2-15 CHAPTERS 1-3

An agent's license will terminate if he or she allows how many years to pass without an appointment? Two years Four years Five years Six years

4 years

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? $30 $300 $3000 $309

$300

Bill Wilson wants to obtain a life insurance policy on his employee, Kenneth Myers, and names 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 1 only 1 and 2 only 2 and 3 only 1, 2 and 3

1 & 2

Which of the following statements concerning pure & speculative risks is/are true? 1. Pure risks have only the chance for loss. 2. Speculative risks have only the chance for gain. 3. Only pure risks are insurable. 4. Both pure and speculative risks are insurable. 1, 3, 4 1 & 3 1, 2, & 3 2, 3, & 4

1 & 3

To be characterized as a fraternal benefit society, the organization must : 1. be non-profit. 2. have ritualistic work within a lodge system. 3. elected officers. 4. operate on a pure assessment system. 1, 2, & 3 2, 3, & 4 1, 3, & 4 all the above

1, 2, & 3 Explanation: Fraternals began on the assessment system. However, most have adopted the reserve funding approach

A man omits the fact that he had heart problems when in reality he just had a triple by-pass surgery, how long does the company have to find this out?

2 years

Ima Yankee has been licensed for 7 years, how much training does she need?

20 hours every 2 years

34. 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. 1 only 2 only 3 only 1 & 2

3 ONLY

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. A Domestic Company. An Alien Company. A nonadmitted company.

A Foreign Company. Explanation: Had it been Mexico Life it would have been an Alien company.

The authority of an agent to undertake certain functions for an insurance company would be found under which of the following? A contract of agency Agency law A contract of principal The general agency principal

A contract of agency Explanation: Page 41. This contract of agency spells out what authority an agent may or may not have.

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? An acceptance by the company A counter offer by the insurer A voidable contract An offer and acceptance

A counter offer

An insurable interest must exist when: A life insurance policy is issued Death proceeds become payable Policy ownership is transferred Cash values are borrowed

A life insurance policy is issued

For the benefit of a lower premium, Tommy stated on his insurance application that he was five years younger than his actual age. The policy was issued as applied for and 15 months later Tommy died in an automobile accident. Which course of action would the insurance company take?

A reduced benefit would be paid.

The statement "there is no attempt to value financial loss" would be applied to which of the following? A valued contract An indemnity contract The doctrine of subrogation All of the above

A valued contract Explanation: A valued contract pays a stated amount , regardless of the loss. A life policy would pay $50,000 if death occurs. An indemnity contract pays an amount equal to the loss. If a house is insured for $200,000 and the kitchen burns causing $50,000 of loss, the policy would pay $50,000, the amount of the loss.

Which of the following statements concerning void/voidable contracts is true? A voidable contract is unenforceable by law. A contract with a minor is a voidable contract. A void contract may be set aside by the party having the right to do so. A void contract is without legal effect.

A void contract is without legal effect. Explanation: Voidable contracts "are" contracts that may be set aside. Not paying a premium would be an example. The company could set this contract aside. A void contract does not exist. It is over. A contract with a minor or a contract with no consideration are examples of "void" contracts. They can not be enforced.

If an insured did not pay his premium the company may or may not exercise their right to cancel the policy. This would apply to which of the following contracts? A void contract A voidable contract An implied contract A verbal Contract

A voidable 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"? Adhesion Unilateral Aleatory Commutative

Adhesion Explanation: Contracts of adhesion are created by one party, the insurer, and are not the result of negotiation between the parties, page 35.

The use of testimonials, special offers, or statistics would be found under what code or act? Unfair Trade Practices Act Fair Trade Practices Act Unfair Advertising Code Advertising Code

Advertising Code Explanation: The advertising code is an N.A.I.C. creation which not only addresses testimonials, statistics, and special offers, but also deals with full disclosure on policy renewals, cancellations, and termination provisions.

Which of the following denotes an "element of chance"? Condtional Aleatory Adhesion Utmost good faith

Aleatory Explanation: Although Aleatory means "unequal", it also means there is an element of chance, meaning that the contract is conditioned upon the occurrence of an event. It may or may not happen. pg. 35

An insurance contract is: not a personal contract a conditional contract a contract of adhesion all of the above

All of the above

When an agent is replacing an existing policy, he is to provide what with the application? 1. Agents name & I.D. 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 1 only 1 & 2 2 & 3 all of the above

All of the above

Which of the following is/are true concerning the N.A.I.C.? They are instrumental in developing guidelines and model legislation They develop standards for policy provisions They created the Unfair Trade practices act and the Advertising Code All of the above

