Test: Chapters 1-4
To be characterized as a fraternal benefit society, the organization must: 1. be non-profit 2. have ritualistic work within a lodge system 3. have elected officers 4. operate on a pure assessment system a) 1, 2, & 3 b) 2, 3, & 4 c) 1, 3, & 4 d) all of the above
a) 1, 2, & 3
Ima Yankee has been licensed for seven years. How many hours of continuing education does Ima need? a) 20 hours every two years b) 24 hours every two years c) non, he knows it all
a) 20 hours every two years
It is possible to predict the approximate number of deaths or frequency of disabilities within a certain group during a specific time. This is based on which of the following principles? a) Law of Large Numbers b) Insurance Probabilities c) Homogeneous Probabilities d) Law of Large Returns
a) Law of Large Numbers
Which of the following is not considered an insurance company? a) Lloyd's of London b) risk retention groups c) reciprocal insurers d) assessment insurers
a) Lloyd's of London
Agents hired by a PPGA are considered to be employees of the: a) PPGA b) company c) both d) neither
a) PPGA
Which of the following gives the state their ability to fine, issue cease and desist orders and impose penalties? a) Unfair Trade Practices Act b) Unfair Claims Settlement Practices Act c) the Code of Ethics of the FAIFA d) the McCarran-Ferguson Act
a) Unfair Trade Practices Act
The authority of an agent to undertake certain functions for an insurance company would be found under which of the following? a) a contract of agency b) agency law c) a contract of principal d) the general agency principal
a) a contract of agency
A company that is licensed to sell insurance in a state in which it is domiciled is called: a) a domestic company b) an alien company c) a non-admitted company d) an authorized company
a) a domestic company
An insurable interest must exist when: a) a life insurance policy is issued b) death proceeds become payable c) policy ownership is transferred d) cash values are borrowed
a) a life insurance policy is issued
Which of the following could be considered a commercial company? a) a stock or mutual company b) a service provider c) an assessment company d) a health maintenance organization
a) a stock or mutual company
The statement "there is no attempt to value financial loss" would be applied to which of the following: a) a valued contract b) an indemnity contract c) the doctrine of subrogation d) all of the above
a) a valued contract
Which of the following describes the idea that the insurance contract is created by the insurer and the client can "take it or leave it"? a) adhesion b) unilateral c) aleatory d) commutative
a) adhesion
A life insurance policy paid $500,000 to a beneficiary and the total premiums paid were $2,500. Which of the following terms defines this type of contract? a) aleatory b) unequal c) disproportionate d) adhesion
a) aleatory
Andy the agent was fired by the General Agent 3 months ago for conduct "unbecoming". Andy's General Agent later was known to accept business that Andy had written after having been fired. One of these policyholders died before the policy was issued but had paid the required premium. Assuming the applicant had been insurable at standard rates, the company would pay because of: a) apparent authority b) implied authority c) expressed authority d) agency law
a) apparent authority
In a sales transaction, the producer will represent the: a) company b) policyowner/insured c) both
a) company
When an applicant applies for insurance by completing an application and paying one month's premium, this constitutes: a) consideration and offer to buy b) an acceptance c) a conditional contract d) a completed contract
a) consideration and offer to buy
While New Mexico Life Insurance Company is operating in the state of Florida, it would be considered by the state of Florida to be a/an: a) foreign company b) domestic company c) alien company d) non-admitted company
a) foreign company
Which of the following is not true concerning a risk retention group? a) it insures a group of separate businesses b) it insures members of the same occupation c) it is a mutual company d) all insureds own the company
a) it insures a group of separate businesses
Regarding warranties and representations, which of the statements below are true? a) if a warranty is untrue, the insurer has the right to cancel the contract b) if a representation is untrue, the insurer has the right to cancel the contract only of the representation was not material c) if a representation is untrue, the insurer has the right to cancel the contract d) if a warranty is untrue, the insurer has the right to cancel the contract only if the representation was material
a) of a warranty is untrue, the insurer has the right to cancel the contract
The Florida Guarantee Association: a) protects the insured if the insurer becomes insolvent b) protects the insurer of the insurer becomes insolvent c) protects the agent of the insurer becomes insolvent d) protects the insurer if the insured becomes insolvent
a) protects the insured if the insurer becomes insolvent
The Financial Services Modernization Act: a) repealed the Glass-Steegal Act b) prohibits banks from selling more than $50,000 of total life insurance on any one life c) prohibits banks from selling life insurance d) prohibits insurance companies from engaging in banking
