Chapter 1 Quiz

Which of the following is another term used for an authorized insurer?

Admitted

In insurance, an offer is usually made when

An applicant submits an application to the insurer

What term best describes the act of withholding material information that would be crucial to an underwriting decision?

Concealment

An insurance contract requires that both the insured and the insurer meet certain conditions in order for the contract to be enforceable. What contract characteristic does this describe?

Conditional

An insured's business is damaged because of a fire, and he is forced to close the business temporarily for repairs. As a result, the insured lost income. What type of loss is this?

Consequential (indirect)

When would a misrepresentation on the insurance application be considered fraud?

If it is intentional and material

Which of the following terms refers to other insurance that is written on the same risk, but not on the same coverage basis?

Nonconcurrency

Following a career change, an insured is no longer required to perform many physical activities, so he has implemented a program where he walks and jogs for 45 minutes each morning. The insured has also eliminated most fatty foods from his diet. Which method of dealing with risk does this scenario describe?

Reduction

which of the following would qualify as a competent party in an insurance contract?A The applicant is a 12-year-old student. BThe applicant is under the influence of a mind-impairing medication at the time of application. CThe applicant has a prior felony conviction. DThe applicant is intoxicated at the time of application.

The applicant has a prior felony conviction

Which of the following is not a goal of risk retention? To fund losses that cannot be insured BTo minimize the insured's level of liability in the event of loss CTo reduce expenses and improve cash flow DTo increase control of claim reserving and claims settlements

To minimize the insureds level of liability in the event of loss

In insurance policies, the insured is not legally bound to any particular action in the insurance contract, but the insurer is legally obligated to pay losses covered by the policy. What contract element does this describe?

Unilateral

An insurance company recieves an application with some information missing and issues the policy anyway. What is this called?

Waiver

A tornado that destroys a property would be an example of what?

a peril

According to the law of agency, a principal is represented by an

agent

because an agent is using stationary with the logo of an insurance company, applicants for insurance assume that the agent is authorized to transact on behalf of that insurer. what type of agent authority does this describe?

apparent

what type of agent authority is also called percieved authority?

apparent

the risk management technique that is used to prevent a specific loss by not exposing itself to that activity is?

avoidance

An insurance producer who by contract is bound to write insurance for only one company is classified as

captive agent

When both parties to a contract must perform certain duties and follow rules of conduct to make the contract enforceable, the contract is

conditional

the proposed insured makes the premium payment ona new policy. if the insured should die, the insurer will pay the death benefit to the beneficiary if the policy is approved. what kind of contract is this?

conditional

Which authority is NOT stated in an agent's contract but is required for the agent to conduct business?

implied

when agents are acting within the scope of their contract, their actions will be assumed to be the acts of the

insurer

For the reported losses of an insured group to become more likely to equal the statistical probability of loss for that particular class, the insured group must become

larger

The reduction, decrease, or disappearance of value of the person or property insured in a policy is known as what?

loss

under contributory negligence, when an individual is found to have contributed to his or her own loss in any way, another party

may not be held liable

Who might recieve dividends from a mutual insurer?

policyholders

If a court ordered payment for a loss that was not covered in the policy even if it was clearly worded, it would be an example of which legal concept?

reasonable expectations

Which method of loss valuation is contrary to the basic concept of indemnity?

replacement cost

Hazard is best defined as

something that increases the risk of loss

Property insurance that provides 100,000 coverage for a building and 50,000 coverage for personal property at a single location is called

specific coverage

events in which a person has both the chance of winning or losing are classified as

speculative risk

In terms of parties to a contract, which of the following does NOT describe a competent party? The person must be mentally competent to understand the contract. BThe person must have at least completed secondary education. CThe person must not be under the influence of drugs or alcohol. DThe person must be of legal age.

the person must have at least completed secondary education

What is the purpose of the coinsurance clause?

