A D BANKER

Insurance Company C has decided that it is insuring too many homes in a particular area. Therefore, it decides to reinsure Mr. R's Homeowners Policy because of the high value of his Dwelling and contents. The reinsurance contract can best be described as:

An agreement between Insurance Company C and the reinsurer A reinsurance contract is formed between the primary insurance company and the reinsurer, and does not involve the insured or policyowner. The primary (or ceding) insurance company retains the contractual liability for the policyowner's losses, while the reinsurer agrees to indemnify the ceding insurer for losses in excess of its retention amount.

A Stock Insurance Company is

An insurance company owned by stockholders A Stock Insurance Company is owned by its stockholders. 1.2 Types of Insurers (Insurance Companies/Carriers)

A person can purchase an insurance policy to cover losses from all the following, except:

An operation of drug smuggling A contract, including the insurance contract, is void if it is based on an illegal purpose or contrary to public policy. It will not be recognized by a court or enforceable by either party.

Risk is defined as

An uncertainty of loss. The uncertainty or chance of loss is the definition of risk.

When a producer exceeds the authority expressed in the agency contract and the insurer does not take action, which of the following types of authority is created?

Apparent A producer has apparent authority when he/she exceeds his/her contractual authority, and the insurer does nothing to intervene.

The California Financial Information Privacy Act is sometimes known as:

Cal-GLBA The California Financial Information Privacy Act is sometimes known as 'Cal-GLBA.' 1.7 Privacy Protection and Federal Regulations

Which of the following defines risk?

Chance of loss The chance of loss is the definition of risk.

The neglect to communicate known information that is material is called:

Concealment Concealment is the neglect to communicate known information that is material.

When both parties to a contract must perform certain duties in order to make the contract enforceable, this is known as a(n):

Conditional contract A conditional contract requires that both parties perform certain duties or satisfy certain conditions preceding or subsequent to the issuance of the contract.

In an insurance contract the value that each party gives the other is said to be the:

Consideration Consideration can take the form of money, goods, a promise to do something, or anything else that changes the legal position of the party. A contract cannot exist without consideration being given by both sides. 1.10 Contracts

The exchange of value that makes a contract binding is called:

Consideration Consideration is the exchange of premium for the promise of coverage. 1.10 Contracts

In insurance, the insurer's promise to pay a covered loss and defend the insured in a lawsuit and the insured's payment of the first premium, are all examples of:

Consideration Consideration is the term used to describe the rights, money, promises or property exchanged between the parties as part of a contract transaction.

All of the following are methods of managing risk, except:

Contracting the risk Risk may be avoided, transferred, or retained, in addition to being shared or reduced.

An insurance transaction includes any of the following, except:

Determining rates Insurance transaction includes solicitation, negotiation, execution, and transaction required to execute the contract such as collecting premiums and settling claims. An agent does not determine rates.

Which of the following is the formula for determining loss ratio?

Dividing claims paid plus loss reserves for known claims not yet paid by total earned premiums The loss ratio is determined by dividing paid losses plus loss reserves by total earned premiums.

A(n) ___________ insurer is organized in the laws of California.

Domestic A domestic insurer is organized under the laws of California, whether or not it is admitted to do business in this state.

The insurance contract is said to be a contract of Utmost Good Faith, because:

Each party is entitled to rely upon the representations of the other that there is nothing concealed or dishonest A contract of insurance is not just a matter of ordinary commercial good faith, but also one of the utmost good faith. It is assumed that this good faith exists in both parties to the contract. 1.10 Contracts

Which of the following is used to add specific property to a policy after it is initially written?

Endorsement An endorsement is a policy form that alters or adds to the provisions of the insurance contract. 1.8 Risk Management

All of the following are risk management techniques, except:

Enhancement Enhancement is not a risk management technique. 1.8 Risk Management

Which statement defines estoppel?

Estoppel prevents the denial of a fact previously established to be true Estoppel is the principle that prevents an insurer from denying a fact or a promise that has been already settled.