All of the above

Which of the following statements best describes an element of an insurable risk? 1. The loss must be due to chance. 2. The loss must be definite and measurable. 3. The loss must not be catastrophic. 4. The loss exposures to be insured must be large. 1 & 2 1, 2, & 3 2 & 3 All the above

All the above Explanation: The loss must be something that may or may not happen. If the insurance company knew it was going to happen to a specific individual, they would not insure that particular individual. They can predict the loss but not the person it will happen to. That is why the loss exposures must be large. For instance, if they covered 1,000,000 30 year old men, they know that a certain number will die (they obtain this info from the mortality tables). Then the premiums from the ones who did not die will cover the ones who did. This would not be possible if they insured only 100 30 year old men. Also, the loss to be insured can not be catastrophic to the insurance company. We do not want them to go bankrupt, do we? Heehee! A catastrophic loss to us is O.K. though. Chapter 1

The following statements about INSURABLE INTEREST are true EXCEPT: Brothers and sisters have an insurable interest in each other. A creditor can have an insurable interest in a debtor limited to the amount of indebtedness. An insurable interest must exist between the policy owner and the insured at the time of the claim. People are considered to have an insurable interest in themselves.

An insurable interest must exist between the policy owner and the insured at the time of the claim. Explanation: none

The Fraternal Order of Orion the Hunter, a fraternal benefit society, may sell insurance to: Anyone. Most fraternal societies today offer insurance to non-members as well. only members of the organization.

Anyone. Most fraternal societies today offer insurance to non-members as well.

The opposite of a unilateral contract is a : collateral contract multi-lateral contract bilateral contract omni-lateral contract

Bilateral contract

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 can not cancel the contract unless it is a material fact. 1 only 2 only Both 1 and 2 Neither 1 nor 2

Both 1 and 2

Most new life insurance is purchased: by employers for employees through group insurance by individuals through insurance agents in equal amounts through group and individual policies by the federal government

By individuals through insurance agents

Which of the following statements are true? Both Personal Producing agents and Career agents sell and train. Both General agents and P.P.G.A.'s sell and train. Too many questions, I can't take it any more. Career agents are contracted to represent the particular company.

Career agents are contracted to represent the particular company.

Assessment Mutual Insurers: A. Operate on the legal reserve system B. Charge its members nothing until the loss occurs C. Pay as services are rendered D. Are owners who monitor hospital costs

Charge its members nothing until the loss occurs

The opposite of an Aleatory contract is a: Unilateral Commutative Adhesion Bilateral

Commutative

All of the following are unique elements of an insurance contract except? Insurable Interest Valued, Indemnity Adhesion Consideration

Consideration

When an applicant applies for insurance by completing an application and paying one month's premium, this constitutes: Consideration and an offer to buy. An acceptance. A conditioned contract. A completed contract.

Consideration and an offer to buy.

Which of the following statements concerning rebating is not correct? The rebate must be available to all insureds in the same actuarial class The percentage of rebate cannot discriminate Rebates should be given to insureds who purchase a policy from an insurer that prohibits rebating Rebating is legal in Florida

Correct Answer: Rebates should be given to insureds who purchase a policy from an insurer that prohibits rebating Explanation: page 74.

Which of the following is an example of an RRG? HMO Dentists Association MEWA

Dentist

All of the following systems support the sale of insurance through agents EXCEPT: career agency system PPGA's independent agency system direct selling

Direct selling

Selling insurance through a vending machine would be: mass marketing direct selling a yank and pull a prohibited practice

Direct selling

Which of the following is Not a unique character of a life insurance contract? Aleatory Adhesion Conditional Estoppel

Estoppel

Which type of authority is given to the agent specifically through a contract with an insurance company? Contractual Implied Apparent Expressed

Expressed Explanation: Expressed authority is "written". Apparent authority is what someone else thinks you have, and implied authority is not overtly or outwardly extended.

Which of the following cause the potential for increasing risk? Peril Hazard Speculation Over insurance

Hazard

Regarding warranties and representations, which of the statements below are true? If a warranty is untrue, the insurer has the right to cancel the contract If a representation is untrue, the insurer has the right to cancel the contract only if the representation was not material If a representation is untrue, the insurer has the right to cancel the contract If a warranty is untrue, the insurer has the right to cancel the contract only if the representation was material

If a warranty is untrue, the insurer has the right to cancel the contract Explanation: Page 38.

