Chapter 1 Insurance
Because an agent is using stationery with the logo of an insurance company, applicants for insurance assume that the agent is authorized to transact on behalf of the insurer. What type of authority is this? A: express B: implied C: assumed D: apparent
D. apparent authority, or perceived authority is the appearance or assumption of authority based on the actions, words, deeds of the principal or because of circumstances created by the principal.
All of the following are examples of risk retention EXCEPT A: Copayments B: Self-Insurance C: Premiums D: Deductibles
C. Retention is a planned assumption of risk, or acceptance of responsibility for the loss by an insured through the use of deductibles, copayments and self insurance.
Which of the following best describes the aleatory nature of an insurance contract? A: Only one of the parties is legally bound by the contract B: Ambiguities are in favor of the insured/ C: Policies are submitted to the insurer on a take it leave it basis D: Exchange of unequal values
D. An aleatory contract is one in which unequal amounts or values are exchanged. Premium for coverage as the example.
Which authority is NOT stated in an agent's contract but is required for the agent to conduct business? A: Implied B: Apparent C: Assumed D: Express
A. Implied authority is not written in the agent's contract, but is required in order for the agent to conduct business. Implied authority exists because not every single detail of an agent's authority can be written into a contract
Which of the following is NOT a goal of risk retention? A: to minimize the insured's level of liability in the event of a loss B: to reduce expenses and improve cash flow C: to increase control of claim reserving and claims settlements D: To fund losses that cannot be insured
A. Retention results from three basic elements. To reduce expenses and improve cash flow, to increase control of claim reserving settlements, to fund losses that cannot be insured.
In order for an insurer to legally transact insurance. it must obtain which of the following? A: Director's Decree B: Certificate of Insurance C: Certificate of Authority D: Power of Attorney
C. Certificate of Authority is required in order to transact insurance.
Which of the following is the closest term to an authorized insurer A:Certified B: Licensed C: Legal D: Admitted
D. Insurers who meet the state's financial rewuirements and are approved to transact business in the state are considered authorized or admitted into the state as a legal insurer.
Individuals tendency to be dishonest would be indicative of A: Moral Hazard B: Morale Hazard C: Pure Hazard D: Physical Hazard
A. An applicant that is dishonest in completing an application for insurance or submitting fraudulent claims would be deemed a moral hazard and could be uninsurable from an underwriting standpoint.
When applying for an individual life insurance policy, an applicant states that he went to the doctor for nausea, but fails to mention he also had severe chest pains. This is an example of A: Misrepresentation B: Fraud C: Warranty D: Concealment
D. Concealment is when the applicant withholds information that can effect a decision. In insurance, this is withholding information that can effect underwriting process.