a) repealed the Glass-Steegal Act
Statements made by an applicant for a life insurance policy which are supposed to be true are referred to as: a) representations b) facts c) warranties d) information
a) representations
Which of the following is true regarding a STOLI or IOLI? a) these are usually sold by persuading seniors to purchase life insurance for the benefit of an investor b) these are usually sold by persuading young people to purchase life insurance for the benefit of an investor c) these are usually sold by persuading disabled persons to purchase life insurance for the benefit of an investor d) this is a mixed drink I could use right about now
a) these are usually sold by persuading seniors to purchase life insurance for the benefit of an investor
Which of the following is not true concerning "stock" insurance companies? a) they sell only non-par policies b) they sell both par and non-par policies c) they seek a profit for their stockholders d) they may operate on the mixed plan
a) they sell only non-par policies
An applicant has been denied insurance coverage because of information contained in a consumer report. According to the FCRA, all of the following statements are true about this situation EXCEPT: a) the applicant has the right to obtain a copy of the consumer report directly from the insurance company that used the report b) the applicant has the right to obtain disclosure of the substance of the info in the report from the reporting agency c) the applicant has the right to obtain the names of all people contacted within the past 6 months d) applicants must be notified within 3 days that a report has been requested
a? the applicant has the right to obtain a copy of the consumer report directly from the insurance company that used the report
If 100 men, age 25, desired to provide their beneficiary with $10,000, how much would each have to pay if we knew three were going to die? a) $30 b) $300 c) $3000 d) $309
b) $300
Which of the following statements concerning pure and speculative risks is/are true? 1. pure risks have only the chance of loss 2. speculative risks have only the chance for gain 3. only pure risks are insurable 4. both pure risks and speculative risks are insurable a) 1, 3, & 4 b) 1 & 3 c) 1, 2, & 3 d) 2, 3, & 4
b) 1 & 3
Bill Wilson wants to obtain a life insurance policy on his employee, Kenneth Myers, and name Kenneth's wife, Susan, as the beneficiary. Signatures of which of the following would be legally required on the application? 1. Bill 2. Kenneth Myers 3. Susan a) 1 only b) 1 and 2 only c) 2 and 3 only d) 1, 2, and 3
b) 1 and 2 only
Insurable interest must exist: a) at the time of the claim b) at the time of the application c) at the time of underwriting the risk d) at any time during the life of a contract
b) at the time of application
All of the following statements describe risk avoidance EXCEPT: a) Wendy keeps her money out of the stock market b) Pat pays his insurance premium c) John never drives a car d) Louis keeps his Rolex in a safe deposit box
b) Pat pays his insurance premium
Sonny submitted an application, with the first month's required premium, to the insurance company for $100,000. The company issued the policy as applied for. Which statement is true? a) the company made the offer and Sonny accepted b) Sonny made the offer and the company accepted c) the agent soliciting the application made the offer on behalf of the company d) it depends
b) Sonny made the offer and the company accepted
Tom completes the application, pays the initial premium, and the agent submits this to the insurance company. The insurer issues a policy with several riders and waivers not requested by Tom. Which of the following answers describes the insurer's action? a) an acceptance by the company b) a counter offer by the insurer c) a voidable contract d) an offer and acceptance
b) a counter offer by the insurer
A group of pharmacists or dentists might be covered under: a) a reinsurance group b) a risk retention group c) a reciprocal group d) a fraternal group
b) a risk retention group
If an insured did not pay his premium the company may or may not exercise the right to cancel the policy. This would not apply to which of the following contracts: a) a void contract b) a voidable contract c) an implied contract d) a verbal contract
b) a voidable contract
The tendency for less favorable risks to seek or continue insurance is known as: a) catastrophic loss b) adverse selection c) questionable moral standards d) questionable morale standards
b) adverse selection
Which of the following denotes an "element of chance"? a) conditional b) aleatory c) adhesion d) utmost good faith
b) aleatory
Most new life insurance is purchased: a) by employers for employees through group insurance b) by individuals through insurance agents c) in equal amounts through group and individual policies d) by the federal government
b) by individuals through insurance agents
The opposite of an aleatory contract is a: a) unilateral b) commutative c) adhesion d) bilateral
b) commutative
A producer represents the: a) buyer b) company c) buyer and the company d) agent
b) company