Which of the following powers describes the authority stated in an agent's agency contract?

Express The Agency Contract, which exists between an insurer and its producer, sets forth the powers that are granted to the producer. These powers are referred to as Express Powers because they are expressed in the Agency Contract.

The California Financial Information Privacy Act adds to the consumer safeguards provided by:

Federal law The California Financial Information Privacy Act (sometimes known as 'Cal-GLBA'), adds to the consumer safeguards provided by Federal law. 1.7 Privacy Protection and Federal Regulations

What type of funds received from a client must be maintained in a trust account at a bank or depository in California?

Fiduciary Fiduciary funds received must be maintained in a trust account at a bank or depository in California. 1.6 Duties and Responsibilities

A nonprofit social organization that engages in charitable activities and provides insurance primarily to its members is known as a:

Fraternal Insurer Fraternal societies are primarily social organizations that engage in charitable and benevolent activities that provide insurance, primarily life insurance to its members. They are usually organized on a nonprofit basis. Membership is typically drawn from members of a given lodge, order, or society.

Gasoline stained clothes stored by a furnace are considered a ___________.

Hazard Gasoline stained clothes stored by the furnace increase a chance of loss and would be considered a hazard.

Which of the following is not a required element of a valid contract?

Incompetent parties A valid contract requires four elements and the absence of any one of these elements may prevent a contract from being formed or enforceable: competent parties, legal purpose, offer and acceptance, and consideration.

An agreement that pays on behalf of another party under specified conditions describes which of the following contract terms?

Indemnity The insurance company pays for a claim covered by the indemnity contract on behalf of the insured. An Indemnity Contract is an agreement to pay on behalf of another party under specified circumstances, such as when a loss occurs.

An agreement that pays on behalf of another party under specified conditions describes which of the following contract terms?

Indemnity The insurance company pays for a claim covered by the indemnity contract on behalf of the insured. An Indemnity Contract is an agreement to pay on behalf of another party under specified circumstances, such as when a loss occurs. 1.10 Contracts

An agent who enters into agreements with more than one insurer is which of the following?

Independent The independent agent may represent many insurers at the same time. 1.5 Insurer Management, Marketing and Distribution

If an individual faces the risk of economic loss in the event of property damage, this represents the principle of:

Insurable interest Typically, if there is a pure risk of financial loss, there is an insurable interest.

In California, any person that manufactures and sells insurance coverage by way of insurance policies or contracts may be an:

Insurer Insurers manufacture and sell insurance coverage by way of insurance policies or contracts. 1.1 The World of Insurance

All of the following are considered part of the consideration of an insurance contract, except:

Issuance of the policy The issuance of a policy is not part of the consideration of an insurance contract. It is part of the agreement (acceptance).

All of the following are true of insurance, except:

It eliminates risk Insurance transfers, but does not eliminate risk.

Which of the following best defines a hazard?

It increases the chance of loss A hazard increases the likelihood of loss occurring.

Which of the following is not a function of insurance?

It is designed to be used to protect the insured from dishonest acts The function of insurance is to protect the insured's assets against loss by insurable perils.

All of the following statements regarding materiality are correct, except:

It is determined by the event Materiality is not determined by the event but rather by the facts that a party failed to communicate or miscommunicate and is judged by the importance or relevance to the contract.

What happens if an insurer exercises its right to rescind a policy?

It results in a refund of premiums since the contract is not valid Canceling (rescinding) the policy back to the inception of the contract results in a refund of premiums since the contract is not valid.

A policy is issued for a premium of $500 per year, but a condition that would have caused the premium to be substantially more was misrepresented in the application. This information is deemed by the insurer to be:

Material A statement is material if its disclosure or lack of disclosure would change the insurer's decision to issue a policy for the same premium.

