General Concepts

A non-contributory group policy requires which percentage of eligible employees to be covered?

100%

Which of the following does not have the responsibility of acting as a fiduciary?

A beneficiary

All of the following are considered perils EXCEPT:

Unsanitary conditions

Collecting and submitting monthly premiums on an insured's behalf is considered what type of authority?

implied authority

Risk can be classified as any of the following EXCEPT:

poor (Risk classifications include preferred, standard, substandard and declined risk. )

In a contributory group plan, what percentage of eligible employees must be covered?

75% (Contributory plan premiums are jointly paid by the employer and participating employees and at least 75% of all eligible employees must be covered. )

In regards to group insurance, which of the following statements below is correct?

A master contract is issued by the insurer to the employer, while employees are given certificates of insurance

Life and health insurance is regulated under what type of law?

Contract Law

Making or circulating false or malicious information regarding an insurer is known as

Defamation (Defamation is illegal and includes both Libel (written defamation) and slander (spoken defamation). )

A return of premium that is paid out by mutual insurance companies at the end of the year as a result of either positive operating costs or other investment returns is also known as a

Dividend

Richard has worked at J&J Printing Inc. for the past three months and wants to join the company's contributory group insurance plan. Which answer BEST describes the period is he entering and how long does he have to apply without proof of insurability?

Enrollment period; 30-31 days (In a contributory group plan, the eligibility period, also known as the 'enrollment period,' is the period of time (usually 30 or 31 days) following the probationary period in which an employee may apply for coverage without having to submit to a medical exam for eligibility. )

Which type of insurance protects an agent and even pays claims if a lawsuit is brought against the agent as a result of failing to provide a service to a client?

Errors and omissions insurance

All of the following are characteristics of pure risk EXCEPT

The loss must be speculative.

A statement that is believed to be true to the best of one's knowledge is said to be

A representation

All of the following have an insurable interest in another EXCEPT:

An individual's friends (Insurance cannot be purchased on strangers, friends, associates of no financial significance, or the like where the potential for gain instead of loss can occur. )

Which of the following is NOT required by the Fair Credit Reporting Act of 1970?

An insurer is required to disclose medical information to an applicant in the event the appicant is rejecte due to findings in the report. (A consumer reporting agency must disclose any information in the event an applicant requests it; however, an insurance company is not obligated to disclose such information to an applicant. )

Which of the following is NOT a method of handling risk?

Analyzing risk (Risk can be avoided or reduced, retained through self-insurance, shared or transferred to an insurance company)

In determining the validity of an insurance contract, when must insurable interest be present?

At the time of application ( In a life insurance contract, insurable interest must exist at the time of application, but is not required to still exist at the time of an insured's death. This determines who may purchase a policy, but does not affect who will benefit from the policy. )

Which of the following is the rate at which death occurs within a given population, and is a factor when determining life insurance premiums?

Mortality Rate

Patricia has good health, good habits and even good credit. If she were to apply for an insurance policy, which classification would she most likely be labeled?

Preferred risk (Preferred risk is the class of risk reserved for people with good health and good habits. )

Tim was just hired today by MAB INC and wants to join the company's group insurance policy. What period of time is he currently in and when can he join the plan?

Probationary period, he can sign up after 90 days

Which of the following is considered to be a 'morale' hazard?

Running a red light while texting

Paula has applied for a life insurance policy and has been classified as a substandard risk for the insurer. What will most likely occur with her policy?

She will be charged an additional premium

Insurance is not intended to protect against?

Speculative risk (Due to the chance of both loss and gain (gambling), insurance does not provide coverage against speculative risk. )

Which of the following entities manages the National Do-Not-Call Registry?

The FTC

In regards to group insurance, which statement below is INCORRECT?

The insurance company evaluates the individuals within a group instead of the group as a whole, and then measures the individual's risks against its underwriting standards.

An insurance contract is considered Aleatory for the following reasons EXCEPT:

The insured always receives more from the contract than the insurer (An insurance contract is considered to be 'aleatory,' or dependent on chance or an uncertain outcome, where one party may receive more value than the other party based on uncertain future circumstances. )

Loss Ratio is defined as:

The ratio between company losses and company revenue that determines an insurance company's revenues that must be maintained to cover annual claims by its policyowners.

