Unit 1

Funds held by an insurance producer in a fiduciary capacity

cannot be converted to an individual's or a firm's own use

With regards to insurance, consideration means

directly giving something of value

When there is no coverage available through authorized carrier in the state, the insurance is referred to as

excess and surplus lines

Aleatory

indicates that the values received by each party may be unequal

All of the following are characteristics of an insurable risk EXCEPT

intentional

Which of the following is a promise in exchange for an action?

A unilateral contract

Which of the following statements about Loyd's of London is NOT correct?

It is an insurance carrier that underwrites insurance

Which of the following statements regarding mass marketing insurance is CORRECT?

It is marketed through various forms of print, visual, and aural media.

Which of the following statements regarding a risk retention group is TRUE?

Its sole purpose is to provide liability insurance to its policyholders

Which of the following statements regarding mutual insurers is TRUE?

Mutual Insurers issue participating policies

A corporation or other limited liability association that assumes and spreads the liability exposure for any of its group members is called

a risk retention group

In an insurance contract, only one party is legally bound to perform under the contract. This describes

a unilateral contract

The tendency of higher-risk individuals to get and keep insurance is known as

adverse selection

The premium for transferring a risk should be

affordable

Void Contract

lacks one of the elements specified by law for a valid contract

False information that will void an insurance contract is known as

material misrepresentations

FLoods, heart attacks, theft, and choking are all examples of

perils

All statements made by an applicant in an application for life insurance are considered to be

representations

In order for a contract, including an insurance policy, to be legal it must contain all of the following elements EXCEPT

representations

The premiums insurance producers receive from insureds must be kept

separate from any personal funds

Making appropriate product recommendations based on the needs, objectives, and circumstances of a client is referred to as

suitability considerations

A producer owes a fiduciary responsibility to all of the following EXCEPT

the Commissioner for license fees

In an insurance transaction, an insurance producer who sells insurance policies to the public represents

the insurer

Licensed and appointed agents represent

the insurer

Purchasing insurance is an example of

transferring risk

A contract agreement between a ceding insurer and reinsurer to underwrite certain classes of risks is known as

treaty reinsurance

Express Authority is

what the insurer intends to, and in fact does, give to its agent through means of the agency agreement.

Individuals who own life insurance and are called certificate holders are members of a

fraternal benefit society

Adhesion

indicates that the contract was drafted by one party (the insurer) and must be accepted or rejected by a second party (the applicant).

A captive agent who has an exclusive contract with an insurer may:

not represent another insurer selling an identical policy

A mutual insurance company is an incorporated entity owned by its

policyowners

If an agent or producer diverts funds belonging to an insurer to her own use, she has committed the illegal act of

theft

Which of the following statements regarding the fiduciary duty of a producer is CORRECT?

All premiums received by an insurance producer must be held in trust and cannot be used for personal matters

Which of the following is an insurer?

An insurance company

Self insurance is an example of what kind or risk treatment?

Retention

Which of the following statements regarding insurers is CORRECT?

The primary purpose of an insurance company that is organized as a stock insurer is to earn a profit for its stockholders.

The license an insurer usually needs to sell insurance in a state is called

a certificate of authority

All of the following are distribution systems EXCEPT

claims handling

Unincorporated groups of people that agree to insure each other's losses under a contract are known as

reciprocal insurers

Conditional

refers to the fact the insurer's promise to pay benefits is conditioned on the occurrence of a loss

Unitlateral Contract

refers to the insurer's legal obligations

With life, accident, and health insurance, an insured's oral misrepresentation or false warranty will NOT void a policy unless

there was intent to deceive or it materially affects the insurer's decision to accept the risk

Who are the parties to a life insurance contract?

The applicant and the insuring company

Whom do independent insurance agents represent?

The insured

Which of the following statements regarding stock insurer is NOT true?

The policies are participating policies

Which of the following is NOT a type of insurance agent?

Underwriter

Which characteristic of insurance contracts provides legal protection for insureds when overages are not clearly stated in the policy

Adhesion

Knowingly failing to disclose pertinent, material information on an application is called

Concealment

Which of the following would be considered a moral hazard in underwriting a health insurance risk?

Excessive dieting

Which of the following statements regarding the disposition of fiduciary funds is CORRECT?

Funds collected as premiums are to be kept separate from those used for personal expenses or investments.

Denicia is appointed by an insurance company to transact insurance on its behalf. She collects her clients' premiums and has them sign paperwork. By what authority can she do so?

Implied

Concerning mutual insurers, which of the following statements is CORRECT?

Policyholders may participate in dividends

A false statement of a known fact is called

a misrepresentation

Filing a fraudulent health insurance claim is an example of

a moral hazard

Risk retention group

a mutual insurance company formed to insure people in the same business, occupation, or profession

An insurer that issues participating policies is

a mutual insurer

A life insurance policy is all of the following EXCEPT

a personal contract

An unincorporated group of subscribers who operate through an attorney-in-fact to provide indemnity insurance for each other is called

a reciprocal exchange

In the direct-selling marketing system, insurance can be sold to the public through all of the following methods EXCEPT

agents

A contract in which one part may receive considerably more in value than the other party is

an aleatory contract

A commercial insurer can take all of the following forms EXCEPT

an individual benefit society

Apparent authority

arises from the reasonable assumptions that a 3rd party, such as an insurance prospect, makes on the basis of the actions or statements of the principal. Ex. providing its agent with business cards, sample policies, and rate books.

When important and material facts are hidden by an insured on an application, this is known as

concealment

Since the obligations of the insurance company hinge on certain acts of the policyowner, the beneficiary, or both, the insurance contract is termed

conditional