Disclosure or lack of disclosure in a statement that would change an insurer's decision to issue a policy for the same premium is considered:

Material A statement is material if its disclosure or lack of disclosure would change the insurer's decision to issue a policy for the same premium. 1.10 Contracts

Which of the following is not true about a Reciprocal Insurance Company?

Members are grouped into syndicates Members of a reciprocal insurance company are not grouped into syndicates, as in the case of Lloyds. 1.2Types of Insurers (Insurance Companies/Carriers)

When writing the application for homeowners insurance, B's agent asked him if he had any theft losses in the past 3 years. B answered 'no,' despite the fact that he was a theft victim 3 times in the past 3 years. B is guilty of which of the following?

Misrepresentation Misrepresentation is a false statement in the application.

Which one of the following funds is considered to have been stolen and can result in his/her punishment under the law if an agent puts to personal use?

Premiums collected Premiums collected must be kept separate and not be commingled because using these funds for personal use is considered theft and punishable by law.

A natural person licensed as a solicitor to transact insurance is employed by what type of agent or broker?

Property and Casualty A natural person licensed to transact insurance who is employed by a Property and Casualty agent or broker to assist in transacting lines of insurance other than life insurance, disability, or health, is an insurance solicitor. 1.6 Duties and Responsibilities

Which of the following risks is protected by insurance?

Pure risk The contrast is Speculative risk, which entails a chance of gain as well as a chance of loss.

An agent has authority to do all of the following, except:

Represent the insured's interest An agent is primarily the representative of an insurer. 1.6 Duties and Responsibilities

An oral or written statement made at the time of application or before issuance of the policy that is believed to be true to the best of the knowledge of the applicant is called a(n):

Representation Representations are an oral or written statement made at the time of application or before issuance of the policy that is believed to be true to the best of the knowledge of the applicant. 1.10 Contracts

Which of the following is not within an agent's authority?

Representing the insured in an insurance transaction An agent represents an insurer. A broker represents the insured.

The termination of a contract from the beginning as if it never existed is called:

Rescission Rescission is the termination of a contract from the beginning (as if it never existed).

Self-insurance is an example of which of the following type of risk management?

Retaining the risk Self-insurance is an example of retaining the risk.

All of the following are restricted from entering into an insurance contract, except:

Retired persons Persons without legal capacity to enter an agreement are minors, the mentally incompetent, and those under the influence of an intoxicant. 1.10 Contracts

Which term is defined as the probability of loss?

Risk Risk is the possibility of loss.

Which risk management type shifts the risk of loss to a larger homogeneous group?

Risk Transfer Risk transfer involves transfer of the risk, such as to an insurance company.

Which type of risk involves the possibility of loss or gain?

Speculative A speculative risk is one where there is the possibility of gain or loss. 1.8 Risk Management

When insurance cannot be placed with a licensed insurer, it may be placed with an authorized/non-admitted insurer by a:

Surplus Lines broker Only a Surplus Lines broker may place business directly with a non-admitted insurer. 1.6 Duties and Responsibilities

Which of the following is true about a Stock Insurance Company?

The company is directed by officers and directors and has a stated amount of capital stock owned by stockholders A Stock Insurance Company is owned by its stockholders. 1.2 Types of Insurers (Insurance Companies/Carriers)

What information does not need to be communicated in an insurance contract?

The financial rating of an insurance company The financial rating of an insurance company does not need to be communicated in an insurance contract. 1.10 Contracts

In California, all of the following are required to be specified in all insurance policies, except:

The financial rating of the insurer All are policy specifications, except the financial rating of the insurer.

Under what circumstances is an insurer permitted not to communicate information which otherwise would be required?

The insured waives the right to receive communication When a party waives its right to receive communication, the insurer is permitted not to communicate required information.

What can happen if there is a material misrepresentation made in an application for insurance?

The insurer is permitted to rescind the policy from the time the misrepresentation was made A material misrepresentation may permit the injured party to rescind the policy from the time the misrepresentation was made. 1.10 Contracts

Which of the following is not an element of an ideally insurable risk?