What is the operating objective of a stock insurance company?

To make a profit for its stockholders (A stock insurance company is a private insurance organization whose main purpose is to make a profit for its stockholders. )

Raymond, a licensed insurance producer, solicits insurance through more than one insurer and negotiates on behalf of his clients; therefore, he is considered to be

a broker.

XYZ Insurance Co. cannot accept the full risk of a $50,000,000 insurance policy; however, through _______, XYZ Insurance Co. can share such risk, thus allowing it to issue the insurance policy.

a reinsurer ( The concept of 'reinsurance' is the sharing of risk between an insurance company and a re-insurance company, known as a reinsurer, to provide additional insurance coverage for risks that are too large for the single insurer to adequately cover. A reinsurance agreement provides the details of the agreed reinsurance policy, and a reinsurance premium is paid by the 'cedent' insurer, to the reinsurer in exchange for the additional coverage.)

Insurable interest is required

at the time of application. (Insurable interest must exist at the time of application, but is not required to still exist at the time of an insured's death. This determines who may purchase a policy, but does not affect who will benefit from the policy.)

An aleatory contract is BEST defined as a contract that is:

dependent on chance or an uncertain outcome that the insurer may receive more value than the insured. ( An insurance contract is considered to be 'aleatory,' or dependent on chance or an uncertain outcome, where one party may receive more value than the other party based on uncertain future circumstances.)

All of the following are considered hazards EXCEPT:

floods (A flood is an example of a peril (specific event), not a hazzard. Hazard - leads to - Peril - leads to - Loss )

Insurable interest exists between all of the following EXCEPT:

friends ( In contrast to insurable interest, insurance cannot be purchased on strangers, friends, associates of no financial significance, or the like where the potential for gain instead of loss can occur. )

Although most insurers no longer use this marketing approach, lower-valued life insurance products, called 'industrial' life insurance, is still marketed through the

home service system (Although not as common as the direct response or agency marketing systems, the home service marketing distribution system is the oldest and considered the original system for marketing insurance products. )

Which of the following sets of fundamental principles is insurance based?

pooling of risks and the law of large numbers( Insurance is based on the pooling of risks, also known as risk 'pooling,' and the law of large numbers. )

Which type of contract is considered to never have been legally binding?

void contract (A contract that is 'void' is never truly a contract, and is considered to never have been legally binding. Purchasing life insurance with the intent to murder the insured is an example of a void contract. )

Which of the following terms is known as the voluntary relinquishment of a given right or privilege?

waiver ( This is important in terms of contractual law for the reason that if an insurer waives its right and allows the insured to continuously carry out something that is not within the contract, the insurer cannot deny a claim down the road due to this irregularity. )

Which of the following professions analyzes and predicts potential loss in order to set and maintain premium pricing for an insurance company?

Actuary (Each insurer employs statistical analysts, called 'Actuaries,' to analyze and predict potential loss in order to set and maintain premium pricing for the insurer's products. The better an insurance company can predict the outcome of risk, the more profitable it will become, thus insurers are in the business of analyzing and predicting risk.)

Which characteristic of insurance means that only one party, the insurer, defines and prepares the insurance contract, which is non-negotiable by the other party?

Adhesion (The insurance policy is written by the insurer, and cannot be altered by the applicant. )

The concept that an insurance contract is dependent on an uncertain outcome and that one party may receive more value than given it is said to be:

Aleatory (An insurance contract is considered to be 'aleatory,' or dependent on chance or an uncertain outcome, where one party may receive more value than the other party based on uncertain future circumstances. )

Which of the following is an example of sliding?

An agent is requiring me to purchase long-term care insurance along with my life insurance policy. ('Sliding' is defined as charging an applicant for ancillary (supplemental) coverage without their knowledge or advising that such additional coverage is required by law with the purchase of insurance.)

An insurance company whose headquarters are located in California but conducts business in Georgia is what type of insurer?