What type of authority is not overtly extended but must be used to enable the agent to transact business of the principle? express implied apparent fiduciary

Implied

What type of agent represents a number of insurance companies under separate contractual agreements? Career Agents Personal Producing General Agents Independent Agents Brokers

Independent Agents Explanation: Career agents work for the insurance company and the General agent is his boss and they are captive. Personal Producing General Agents work for one company. They produce (sell). The Independent Agent has many different contracts with many different companies. Page 20

Which of the following is not true concerning the National Association of Insurance Commissioners? It created the advertising code and the Unfair Trade Practices Act. It encourages uniformity in state insurance laws by legislative acts. It is concerned with the preservation of state regulation. It develops standards for policy provisions.

It encourages uniformity in state insurance laws by legislative acts. Explanation: The N.A.I.C. is not part of the legislative branch. They have no ability to create laws. They have no power to prosecute or punish. They do, however, set the standards that each state will follow to one degree or another. The commissioner is a member of the board.

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 can not be given away. D. It is not a personal contract and can not be given away.

It is not a personal contract and can be given away.

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? Law of Large Numbers Insurance Probabilities Homogeneous Probabilities Law of Large Returns

Law of Large Numbers

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

Lloyd's of London

Which of the following is not considered an insurance company? Lloyd's of London Risk Retention Groups Reciprocal Insurers Assessment Insurers

Lloyds of London

Which of the following is not a federal government insurance program? National Service Life Service members group life Veterans group life Medicaid

Medicaid Explanation: Medicaid is a state program funded with matching federal dollars. The intent here is medicaid. A state program.

A/an __________ is the voluntary giving up of a legal right. Estoppel Waiver Aleatory Warranty

Waiver

Which of the following is not a characteristic of a fraternal organization?

Members receive a policy

Alcoholism or drug addiction would be considered which of the following hazards? physical moral morale all of the above

Moral

Agents hired by a P.P.G.A. are considered to be employees of the : P.P.G.A. Company Both Neither

P.P.G.A

All of the following statements describe risk avoidance, EXCEPT: Wendy keeps her money out of the stock market. Pat pays his insurance premium. John never drives a car.

Pat pays his insurance premium

All of the following are not considered competent parties to the contract except: Minors The mentally infirm Physically disabled Those under the influence of alcohol or narcotics

Physically disabled

The Florida Guarantee Association: Protects the insured if the insurer becomes insolvent Protects the insurer if the insurer becomes insolvent Protects the agent if the insurer becomes insolvent Protects the insurer if the insured becomes insolvent

Protects the insured if they become insolvent.

The Financial Services Modernization Act: Repealed the Glass-Steegal Act Prohibits banks from selling more than $50,000 of total life insurance on any one life Prohibits banks from selling life insurance Prohibits insurance companies from engaging in banking

Repealed the Glass-Steegal Act Explanation: This Act broke the "glass" which prohibited banks from selling insurance . Page 22

Statements made by an applicant for a life insurance policy which are supposed to be true are referred to as: representations facts warranties information

Representation

An applicant 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: Warranty Concealment Fraudulent answer Representation

Representation Explanation: A representation is a statement believed to be true. A warranty is a guaranteed fact. Chapter 3

All statements on an application are considered to be: warranties representations material facts all the above

Representations

There are risks that include the possibility of loss or gain. What is the definition of accepting risk & confronting it if & when it occurs? Pure risk Speculative risk Retention Funding

Retention The first sentence really is a statement and has nothing to do with the question. Be careful. Retention is "keeping" the risk. Like driving with-out auto insurance. Page 10..BTW...RTFQ...Read The Friggin Question

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? The company made the offer and Sonny accepted. Sonny made the offer and the company accepted. The agent soliciting the application made the offer on behalf of the company. It depends.

Sonny made the offer and the company accepted. Explanation: When the applicant submits the application with the appropriate premium, an offer has been made. The company will either accept, reject, or counter offer with a higher premium or fewer benefits. If no premium was submitted at the time of application then the company would make the offer and the applicant would accept it at the time he/she paid the premium.

Which of the following statements are true? Stock companies sell only non-participating policies Mutual (participating) companies sell only non-participating policies Stock companies sell both participating and non-participating policies Mutual (participating) companies sell both participating and non-participating policies

Stock companies sell both participating and non-participating policies Explanation: Mutual companies have no stockholders, therefore, it is impossible for them to sell a non-participating policy. They only sell participating policies. Stock companies can sell both, but they usually sell non-participating policies.

Which Act gives the Chief Financial Officer the right to suspend licenses, assign fines, and prosecute insurance companies? The McCarran-Ferguson Act Advertising Code The Florida Legislature The Unfair Trade Practices Act

The Unfair Trade Practices Act

Rules pertaining to testimonials, statistics and special offers would be found in: the policy summary the entire contract the advertising code buyers guide

The advertising code

Agency law refers to the relationship between which two parties?