The loss must be catastrophic Insurers want to avoid catastrophic perils.

Which of the following states the parties to an insurance contract?

The policyowner/insured and the insurance company The parties to an insurance contract are the policyowner/insured and the insurance company.

The concept that the insured should not profit from an insurance transaction is called:

The principle of indemnity Indemnity is restoring the insured to the same financial condition as before the loss, i.e., no profit. 1.9 Insurance Concepts

Which of the following is a specification that must be included in an insurance contract?

The risks insured against All insurance contracts must include a statement of the premium, or a statement of the basis and rates upon which the final premium was determined, the property or life insured, the interest of the insured or property, the risks insured against, and the period during which the insurance is to continue.

Which one of the following must be communicated in an insurance contract?

The risks insured against The risks insured against must be included in an insurance contract. 1.10 Contracts

Which of the following might be considered a physical hazard?

The storage of flammables near a furnace A physical hazard is a condition on the property, or exposed to the property, that increases the probability of loss to the property.

Which one of the following is a correct statement regarding the premiums dollars collected from a client?

They must be kept separate and not comming If premiums are collected by an insurance agent they must be kept separate and not commingled. 1.6 Duties and Responsibilities

Which of the following defines a Surplus Lines Broker?

They place risks with nonadmitted insurers when coverage cannot be placed with admitted insurer carriers States regulate the procurement of business from nonadmitted carriers by regulating the brokers who place business with these carriers. These brokers are known as Surplus Lines Brokers.

Under the California Financial Information Privacy Act all of the following are ways or reasons a financial institution is permitted to share consumer's personal financial information, except:

To increase company revenue with more targeted marketing campaigns the consumer is likely to want or need Under the California Financial Information Privacy Act a financial institution has the authority to share consumer's personal financial information for transactions in which it is 'necessary to effect, administer or enforce a transaction requested or authorized by the consumer and with the consent of or at the direction of the consumer. 1.7 Privacy Protection and Federal Regulations

Under the California Financial Information Privacy Act all of the following are ways or reasons a financial institution is permitted to share consumer's personal financial information, except:

To increase company revenue with more targeted marketing campaigns the consumer is likely to want or need Under the California Financial Information Privacy Act a financial institution has the authority to share consumer's personal financial information for transactions in which it is 'necessary to effect, administer or enforce a transaction requested or authorized by the consumer and with the consent of or at the direction of the consumer.'

An individual committing a tort may be referred to as a:

Tortfeasor An individual committing a tort may be referred to as a tortfeasor. 1.10 Contracts

When an individual's risk of loss is assumed by a larger homogeneous group, it is known as risk _________.

Transfer Risk transfer involves assumption of the risk in whole or in part by another party, such as an insurance company, underwriting syndicate, or risk retention group.

In insurance, to determine acceptable risks is the primary responsibility of the:

Underwriter The selection of risk is the primary responsibility of the underwriter, who protects the insurer by selecting risks that fall into the normal range of expected losses. 1.11 Insurer Underwriting

Which insurance company department is responsible for risk selection:

Underwriting The Underwriting Department is responsible for risk selection.

Under Aleatory contracts the exchange of values may be:

Unequal An Aleatory contract is a contract where the monetary values of the parties' performance are unequal. An insurance policy is an Aleatory contract because the insurer's obligation to pay a loss depends on uncertain events, while the insured must pay a fixed premium during the policy period.

Which of the following is a physical hazard?

Uneven pavement in a sidewalk A physical hazard is a physical condition that increases the probability of loss to the property.

Statements in the application that are guaranteed true but later found to be false at the time of application may result in which of the following?

Voidance of the contract A breach of warranty is a determination that a warranty has proven to be untrue, whether intended as a falsehood or not, and may void the contract. 1.10 Contracts

Which term is described as the relinquishment of a legal right?

Waiver Waiver is the voluntary relinquishment of a legal right.

Which of the following constitutes the acceptance of an offer?

