Ch.1 General Insurance

Which kind of contract is defined as an unequal exchange in value? A Aleatory B Unilateral C Adhesion D Personal

A Aleatory

Policyholder A's insurer is providing coverage on too many homes subject to wind losses. As a result, the company decides to reinsure those policies to share the high risk of wind loss. The reinsurance contract can best be described as which of the following? A An agreement between the insurance company and the reinsurer B An agreement between you and the reinsurance company C An agreement between you, the insurance company, and the reinsurer D An agreement between your agent and the insurance company

A An agreement between the insurance company and the reinsurer A reinsurance contract is between the insuring company and the reinsurer, and does not involve the insured.

The Law of Large Numbers provides that: A As the number of insured units increases, predictability of losses improves B If funds are insufficient to pay claims, the insured is assessed additional premium C As the number of insured units increases, losses decrease D Small certain losses are substituted for large uncertain losses

A As the number of insured units increases, predictability of losses improves The larger the sample is, the more accurate the prediction is.

Which federal entity administers the Terrorism Insurance Program created by TRIA? A Department of the Treasury B Department of Defense C NAIC D Department of Homeland Security

A Department of the Treasury

A(n) ____________ is responsible for paying the policy's premium and has various rights as specified in the contract. A Owner B Applicant C Producer D Agency

A Owner

Which of the following is not within an agent's authority? A Representing the insured's interest B Countersigning insurance contracts C Using express authority D Selling applications on the insurer's behalf

A Representing the insured's interest An agent represents an insurer. A broker represents the insured.

Which of the following statements is true concerning the National Association of Insurance Commissioners? A The NAIC provides research and recommendations B The NAIC enforces insurance regulations C The NAIC establishes insurance law at the federal level D The NAIC appoints Commissioners/Directors of Insurance for each state

A The NAIC provides research and recommendations The NAIC is an advisory group that makes regulatory and legislative recommendations, but has no legal authority to enact or enforce laws.

An insurer which is formed under the laws of another country is a(n): A Domestic insurer B Foreign insurer C Alien insurer D Unauthorized insurer

C Alien insurer An insurer that is incorporated or organized in another country is called a alien insurer.

The Financial Privacy rule requires insurers to provide consumers with a privacy notice: A At time of application and monthly thereafter B At the time the consumer relationship is established and annually thereafter C At the time of policy delivery and quarterly thereafter D With each billing statement

B At the time the consumer relationship is established and annually thereafter

A producer must be ______ by an insurer in order to act as agent for that insurer. A Certified B Licensed C Appointed D Endorsed

C Appointed

The following statements regarding hazards are all correct, except: A A moral hazard arises from a disposition for dishonesty B A gambling addiction could be a moral hazard C A moral hazard arises from an attitude of indifference to loss D Ice on a sidewalk is a physical hazard

C A moral hazard arises from an attitude of indifference to loss A physical hazard is a physical condition that increases the likelihood of loss. A moral hazard is tendency toward dishonesty, and a morale hazard is an attitude of indifference to loss.

What constitutes an agreement to enter into a valid contract? A The parties to the contract must have the legal capacity to enter into a contract B The values exchanges by both parties C A specific offer by one party and acceptance by the other D Both parties in the contract must have an insurable interest

C A specific offer by one party and acceptance by the other An Agreement consists of the 'Offer and Acceptance'. Offer is the application submitted and Acceptance is the issued policy. This is one of the four elements of a legal contract. (The values exchanges by both parties) describes considerations, (Both parties in the contract must have an insurable interest) describes the principle of insurable interest, and (The parties to the contract must have the legal capacity to enter into a contract) describes competent parties.

An insurance policy is prepared by the insurance company, with little or no input from the insured. This means that an insurance policy is a/an: A Conditional contract B Aleatory contract C Adhesion contract D Indemnity contract

C Adhesion contract

A company established in England doing business in Alabama would be considered by Alabama residents to be a(n): A Domestic company B Foreign company C Alien company D All of the answers listed

C Alien company An insurance company operating in any country other than the one where its home office is located would be considered to be an 'Alien' company in that country.

The insurer's promise to pay a covered loss and the insured's payment of the first premium are examples of: A Acceptance B Offer C Consideration D Legal Purpose

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

_________ refers to the jurisdiction where an insurer was formed or incorporated. A Approved B Admitted C Domicile D Authorized

C Domicile

Agent Ma'Chelle is under contract with the XYZ Insurance Company to represent and sell insurance only for XYZ. This is an example of what type of agency system? A Direct Writer B Independent Agent C Exclusive/captive D Direct Mail

C Exclusive/captive

The following are all true regarding risk management, except: A Insurance is considered a transfer of risk B Reduction is a method of managing risk C Insurance is designed to cover both intentional and unintentional losses D The insured may retain part of a risk through deductibles

C Insurance is designed to cover both intentional and unintentional losses In order for a risk to be insurable, it must be accidental and therefore unintentional.

A peril is defined as which of the following? A It is a risk of financial loss B It is a condition that may increase a loss C It is the specific cause of loss D It is an indirect loss

C It is the specific cause of loss A peril is defined as a specific cause of a loss.

Risk reduction is a way of __________. A Avoiding activities that increase the chance of loss B Assuming the responsibility of the loss C Minimizing the chance of loss D Transferring the risk to another party

C Minimizing the chance of loss Risk reduction is minimizing, but not preventing, the chance of loss.

All of the following are restricted from entering into an insurance contract, except: A People under the influence of drugs or alcohol B Minors C Retired persons D Mentally incompetent persons

C Retired persons

A contract that binds only one party to future performance, is a(n): A Contract of adhesion B Conditional contract C Unilateral contract D Aleatory contract

C Unilateral contract

The tendency for people with a greater than average exposure to loss to purchase insurance is called: A Substandard selection B A morale hazard C Reinsurance D Adverse selection

D Adverse selection Adverse selection is the tendency for people with a greater than average exposure to loss to, purchase insurance. Insurance companies greatest concern is how much adverse selection or adverse risk is currently covered. The more bad risks they have on the books, the more financial losses they will incu

The ____________ has the power to issue rules and regulations to help enforce insurance laws. A Federal Insurance Office B United States Supreme Court C NAIC D Commissioner, Superintendent, or Director

D Commissioner, Superintendent, or Director

A United States insurance company is considered to be domiciled: A In any state in which it has an office B In any state in which it is an admitted carrier C In any state where it is a member of the guaranty association D In the state whose laws the company is incorporated under

D In the state whose laws the company is incorporated under

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? A Representation B Unilateral statement C Waiver D Misrepresentation

D Misrepresentation Misrepresentation is a false statement in the application.

Self-insurance is an example of which of the following types of risk management? A Eliminating the risk B Pooling the risk C Avoiding the risk D Retaining the risk

D Retaining the risk