Foreign (A foreign insurer is an insurance company that conducts insurance business in any state that it is not incorporated. It is considered to be domestic in the state in which it is incorporated. )

Which of the following is NOT considered to be a 'valued' contract?

Health Insurance ( A valued contract is a contract that pays a stated sum, regardless of the amount of loss that has occurred. Life insurance, disability insurance, and AD&D policies are all examples of 'valued' contracts because they all pay a stated sum to the designated policyholder or beneficiary in the event that the insured becomes disabled, dismembered, or dies during the policy's coverage period.)

Which of the following insurers is considered a participating company?

Mutual (A mutual insurer is considered to be a participating company and is one in which insured policyowners are also the company's stockholders (owners). )

In addition to being a policyowner, Allison shares in her insurer's success and receives dividends from the company's annual profits. This is because she purchased an insurance policy through a ________ insurer, also referred to as a ________ company.

Mutual / Par (A Mutual insurance company is a private insurance company that is established to provide insurance to policyowners who are also the company's stockholders. This type of insurer is considered to be a 'participating,' or 'par' company because it issues policies in which policyowners share in the company's ownership and receive dividends of the divisible surplus of the company's profits.)

Which agency has influenced the insurance industry by introducing uniform regulation 'models' for states to follow in an attempt to standardize multiple-state insurance laws?

National Association of Insurance Commissioners (NAIC)

Group insurance plans that do not require employees to pay a portion of policy premiums are referred to as:

Non-contributory plans (Non-contributory plans are paid entirely by the employer and must cover 100% of all eligible employees. )

Which type of E&O policy provides permanent coverage for the actions of an agent during which time he or she was covered under such policy, regardless of when a lawsuit is filed against the agent?

Occurrence policy (Under an occurrence policy, an agent continues to be covered for incidents that occurred while the policy was in force that are claimed after the policy has terminated. Essentially, the agent is permanently covered for his or her actions during which time he or she was covered under the occurrence policy, without regard to when a lawsuit is filed against the agent.)

For purposes of insurance, which of the following is NOT considered a hazard?

Peril ( Physical, moral and morale hazards are the factors, or underlying conditions that give rise to a peril. )

Which type of risk is considered insurable?

Pure risk (Pure risk involves ONLY the chance of loss and unlike speculative risk which involves the chance for both loss or gain, only pure risk is considered to be insurable. )

The act of refunding part of the commission, premium, services or anything of value to the purchaser as an inducement to buy an insurance policy is known as:

Rebating (Offering anything of value (including personal favors) to a customer as an inducement to purchase an insurance contract, whether life, annuity, or health, is illegal in every state. )

The part of a premium set aside by the insurance company to be used for future claims is known as

Reserves (A company's reserve should be equal to the amount that will exactly equal all of the company's contractual obligations. )

Shifting a risk to another party, such as an insurance company in the case of an accident, is best known as

Risk transference (By transferring risk to an insurance company, costs resulting from an insured's future risks are paid by the insurer, and in exchange, the insurer charges a monthly premium (payment) to the insured. )

In the event an insurance company becomes insolvent, this type of association ensures unpaid claims will be paid for covered policyowners?

State Guaranty Association ( Compared to the Federal Deposit Insurance Corporation (FDIC), Guaranty associations protect claimants, policyholders, annuitants, and creditors form insolvent insurers by funding the payments of claims and other related policy benefits. )

Which of the following insurers is best defined as a non-participating company?

Stock (A stock insurer is considered to be a non-participating company because the insured policyowners do not own the company nor do they receive any dividends it returns. Stock insurers do not issue participating policies )

Betty has a history of poor health and is currently taking four medications for high blood pressure and cholesterol. What type of risk is Betty if she were to apply for a health policy?

Substandard Risk (This class of risk includes applicants with pre-existing conditions that are within the risk acceptance levels of the insurer, and can include a higher premium payment to offset the increased risk. )

Which of the following is known for the creation of the New York Insurance Code?

The Armstrong Investigation (1905) (The outcome of the Armstrong Investigation led to stricter regulation of insurance companies by the state of New York, which ultimately led to other states adopting similar insurance regulation. )

Which agency collects and provides reliable medical information regarding an applicant's health history?