Because an insurance contract has been prepared by an insurance company without negotiation, it is considered a/an: a) aleatory contract b) contract of adhesion c) personal contract d) unilateral contract
b) contract of adhesion
Another name for a home service company is: a) industrial b) debit c) door to door d) neighborhood
b) debit
Which of the following is an example of a risk retention group (RRG)? a) HMO b) dentists c) association d) MEWA
b) dentists
Selling insurance through a vending machine would be: a) mass marketing b) direct selling c) a yank and pull d) a prohibited practice
b) direct selling
Lloyd's of London: a) insures unusual perils b) does not insure anything c) is an insurance company specializing in unusual risks
b) does not insure anything
An agent's license will terminate if he or she allows how many years to pass without an appointment? a) two years b) four years c) five years d) six years
b) four years
Which of the following cause the potential for increasing risk? a) peril b) hazard c) speculation d) over insurance
b) hazard
What type of authority is not overtly extended but must be used to enable the agent to transact business of the principle? a) express b) implied c) apparent d) fiduciary
b) implied
Which of the following is not true concerning the National Association of Insurance Commissioners? a) it created the Advertising Code and the Unfair Trade Practices Act b) it encourages uniformity in state insurance laws by legislative acts c) it is concerned with the preservation of state regulation d) it develops standards for policy provisions
b) it encourages uniformity in state insurance laws by legislative acts
Which statement concerning a life insurance contract is true? a) it is a personal contract and can be given away b) it is not a personal contract and can be given away c) it is a personal contract and cannot be given away d) it is not a personal contract and cannot be given away
b) it is not a personal contract and can be given away
If a stock company sells both par and non-par policies it is said to be operating on the: a) conservative plan b) mixed plan c) specialized plan d) they can't sell both
b) mixed plan
Alcoholism or drug addiction would be considered which of the following hazards? a) physical b) moral c) morale d) all of the above
b) moral
Tendencies or attitude and state of mind which cause indifference to loss are a: a) moral hazard b) morale hazard c) physical hazard d) dukes of hazard
b) morale hazard
All statements on an application are considered to be: a) warranties b) representations c) material facts d) all of the above
b) representations
The principle that the larger the amount of exposures that are combined into a group, the more certainty there is to the amount of loss incurred in any given period is known as: a) loss sharing b) the Law of Large Numbers c) pooling of risks d) mortality tables
b) the Law of Large Numbers
A stock insurance company has stockholders and policyholders. The directors and officers are responsible for which of the following? a) the policyholders b) the stockholders c) stockholders and policyholders d) board of directors
b) the stockholders
Which is true about the net payment cost comparison index and the surrender cost comparison index? a) they are found at the end of the policy b) they are found in the policy summary c) they are found on the entire contract d) they must be presented at policy delivery
b) they are found in the policy summary
An applicant for insurance denied having ever been diagnosed with heart problems when in fact he had recently had triple bypass surgery. How long does the company have to uncover this fact? a) one year b) two years c) five years d) fraud is forever contestable
b) two years
A ___ contract may be set aside. a) void b) voidable c) misrepresented d) bad
b) voidable
A/an ___ is the voluntary giving up of a legal right. a) estoppel b) waiver c) aleatory d) warranty
b) waiver
The policyowner/insured of a $100,000 life insurance policy died of a heart attack four months after taking out the policy. The company then learned that the insured had been treated for a heart condition nine months prior to being insured, but the fact had been omitted from the application. Which course of action would the company likely follow? 1. The company had to pay the death benefit because the discrepancy was not uncovered prior to the insured's death. 2. The company had to pay the death benefit because the contract is incontestable after the payment of the initial premium. 3. The company will not have to pay the death benefit, but will return the premiums. a) 1 only b) 2 only c) 3 only d) 1 & 2
c) 3 only
What is NOT used to determine a company's ratings? a) A.M. Best b) Moody's c) Lloyd's of London d) S&P
c) Lloyd's of London
Which of the following statements are true? a) stock companies sell only non-par policies b) mutual (par) companies sell only non-par policies c) stock companies sell both par and non-par policies d) mutual (par) companies sell both par and non-par policies
c) Stock companies sell both par and non-par policies
Rules pertaining to testimonials, statistics and special offers would be found in the: a) policy summary b) entire contract c) advertising code d) buyer's guide
c) advertising code