Encourage the isnured to insure the property closer to its full value

Not all losses are insurable, and there are certain requirements that must be met before a risk is a proper subject for insurance. These requirements include all of the following except: The loss may be intentional. BThe loss must not be catastrophic. CThere must be a sufficient number of homogeneous exposure units to make losses reasonably predictable. DThe loss produced by the risk must be definite.

The loss may be intentional

An individual applies for a life policy. two years ago he suffered a head injury from an accident, so he cannot remember part of his past, but is otherwise competent. He has also been hospitalized for drug abuse, but does not remember this when applying for insurance. The insurer issues the policy and learns of his history one year later. What will probably happen?

The policy will not be affected.

If an insurance premium is paid by the policyowner to the agent, and the agent fails to remit that premium to the insurer, which of the following statements is true? The policy will not lapse since payment to the agent is the same as a payment to the insurer. BThe premium will be taken out of the Guaranty Association funds. CThe agent's license will be automatically revoked. DThe policy will lapse since the premium was not received by the insurer.

The policy will not lapse since payment to the agent is the same as payment to the isurer.

In insurance policies, contract ambiguities are automatically ruled in the favor of the insured. What privaledge does the insurer have in order the balance this?

The right to determine the wording of a policy

An insured pays a $100 premium every month for his insurance coverage, yet the insurer promises to pay $10,000 for a covered loss. What characteristic of an insurance contract does this describe?

aleatory

An insurer neglects to pay a legitimate claim that is covered under the terms of the policy. Which of the following insurance principles has the insurer violated?

consideration

When an insured makes truthful statements on the application for insurance and pays the required premium, it is kown as which of the following? Legal Purpose Contract of adhesion Acceptance Consideradtion

consideration

the authority granted to an agent through the agents contract is referred to as

express authority

All of the following actions could be described as risk avoidance except? Never flying in an airplane. BNot driving after being in an accident. CInvesting in the stock market. DRefusing to scuba dive.

investing in the stock market

Untrue statements on the application unintentionally made by insureds that, if discovered, would alter the underwriting decision of the insurance company, are called

material misrepresentations

An insured purchased an insurance policy 5 years ago. Last year, she received a dividend check from the insurance company that was not taxable. This year, she did not receive a check from the insurer. From what type of insurer did the insured purchase the policy?

mutual

what is the major difference between a stock company and a mututal company?

ownership

What type of damages may be awarded by the court to create disincentives that discourage behavior that is deemed highly undesirable by society?

punitive

In what ways can an agent demonstrate a high standard of ethics?

putting the clients best interests before their own

which of the following insurance options would be considered a risk-sharing arrangement? Reciprocal BStock CMutual DSurplus lines

reciprocal

An insurance agents responsibilities include all of the following except?Perform professionally. BRepresent the client. CPerform faithfully. DRepresent the insurer.

represent the client

All of the following statements concerning coinsurance are true EXCEPT AThe coinsurance formula will also be applied to total losses. BIt is used to help adequacy and equity in rates. CThe insured agrees to maintain insurance equal to some specified percentage of the value of the property. DIf the insurance carried is less than required, the insurance may not cover the whole loss.

the coinsurance formula will also be applied to total losses

which of the following is not a goal of risk retention? To increase control of claim reserving and claims settlements BTo fund losses that cannot be insured CTo minimize the insured's level of liability in the event of loss DTo reduce expenses and improve cash flow

to minimize the insured level of liability in the loss of events

which of the following is not a responsibility of an insurance agent? Explaining policy provisions BSubmitting the application to the insurer CUnderwriting the contract DDelivering the contract

underwriting the contract

the insurer must be able to reply on the statements in the application, and the insured must be able to rely on the insurer to pay valid claims. in the forming of an insurance contract, this is referred to as

utmost good faith

what is a statement that is guaranteed to be true, and if untrue, may breach an insurance contract?

warranty

In forming an insurance contract, when does acceptance usually occur?

when an underwriter approves coverage