The MIB (The Medical Information Bureau, referred to as 'The MIB,' is a medical information retention agency that collects and provides reliable medical information regarding an applicant's health history. The MIB is a large organization, supported by and serving over 700 member insurance companies throughout the U.S and Canada.)

All of the following are true regarding the McCarran-Ferguson Act EXCEPT:

The McCarran-Ferguson Act defined insurance as a form of interstate commerce. ( In 1944, the Supreme Court (United States v. Southeastern Underwriters Association) placed the regulation of insurance within the authority of the federal government by defining insurance as a form of interstate commerce. A year later in 1945, the Supreme Court enacted the McCarran-Ferguson Act, which defined the business of insurance as primarily regulated by the states, allowing the federal government to regulate in addition to, but not to supersede state insurance laws. )

In an insurance contract, the 'consideration' element is fulfilled at the time the applicant submits:

The application and initial premium ( Consideration = Application + Initial Premium )

When an agent persuades a client to cancel his or her current coverage for a policy from an entirely different company solely to produce another first year commission is called?

Twisting (Twisting is the practice of inducing a policyowner through misrepresentation to forfeit or change insurance from one company to another in order to gain commission for an agent or agency. )

The practice of inducing a policyowner through misrepresentation to forfeit or change insurance from one company to another to gain commission for an agent or agency is called:

Twisting (Twisting is the practice of inducing a policyowner through misrepresentation to forfeit or change insurance from one company to another in order to gain commission for an agent or agency. )

Which of the following is NOT a type of speculative risk?

Unemployment (Speculative risk involves the chance of both loss and gain, such as gambling, a company's stock performance or changes in the economy. Health and life insurance does not consider speculative risk to be insurable because it does not cover risk that has the potential for gain. Unemployment is considered to be a form of 'pure' risk due to the outcome resulting only in loss or the lack of loss, but not the chance of gain.)

This Supreme Court case placed the regulation of insurance within the authority of the federal government by defining insurance as a form of interstate commerce?

United States v. Southeastern Underwriters Association (1944) (This Supreme Court case placed the regulation of insurance within the authority of the federal government by defining insurance as a form of interstate commerce. Any state laws that may have been in force at that time that conflicted with the laws of the federal government became void and unenforceable. )

All of the following are elements of insurable risk EXCEPT:

an insurable interest does not need to exist for the risk to be insurable (As a required element of insurable risk, an insurable 'interest' must exist between two parties that, given the loss of one party, results in an economic hardship for the other party.)

An agent's general responsibilities include all of the following EXCEPT

approving and issuing, or declining, an application for insurance in a timely manner.

Overstating promises, using inaccurate or misleading information and guaranteeing insurance are types of

misrepresentation (Misrepresentation is illegal and grounds for license revocation. )

In reference to health insurance, which of the following is a factor when determining health insurance premiums?

morbidity rate

Referred to as a _________ application, it is common for a health or life insurance policy to be issued to an applicant based solely on the medical information gathered from the application that is submitted by the applicant to the insurer.

non-medical (A 'non-medical application' does not require a medical exam and is common when switching from one insurer to another, or when an individual is in good health when applying for insurance.)

The 'parol evidence rule' states that

once an insurance contract, including its provisions and riders, is constructed and provided in written form to the insured, it cannot be modified by any oral, or verbal, statements made by either party.

As a provision of the Financial Services Modernization Act of 1999, attempts to obtain non-public personal information from consumers and customers under false pretenses is referred to as

pre-texting ('Pre-texting' is illegal and includes making a false, fictitious, or fraudulent statement or representation to an officer, employee, or agent of a financial institution, or to a customer of a financial institution.)

Express Authority includes all of the following EXCEPT:

remitting ongoing premium on behalf of the insured (An agent is not contracted to remit ongoing premium on behalf of the insured; althought, if he or she did submit such premium, his or her action would be considered as 'implied' authority. )

A paramedical exam includes all of the following EXCEPT

reviewing the applicant's MIB file. (Although reviewing the applicant's MIB file is part of the underwriting process, it is not conducted during a paramedical exam.)