Which of the following statements would mean that the values of the contract are unequal? a) unilateral b) adhesion c) aleatory d) bilateral
c) aleatory
The following statements about INSURABLE INTEREST are true EXCEPT: a) brothers and sisters have an insurable interest in each other b) a creditor can have an insurable interest in a debtor limited to the amount of the indebtedness c) an insurable interest must exist between the policy owner and the insured at the time of the claim d) people are considered to have an insurable interest in themselves
c) an insurable interest must exist between the policy owner and the insured at the time of the claim
The opposite of a unilateral contract is a: a) collateral contract b) multi-lateral contract c) bilateral contract d) omni-lateral contract
c) bilateral contract
The NAIC developed: a) the Advertising Code b) the Unfair Trade Practices Act c) both d) neither
c) both
Which of the following statements about representations and warranties is/are true? 1. if a warranty is untrue the company may cancel the contract 2. if a representation is untrue the company cannot cancel the contract unless it is a material fact a) 1 only b) 2 only c) both 1 and 2 d) neither 1 or 2
c) both 1 and 2
Which of the following is a distinguishing element of an insurance contract? a) consideration b) competent parties c) incontestability d) offer and acceptance
c) incontestability
What type of agent represent a number of insurance companies under separate contractual agreements? a) career agent b) personal producing general agent c) independent agent d) broker
c) independent agent
Long Life, a stock insurance company, transfers ownership of the company to the policyholders. This process is called: a) an illegal act b) de-mutualization c) mutualization d) a mutual-stock combination company
c) mutualization
Rooster died as the result of an automobile accident. His alcohol level was well above the state's limit for impairment. The accident was considered: a) a physical hazard b) a moral hazard c) a peril d) all of the above
c) peril
All of the following are not considered competent parties to the contract EXCEPT: a) minors b) the mentally infirm c) physically disabled d) those under the influence of alcohol or narcotics
c) physically disabled
Which of the following statements concerning rebating is not correct? a) the rebate must be available to all insureds in the same actuarial class b) the percentage of the rebate cannot discriminate c) rebates should be given to insureds who purchase a policy from an insurer that prohibits rebating d) rebating is legal in Florida
c) rebates should be given to insureds who purchase a policy from an insurer that prohibits rebating
There are risks that include the possibility of loss or gain. What is the definition of accepting risk and confronting it if and when it occurs? a) pure risk b) speculative risk c) retention d) funding
c) retention
A producer owes a fiduciary responsibility to: a) the company b) the client c) the company and the client d) the client and the beneficiary
c) the company and the client
For a risk to be insurable it must contain all of the following characteristics EXCEPT: a) the loss must be definite and measurable b) the loss exposures to be insured must be large c) the loss must not be due to chance d) the loss must be predictable
c) the loss must not be due to chance
Which of the following statements is/are true? a) twisting is internal replacement b) churning is external replacement c) twisting is replacement with misrepresentation d) twisting and churning are dance numbers
c) twisting is replacement with misrepresentation
The use of testimonials, special offers, or statistics would be found under what code or act? a) Unfair Trade Practices Act b) Fair Trade Practices Act c) Unfair Advertising Code d) Advertising Code
d) Advertising Code
Which of the following statements are true? a) both PPGA and Career Agents sell and train b) both General Agents and PPGAs sell and train c) too many questions, I can't take in anymore d) Career Agents are contracted to represent the particular company
d) Career Agents are contracted to represent the particular company
Which of the following is not a federal run government insurance program? a) National Service Life b) Service Members Group Life c) Veterans Group Life d) Medicaid
d) Medicaid
Which of the following statements concerning void/voidable contracts is true? a) a voidable contract is unenforceable by law b) a contract with a minor is a voidable contract c) a void contract may be set aside by the party having the right to do so d) a void contract is without legal effect
d) a void contract is without legal effect
An insurance contract is: a) not a personal contract b) a conditional contract c) a contract of adhesion d) all of the above
d) all of the above
When an agent is replacing an existing policy, he is to provide what with the application? 1. Agent's name and ID number 2. Notice to Applicant Regarding Replacement of Life Insurance (Exhibit A) 3. A copy of all Sales Proposals used for presentation to the applicant a) 1 only b) 1 & 2 c) 2 & 3 d) all of the above
d) all of the above
Which of the following is/are true concerning the NAIC? a) they are instrumental in developing guidelines and model legislation b) they develop standards for policy provisions c) they created the Unfair Trade Practices Act and the Advertising Code d) all of the above
