FINA 456 Ch. 7-10

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Best's rating

All of the following are rating methods used in property and casualty insurance EXCEPT:

both I and II

Insurance companies are regulated I. to ensure reasonable rates II. to make insurance available

rates must provide large profits to insurers

States have rating laws that require insurance rates to meet certain standards. these standards include all the following EXCEPT

class rating

Under one type of property and casualty insurance rate making, exposures with similar characteristics are placed in the same underwriting category, and each is charged the same rate.

true

a principle is responsible for the acts of an agent when the agent is acting within the scope of his or her authority

False

a property and liability premium can be describes as earned when its paid to the insurance company

true

a straight deductible requires the insured to bear a portion of each loss before the insurer has any liability

endorsement or rider

a written provision that adds to, deletes from, or in some other way alters an insurance contract is called:

false

actual cash value coverage on your personal property costs more than replacement cost coverage

uniformity of laws

all of the following are advantages of state regulation of insurance EXCEPT:

policy loan

all of the following are assets that you might find on the balance sheet of a property and casualty insurance company EXCEPT:

actual cash value insurance

all of the following are exceptions to the principle of indemnity EXCEPT:

schedule rating method

all of the following are methods of estimating the size of the reserve for reported property and liability losses EXCEPT the:

contract must be in writing

all of the following must be met to form a binding property insurance contract EXCEPT:

true

an aggregate deductible may be based on losses that occur during a calendar year

retaliatory tax law

assume that the premium tax rate is 2.5% in florida and 3% in georgia. if insurers domiciled in florida are required to pay a 3% tax on premiums written in georgia, florida requires insurers domiciled in georgia to pay a 3% premium tax on business written in florida even though the premium tax rate in florida is 2.5%. this scenario illustrates:

condition

ben purchased fire insurance on his dwelling. shortly thereafter, he began to manufacture fireworks in his basement, newr the furnace. when fire severly damaged his home, the insurer denied liability because the policy stated "we will not be liable for any losses directly attributed to a material increase in hazard" this clause is an example of:

estoppel

bill called his insurance agent to check whether his auto insurance would apply to a rental car. the agent said "no sweat, youre covered" bill was involved in an accident while driving the rental car. the claim submitted to his insurer was denied. bill may be able to collect because of the doctrine of:

conditional contracts

brad's homeowners insurance excludes losses if there is a "material increase in hazard". after buying the policy, brad started to make fireworks in the basement. a spark from the wood stove ignited some gunpowder, and the home burned to the ground. which legal characteristic of insurance contracts may prevent brad from collecting under his policy

true

cancellation rights and subrogation provisions are miscellaneous provisions in insurance contracts

aggregate deductable

carson company purchased a commercial property insurance policy. under one provision of the policy, carson would pay all covered losses until the sum paid reached $50,000, then the insurer would cover all future losses. this provision is

true

case reserves are loss reserves established for each individual claim when the claim is reported

rebating

cathy is a life insurance agent. she was trying to sell a policy to frank. in an effort to "close the deal" cathy offered to give frank a share of her commission if he purchased the policy. this practice, which is illegal in almost all states, is called

false

coinsurance in property and coinsurance in health insurance operate in the same way

true

deductibles are not used in life insurance

to provide a physical description of the property to be insured

exclusions are used in insurance contracts for all of the following reasons EXCEPT:

true

federal regulation of insurance would provide greater uniformity of laws from state to state

false

if a state is using a file-and-use rating law, state regulatory officials must approve the rates before an insurer can use them

true

if an individual claims to represent an insurer but gives you no proof of agency relationship, you should not presume the individual is an agent for the insurer

true

if an insurer voluntarily waives a legal right under the contract, it cannot later deny payment of a claim on the ground that the legal right was violated

false

if the national association of insurance commisioners (NAIC) drafts a model law, all states must adopt the law

principle of adhesion

if there is ambiguity in an insurance contract, it is constructed in the favor of the insured because of which legal characteristic of insurance contracts?

true

if you interfere with your insurer's subrogation rights against a third part, you jeopardize your right to collect from your insurer

false

if you knowingly withhold information that will affect the underwriting decision, you have committed misrepresentation

prior-approval

in a certain state, all insurance rates must be approved by the state insurance department before the rates can be used. this type of rating law is:

true

in general, property insurance agent have greater authority to bind the companies they represent than do life insurance agents

true

in property insurance, you can purchase insurance based on the expectation of an insurable interest

false

individuals must be mentioned by name in order to be covered under insurance contracts

to reduce premiums

insurable interest is required for all of the following reasons EXCEPT:

false

insuranc policies written on an all-risk (open-perils) basis cover all perils

the number of policies sold

insurance companies are subject to many laws and regulations. the principal areas regulated include all of the following EXCEPT:

false

insurance contracts are characterized by an equal exchange of value by the parties to the contract

II only

insurance contracts have which of the following legal characteristics: I. they are bilateral contracts II. they are aleatory contracts

true

insurance guaranty funds provide for the payment of unpaid claims of insolvent insurers

true

insurance is regulated primarily at the state level

false

its better for insurance applicants to have their statement constructed as warranties rather than as representations

false

just as auto makers often offer rebates to car purchasers, rebating in insurance is a widespread sales practice in all states

when kate received the policy and paid the first premium

kate completed a life insurance application. her agent forwarded the application to the insurer. the insurer issued the policy. the agent delivered the policy to kate. when kate recieved the policy, she paid the premium. when was the offer accepted in this case?