The agent and the company

An applicant has been denied insurance coverage because of information contained in a consumer report. According to the Fair Credit Reporting Act, all of the following statements are true about this situation EXCEPT: The applicant has the right to obtain a copy of the consumer report directly from the insurance company that used the report. The applicant has the right to obtain disclosure of the substance of the information in the consumer report from the reporting agency. The applicant has the right to obtain the names of all people contacted within the past 6 months. Applicants must be notified within 3 days that a report has been requested.

The applicant has the right to obtain a copy of the consumer report directly from the insurance company that used the report. Explanation: Just the facts, ma'am, just the facts.

The company transferring the risk to another company is called the: The reinsurer The purchasing company The risk retention group The ceding company

The ceding company Explanation: The reinsurance company is the company insuring the ceding company. Pg 17

For a risk to be insurable it must contain all of the following characteristics EXCEPT: The loss must be definite and measurable. The loss exposures to be insured must be large. The loss must not be due to chance. The loss must be predictable.

The loss must not be due to chance. Explanation: The loss MUST be due to a chance happening. It may or may not happen. The insurance company knows how many people will die in a given age group, but they do not know WHO it will be. This knowledge is derived from the mortality tables which are based on data collected over a long period of time and covering a large number of people.

A company transfers a risk, the company assuming the risk is: The ceding company Risk Retention Risk transference The re-insurer

The re-insurer Explanation: The comapnay assuming the risk is called the "re-insurer" The company tranferring the risk is called the ceding company. page 17

Participating policy dividends are influenced by three factors which include all the following EXCEPT: Mortality cost savings Reserve Interest earnings Operating expenses (loading) The sale of company stock

The sale of company stock Explanation: none

A stock insurance company has stockholders and policyholders. The directors & officers are responsible to which of the following? The policyholders The stockholders Stockholders & policyholders Board of directors

The stockholders Explanation: A stock company is organized for the purpose of making a profit. Stockholders own the company. Insurance is simply the product they are selling. It is basically the same as a shoe company selling shoes. A mutual company has no stockholders, the policyholders own the company.

Which is true about the net payment cost comparison index and the surrender cost comparison index? They are found at the end of the policy They are found in the policy summary They are found in the entire contract They must be presented at policy delivery

They are found in the policy summary

An unlicensed salaried officer of an insurance company may sell life insurance in the state of Florida. True False

True Explanation: Because he recieves no commission and only if he is in the company of and solicits for a licensed and appointed agent. Ex. a trainer Pg 48. Ethics Chapter

Which of the following statements is/are true? Twisting is internal replacement Churning is external replacement Twisting is replacement with misrepresentation Twisting and churning are dance numbers

Twisting is replacement with misrepresentation

Which of the following gave the federal government power to regulate insurance? Paul vs. Virginia U.S. vs Southeastern Underwriters Association (SEUA) The McCarran-Ferguson Act The Financial Services Modernization Act

U.S. vs Southeastern Underwriters Association (SEUA) Explanation: This power was given to the federal government in 1944 but the next year congress passes the The McCarran-Ferguson Act which gave regulation back to the states. pg 21

A company that is licensed to sell insurance in a state in which it is domiciled is called: a domestic company an alien company a nonadmitted company an authorized company

a domestic company Explanation: Remember, Miami Mutual is in Florida. It sells in Florida and it is domestic. Baghdad Life is in Baghdad. If it sells in Florida it is alien because it is located outside the U.S., it's territories, or possession's.

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 physical hazard. a moral hazard. a peril. all the above

a peril. Explanation: The peril is the event that causes the loss. Hazards make them more likely to happen. Driving drunk was a moral hazard. It increases the chance of the accident happening.

A group of pharmacists or dentists might be covered under: a reinsurance group a risk retention group a reciprocal group a fraternal group

a risk retention group Explanation: Heaven knows!!! This is a mutual insurer formed to insure people in the same business or profession.

Which of the following could be considered a commercial company? a stock or mutual company a service provider an assessment company a health maintenance organization

a stock or mutual company Explanation: Stock and mutual companies are sometimes referred as commercial companies.

2. The tendency for less favorable risks to seek or continue insurance is known as:

adverse selection

Which of the following statements would mean that the values of the contract are unequal? unilateral adhesion aleatory bilateral

aleatory

Which of the following is not a valued contract? a variable universal policy A disability policy an accidental death and dismemberment policy an 80/20 major medical policy

an 80/20 major medical policy Explanation: A valued contract pays a stated amount ( no more,no less) in the event of a loss. An indemnity contract pays an amount to offest the loss. The amount paid out is dependent upon the loss. ex. If an individual had a hospitalization policy with maximum limits of $1,000,000 and incurred a loss of $50,000, the contract would pay only $50,000.