When an insurer issues a binder The issuance of a binder is indication of the acceptance of an offer.

A good example of Risk Reduction might be:

When one takes action to minimize the severity of a potential loss Risk Reduction involves applying techniques for prevention or reduction of potential loss, such as installing sprinkler systems, burglar alarms, safety guards on machinery, etc.

An insurance solicitor can be employed by how many agents or brokers at any one time?

1 The solicitor license must be for the same line or lines of insurance held by the agent or broker who employs them, and a solicitor may be employed by only one agent or broker at any one time. 1.6 Duties and Responsibilities

An insurance policy is a legal contract between how many parties

2 An insurance policy is a legal contract between two parties.

What must an insurance broker have in place in order to be able to receive, directly from an insured, any compensation or fees for services to be provided?

A Brokers Service Contract A broker must have a written agreement, called a Brokers Service Contract, with an insured to receive any compensation or fees, for services directly from the insured.

A Stock Insurance Company is:

A Stock Insurance Company is owned by its stockholders.

A cause of loss, such as the theft of a car, is which of the following?

A peril Property insurance insures against perils. A peril is a potential cause of loss to property such as fire, windstorm, hail, flood, etc.

Which of the following is assumed to be a competent party for the purpose of entering into an insurance contract

A person over the age of 21 A competent party is assumed to be one who is 16 years of age or older, is mentally competent, and not under the influence of drugs or alcohol.

When a homeowner allows wet leaves to remain on his/her sidewalk, this might be considered which of the following?

A physical hazard Leaves that have fallen and gotten wet through natural causes are a physical hazard.

All of the following are true, except:

A representation is a statement made in the application by the insured, which is guaranteed Representations are statements made by the insured that are true to the best of the insured's knowledge, but not guaranteed.

In the insurance world, a potential for a loss is said to be:

A risk Risk, simply defined, is uncertainty concerning a loss.

A(n) ________ insurer is authorized to write insurance policies in a particular state.

Admitted An admitted insurer is an insurer that is authorized to transact insurance in a state by that state's insurance department, as evidenced by a Certificate of Authority to transact business.

An insurer that is authorized to do business in a particular state is said to be:

Admitted An admitted insurer is an insurer that is authorized to transact insurance in a state by that state's insurance department, as evidenced by a Certificate of Authority to transact business.

An insurer that is authorized to transact insurance in California and has been issued a Certificate of Authority from the California Department of Insurance is a(n):

Admitted insurer A domestic insurer is organized under the laws of one state, whether or not it is admitted to do business in that state, and is foreign to all other states. An alien insurer is organized under the laws of any jurisdiction outside of the United States. An admitted insurance company, whether domestic, foreign or alien, is authorized to transact insurance in California by the California Department of Insurance (CDI). An Admitted or Authorized insurer must have a Certificate of Authority granted from the California Department of Insurance.

What is the term for the idea that some risks are less desirable than average risks, and that these risks tend to seek coverage to a greater extent than more favorable risks?

Adverse selection Adverse selection is tendency of higher risks to seek or maintain coverage.

The JKL Insurance Company is incorporated in Zurich, Switzerland, has its home office in Orlando, Florida, and is authorized to conduct the business of insurance to Californians through its branch office in Rancho Mirage, California. To the state of California, JKL is a:

Alien insurer Since JKL is incorporated in another country it would be an alien insurer to California.

The California Financial Information Privacy Act provides for all of the following as compared to the GLBA, except:

An Opt-Out standard concerning information sharing with unrelated third parties The California Financial Information Privacy Act provides that the Opt-Out provisions of GLBA were changed to an Opt-In standard concerning information sharing with unrelated third parties.

An insurer authorized to transact insurance in a particular state by that state's insurance department is known as:

An admitted insurer An Admitted Insurer is an insurer authorized to transact insurance in a particular state by that state's Department or Division of Insurance. An insurer who has a Certificate of Authority to transact business. 1.4 Insurer Domicile and Admittance