false

life insurance is an example of a named-perils coverage

foreign insurer

mutual of omaha is domiciled in nebraska and has been admitted to write coverage in Tennessee. in Tennessee, mutual of omaha is considered an

false

once insurers calculate rates for a given exposure, the rates are never adjusted

pro rate liability

one other-insurance provision assesses the liability of an insurer in relation to the proportion that the company's insurance bears to the total amount of insurance in force. the other-insurance provision is:

true

other-insurance provisions are designed to prevent profiting from insurance and violating the principle of indemnity

false

policy reserves are considered an asset of the insurance company

policyholders' surplus

regulators are concerned with a number of financial characteristics of insurers. one measure is the difference between an insurer's assets and its liabilities. this measure is known as an insurer's:

true

requiring insurers to satisfy risk-based capital requirment helps to reduce the risk of insurer insolvencies

true

riders and endorsements are used to amend insurance contracts

$1920

sandy purchased renter's insurance that covered personal property on an actual cash value basis. she paid $2000 for a living room set three years ago. when the living room set was destroyed by fire, it was 20% depreciated. a comparable new living room set will cost $2400. how much will sandy collect from her insurer?

true

some automobile and homeowners insurers are using an applicant's credit record for the purposes of underwriting and rating

warranties

ted owns an auto parts store. in exchange for a premium discount from his insurer, he promised that no cash would be kept on the premise overnight and that two guard dogs would patrol the grounds at night. ted's promises were incorporated into the insurance contract. his promises are:

policyholders' assets

the amount of new business an insurer can write is limited by the insurer's

false

the balance sheet us prepared for a specific period, the income and expense statement is prepared for a specific time

false

the cover page of an insurance contract is called a binder

false

the decision in the south-eastern underwriters association case affirmed the right of states to regulate insurance

systemic risk

the dodd-frank act created financial stability oversight council. one concern of the council is treating risk which could lead to the collapse of the financial system. such risk is called

false

the federal insurance office, created under the dodd-frank act, has replaced state insurance departments as the primary regulator of insurance

loading

the gross insurance premium consists of the pure premium plus the:

paul v. virginia

the landmark court decision that established the right of states to regulate insurance was

insuring agreement

the part of an insurance contract that can be written on a named-perils or all risk (open-perils) basis is the

true

the primary purpose of the premium tax is to raise revenues for the state, not to provide funds for insurance regulations

false

the rating system should be independent of loss control efforts

II only

to collect for a covered loss under a property insurance contract, when must an insurable interest exist? I. at the inception of the contract II. at the time of the loss

false

to determine if a peril is covered under an all-risk (open-perils) policy, you have to read the list of covered perils

elimination (waiting) period

tom was disabled and unable to work. before he was able to collect benefits under his disability income insurance policy, he was required to serve a two-week period during which no benefits were paid. this two-week period is called:

True

two major sources of revenue for a property and casualty insurance company are premiums and investment income

true

under a primary and excess other-insurance settlement, it is possible that only one insurer will be required to pay when a loss occurs

true

under class rating, exposures with similar characteristics are placed in the same underwriting class and each is charged the same rate

True

under experience rating, the insured's prior loss experience determines the actual premium for this period

retrospective rating

under one form of merit rating, the insured's loss experience during the current policy period determines the actual premium for that period. this type of merit rating is called:

true

under schedule rating, each exposure is rated individually with a basic rate that is adjusted for desirable and undesirable physical features

misrepresentation

when ellen completed her life insurance application, she answered "no" to the question, "have you ever had hepatitis?" she had hepatitis two years ago. if ellen dies shortly after the policy is issued, the insurer may be able to deny the claim because of the doctrine of

I only

which statement about the principle of indemnity is correct? I. the principle of indemnity reduces moral hazard II. replacement cost insurance supports the principle of indemnity

both I and II

which statement is true about subrogation? I. subrogation supports the principle of indemnity II. subrogation helps to keep insurance premiums lower

neither I or II

which statement is true about the conditions section of an insurance policy? I. it provides a description of the property or life that is insured II. it explains what types of perils, losses, and property are not covered under the contract

both I and II

which statement is true with regard to a life insurance company's balance sheet: I. assets are equal to liabilities plus policyholders' surplus II. policy reserves are a major liability of a life insurance company

II only

which statement is true with regard to deductibles? I. property insurance premiums are unrelated to deductibles II. deductibles help to eliminate small claims

both I and II

which statement is true with regard to endorsements? I.if there is a conflict between the endorsement and the underlying contract, the endorsement usually takes precedence II. an endorsement can be used to add coverage for additional perils

II only

which statement is true with regard to insurance regulation? I. the federal government plays no role in regulating insurance II. insurance is regulated primarily by the states

I only

which statement is true with regard to property and casualty insurance profitability I. the combined ratio compares an insurers losses and expenses to its premiums. II. a combined ratio in excess of 1 (or 100%) indicated underwriting profitability

II only

which statement is true with regard to property and casualty insurance rate making? I. under the pure premium method, the pure premium is the rate charged insureds. II. Judgement rates are determined largely by the underwriters judgement

false

while insurers are except from income taxes, they are required to pay a tax on premiums written that average about 10&

false

while the applicant for insurance coverage gives consideration in the form of the premium, the insurance company does not give any consideration


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