d) all of the above
Which of the following statements best describes an element of an insurable risk? 1. loss must be due to chance 2. loss must be definite and measurable 3. loss must not be catastrophic 4. loss exposures to be insured must be large a) 1 & 2 b) 1, 2, & 3 c) 2 & 3 d) all of the above
d) all of the above
Which of the following is not a valued contract? a) a variable universal contract b) a disability contract c) an accidental death and dismemberment policy d) an 80/20 major medical policy
d) an 80/20 major medical policy
All of the following are unique elements of an insurance contract except: a) insurable interest b) valued, indemnity c) adhesion d) consideration
d) consideration
All of the following systems support the sale of insurance through agents EXCEPT: a) career agency system b) PPGAs c) independent agent system d) direct selling
d) direct selling
Which of the following is not a unique characteristic of a life insurance contract? a) aleatory b) adhesion c) conditional d) estoppel
d) estoppel
Which type of authority is given to the agent specifically through a contract with an insurance company? a) contractual b) implied c) apparent d) expressed
d) expressed
The "right of subrogation" means the insurance company may acquire the right of the insured against liable third parties, those that may have contributed to the loss, in the event the claim is paid. This could be found in which type of contract? a) a life insurance contract b) a valued contract c) disability contracts d) indemnity contracts
d) indemnity contracts
All of the following statements about life insurance and the risks it covers are true EXCEPT: a) life insurance is a mechanism for pooling and sharing risks b) as the number of separate risks of the same type increases, the amount of loss within a given group becomes more certain c) the probability of an individual insured's death increases each year until it becomes a certainty d)life insurance is like a mutual fund in that a certain sum of money must be set aside each year to meet the contractual obligations of the insured
d) life insurance is like a mutual fund in that a certain sum of money must be set aside each year to meet the contractual obligations of the insured
Which statement most accurately describes a unilateral contract? a) both parties to the contract are bound to the terms b) both parties adhere to the contract c) both parties exchange goods of equal value d) only one party is legally bound to the contract
d) only one party is legally bound to the contract
An application for a health policy has a heart condition of which he is unaware and therefore he answers "no" to the question pertaining to heart problems. His answer is considered to be a: a) warranty b) concealment c) fraudulent answer d) representation
d) representation
The USA Patriot Act requires financial institutions to do all of the following except: a) develop new compliance systems and training b) designate anti-money laundering officers c) share information with other financial institutions and enforcement entities d) share information with credit reporting agencies
d) share information with credit reporting agencies
The USA Patriot Act was created in response to which of the following: a) the Korean War b) the Vietnam War c) Desert Storm d) the September 11th attacks
d) the September 11th attacks
Which Act gives the Chief Financial Officer the right to suspend licenses, assign fines, and prosecute insurance companies? a) the McCarran-Ferguson Act b) the Advertising Code c) the Florida legislature d) the Unfair Trade Practices Act
d) the Unfair Trade Practices Act
Principle of agency law refers to the relationship between which two parties? a) the career agent and the general agent b) the career agent and the personal producing general agent c) the captive agent and the general agent d) the agent and the company
d) the agent and the company
The company transferring the risk to another company is called the: a) the reinsurer b) the purchasing company c) the risk retention group d) the ceding company
d) the ceding company
Who is responsible for reporting suspicious activity concerning money laundering? a) the insurance company b) the producer c) no one d) the producer and the company
d) the producer and the company
A company transfers risk. The company assuming the risk is: a) the ceding company b) risk retention c) risk transference d) the re-insurer
d) the re-insurer
A person covered under a service provider is called: a) the insured b) the member c) the client d) the subscriber
d) the subsrciber
The USA Patriot Act was created: a) to prevent a non-U.S. citizen from being a named insured b) to prevent a non-U.S. citizen from being named a beneficiary c) to prevent alien companies from operating in the U.S. d) to protect against terrorism and money laundering
d) to protect against terrorism and money laundering
Fraternal Benefit Societies are required to do all of the following EXCEPT: a) be non-profit b) have a lodge system c) operate as a society, corporation or association d) to provide the insured with a policy
d) to provide the insured with a policy
