80% participation 4. Pay dividends to the policyholder

4. Pay dividends to the policyowner

An insurance company receives an application with some information missing and issues the policy anyway. What is this called? 1. Estoppel 2. Subrogation 3. Aleatory 4. Waiver

4. Waiver

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 the policy? 1. Mutual 2. Reciprocal 3. Nonprofit service organization 4. Stock

1. Mutual

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 1. Conditions 2. Consideration 3. Legal Purpose 4. Offer and Acceptance

1. Conditions

All of the following actions by a person could be described as risk avoidance EXCEPT 1. Investing in the stock market 2. Refusing to scuba dive 3. Never flying in an airplane 4. Taking a flu shot each year

1. Investing in the stock market

In case of a loss, the indemnity provision in insurance policies 1. Pays the insured as much as 95% of the loss. 2. Restores an insured person to the same financial state as before the loss. 3. Allows the insured to collect 20% more than the actual loss. 4. Pays the insured a percentage of the loss above and beyond the loss.

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

An agent tries to sell insurance over the phone to an applicant who appears to be confused, but is eventually able to give enough information for the application to be completed. After the policy was issued, the agent talked to the insured's family, and they explained that the insured was recovering from a surgery and might have been under the influence of medication at the time of application. Which of the following is true? 1. The policy is not legal; agents cannot sell insurance over the phone. 2. The policy may be voided if it can be proven that the applicant was not capable of making a buying decision at the time of application. 3. The policy will remain in force as long as there are no material misrepresentations on the application. 4. The policy is legal since the applicant was able to give all required information.

2. The policy may be voided if it can be proven that the applicant was not capable of making a buying decision at the time of application.

What documentation grants express authority to an agent? 1. Fiduciary contract 2. State provisions 3. Agent's contract with the principal 4. Agent's insurance license

3. Agent's contract with the principal

Which of the following must an insurer obtain in order to transact insurance within the given state? 1. Business entity license 2. Insurer's license 3. Certificate of authority 4. Producer's certificate

3. Certificate of authority

When would a misrepresentation on the insurance application be considered fraud? 1. When the application is incomplete 2. Any misrepresentation is considered fraud 3. If it is intentional and material 4. Never: statements by the applicant are only representations

3. If it is intentional and material

Which of the following is an example of a producer's fiduciary duty? 1. A duty to base all transactions upon the principle of Utmost Good Faith. 2. The obligation to tell the truth to the best of one's knowledge. 3. The trust that a client places in the producer in regard to handling premiums. 4. An obligation to state every known fact about the policy the producer is selling.

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

What is a material misrepresentation? 1. Any misstatement made by an applicant for insurance 2. Any misstatement by the producer 3. Concealment 4. A statement by the applicant that, upon discovery, would affect the underwriting decision of the insurance company

4. A statement by the applicant that, upon discovery, would after the underwriting decision of the insurance company