Andy the agent was fired by the general agent three 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 policy holders 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: apparent authority implied authority expressed authority agency law

apparent authority Explanation: Apparent authority is what the insurance company has led someone to believe. By accepting business after Andy had been fired, the company led the public to believe that a relationship still existed. This still tied the company to the agent as "one".

A producer represents the: buyer company buyer and the company agent

company Explanation: An agent represents the company. The agent and the company are the same . What the agent does the company does. Liability of the agent will generally mean liability to the insurance company. Bringing a lawsuit against the agent generally means bringing a lawsuit against the company. A broker represents the consumer in a sales transaction. Florida does not recognize a broker in this state.

Because an insurance contract has been prepared by an insurance company without negotiation, it is considered a/an aleatory contract contract of adhesion personal contract unilateral contract

contract of adhesion Explanation: Adhesion means only one party, the insurance company, has prepared the contract. The insured must adhere to the terms of the contract. Remember it this way, Adhesion (sticks)...who sticks it to whom? The insurance company sticks it to the insured. This is sometimes confused with unilateral which is defined as: only one side has promises that can be enforced by law.

Another name for a home service company is: industrial debit door to door neighborhood

debit Explanation: Home service, or debit companies, offer industrial insurance, for which the premiums are collected at the home of the insured on a weekly basis for small face amounts, usually $1000 - $3000.

Lloyd's of London:

do not insure anything

In terms of social and economic benefits, insurance is a more important social benefit a more important economic benefit equally important economic and social benefit has no social or economic benefit

equally important economic and social benefit Explanation: Chapter 1

Which of the following is a distinguishing element of an insurance contract? consideration competent parties incontestability offer and acceptance

incontestability Explanation: Most contracts are indeed contestable. However, an insurance contract has the two year incontestable period

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 a claim is paid. This could be found in which type of contract? a life insurance contract a valued contract disability contracts indemnity contracts

indemnity contracts Explanation: This right is found inherently in indemnity contracts. Indemnity contracts pay an amount up to the amount of the loss. It attempts to make the insured whole again. A valued contract pays a stated amount, regardless of the loss. Health insurance is an indemnity contract, life insurance is a valued contract. Ex. If another driver ran into my car and had no insurance, my insurance company would pay for my damages and then "go after" the other driver for reimbursement.

Long Life, a stock insurance company, transfers ownership of the company to the policy holders. This process is called: an illegal act de-mutualization mutualization a mutual-stock combinational company

mutualization Explanation: Some stock companies may desire to transfer ownership to the policyholders. This process is called mutualization. On the other hand, a mutual company may want to transfer ownership to stockholders, this is called de-mutualization.

Which statement most accurately describes a unilateral contract? Both parties to the contract are bound to the terms. Both parties adhere to the contract. Both parties exchange goods of equal value. Only one party is legally bound to the contract.

only one party is legally bound by the contract

Assessment insurers: are stock companies operates on a loss sharing by group members are becoming popular in Florida have unlimited assessments

operates on a loss sharing by group members Explanation: They are mutual companies who assess each individual member after a loss. There are limits to what each member can lose. They are not allowed in Florida. With that in mind, it will probably be on the exam sometime soon.

Which of the following is known for safety & peace of mind? A receipt of payment A Waiver Security A Valium

receipt

In a sales transaction, the producer will represent the: the company the policyowner/insured both

the company

A producer owes a fiduciary responsibility to: the company the client the company and the client the client and the beneficiary

the company and the client

The principle that the large 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:

the law of large numbers Explanation: The larger the group, the more accurate the prediction. This, in fact, gives us the mortality (life) & mobidity (health) tables. Page 8

A person covered under a service provider is called: the insured the member the client the subscriber

the subscriber Explanation: A sevice provider is providing a "service", in this case medical care. Like a warranty on a car, if the car breaks down they fix it, because it is covered under the warranty. Same with a service provider. The subscriber is buying a warranty.

Which of the following gives the state their ability to fine, issue cease and desist orders and impose penalties? unfair trade practices act unfair claim settlement practices act the Code of Ethics of the FAIFA the McCarran-Ferguson Act

unfair trade practices act Explanation: The McCarran-Ferguson Act gave regulation back to the states. The code of ethics is a code of ethics, it does not punish.

A _______ contract may be set aside. void voidable misrepresented bad

voidable