General Insurance

Which statement regarding insurable risks is NOT correct?

Insureds cannot be randomly selected. "Granting insurance must not be mandatory, selecting insureds randomly will help the insurer to have a fair proportion of good risks to poor risks. All other statements are true."

An agent is selling a client a Variable Life Insurance policy and as an inducement shows the client a projection based upon shares or dividends paid on a similar policy. This is?

Misrepresentation. "This is a misrepresentation and a violation of insurance regulations defined by the Insurance Code."

: Courts will interpret any ambiguity in an insurance contract?

: In favor of the insured. "Insurance policies are contracts of adhesion. The insurer writes the contract and the insured accepts the contract as it is written. When ambiguities exist, courts generally rule in favor of the insured."

What is reinsurance?

An agreement between a ceding insurer an assuming insurer. "The originating company that procures insurance on itself in another insurer is called the ceding insurer. The other insurer is called assuming insurer."

Which of the following entities is not an insurer but an organization formed to provide insurance benefits for members of an affiliated lodge or religious organization?

Fraternal benefit society. "Fraternal insurers operate on the basis of a lodge or charitable organization, but they may also sell formal insurance plans for the benefit of their members. Reciprocal insurers are also associations that provide insurance for their members, but they are formed only for the purpose of providing insurance."

Which of the following persons is required to complete prelicensing education in Wisconsin?

Resident applicant with a 2-year associate's degree in business management. " A 2-year associate's degree in business management is not sufficient to opt out of prelicensing education."

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

Waiver. "In insurance policies, a waiver is giving up one's known right or privilege."

Which of the following is true regarding the notice of the insured's right to file a complaint?

Every insurer must provide such notice to its policyholders when the policy is issued. "Every insurer is required to notify its policyholders of their right to file a complaint with the Office of the Commissioner of Insurance regarding problems with their insurance. This notice must be provided for each policy or certificate issued by an insurer."

Which of the following types of agent authority is also called "perceived authority"?

Apparent. "Apparent authority (also known as perceived authority) is the appearance or the assumption of authority based on the actions, words, or deeds of the principal or because of circumstances the principal created."

Insurers must report or list all appointments and all terminations of appointments to what authority?

Commissioner. "Each insurer must report or list all appointments and all terminations of appointments to the Commissioner."

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 contract is formed on the basis that certain conditions are met."

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. "The binding force in any contract is consideration. Consideration on the part of the insured is the payment of premiums and the health representations made in the application. Consideration on the part of the insurer is the promise to pay in the event of loss."

Events or conditions that increase the chances of an insured loss occurring are referred to as?

Hazards. "Conditions such as lifestyle and existing health, or activities such as scuba diving are hazards and may increase the chance of a loss occurring."

What is the term for the entity that an agent represents regarding contractual agreements with third parties?

Principal. "An agent represents the principal, acting on the entity's behalf in contractual agreements with third parties."

Which services are associated with Standard & Poor's and AM Best?

Rating the financial strength of insurance companies. "Reports generated by Standard & Poor's and AM Best help prospective consumers to judge the financial security of various insurance companies."

Adverse selection is a concept best described as?

Risks with higher probability of loss seeking insurance more often than other risks. "Adverse selection means that there are more risks with higher probability of loss seeking to purchase and maintain insurance than the risks who present lower probability. Underwriters must guard against this."

Which of the following is NOT the consideration in a policy?

The application given to a prospective insured. "Consideration is something of value that is transferred between the two parties to form a legal contract."

An agent makes a sales pitch that contains blatant lies about the insurer and its competitions. Who will ultimately be held legally responsible for this?

The insurer. "Every insurer is bound by any act of its agent performed in this state that is within the agent's apparent authority. In other words, the insurer is liable for the acts of its agents."

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

If it is intentional and material. "A misrepresentation would be considered fraud if it is intentional and material. Fraud would be grounds for voiding the contract."

An insurer devises an intimidation strategy in order to corner a large portion of the insurance market. Which of the following best describes this practice?

Illegal. "It is illegal to participate in any boycott, coercion, or intimidation that is intended to restrict fair trade or create a monopoly."

The proposed insured makes the premium payment on a new insurance policy. If the insured should die, the insurer will pay the death benefit to the beneficiary if the policy is approved. This is an example of what kind of contract?

Conditional. "A conditional contract requires both the insurer and policyowner to meet certain conditions before the contract can be executed, unlike other types of policies which put the burden of condition on either the insurer or the policyowner."

Which law is the foundation of the statistical prediction of loss upon which rates for insurance are calculated?

Law of large numbers. "The law of large numbers, which states that the larger a group is, the more accurately losses reported will equal the underlying probability of loss, is the basis for statistical prediction of loss upon which rates for insurance are calculated."

Which of the following is the basis for a claim against an insurance policy?

Loss. "Claims result from losses by a peril insured against in an insurance policy."

The risk management technique that is used to prevent a specific loss by not exposing oneself to that activity is called?

Avoidance. "Risk avoidance is elimination of risk of loss by avoiding any exposure to an event that could give rise to such loss."

Which of the following reports will provide the underwriter with the information about an insurance applicant's credit?

Consumer Report. " Consumer reports include written and/or oral information regarding a consumer's credit, character, reputation, or habits collected by a reporting agency from employment records, credit reports, and other public sources."

A person who does not lock the doors or does not repair leaks shows an indifferent attitude. This person presents what type of hazard?

Morale. "A morale hazard is someone who has an indifferent attitude towards an insurance company. He is careless or irresponsible because he knows his loss will be covered by insurance."

Who might receive dividends from a mutual insurer?

Policyholders. "A mutual insurer has no stock, and is owned by the policyholders. Since they may receive a dividend (not guaranteed), such policies are known as participating policies. Dividends received by policyholders of a mutual insurer are not taxable."

The insurer must be able to rely 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. "The insurer must be able to rely on the statements given by the insured in the application. The insured must be able to rely on the insurer's promise to pay covered losses."

Which of the following is an intermediary who acts on behalf of the insurer he/she represents?

Agent. "An "insurance agent" is an intermediary who acts on behalf of the insurer he/she represents."

Policies issued in this state must be presented in a meaningful sequence, be appropriately captioned, must provide definitions where appropriate, and must be printed in specified type. All these requirements refer to the rule of?

Readability. "The rule relating to the readability of insurance policies went into effect in 1980 and applies to consumer insurance policies issued or delivered in Wisconsin."

Which of the following is NOT correct regarding false statements by a person engaged in the business of insurance?

Only written statements can be considered fraud. "According to Title 18, Sections 1033 & 1034 of the US Code, any oral or written statements by any person engaged in the business of insurance that are false or any omissions of material fact are considered unlawful insurance fraud."

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

The right to determine the wording of a policy. "In contracts in which only the insurer has the right to determine the wording of a policy, the policyholder will receive benefits denied due to a contract ambiguity."

Which of the following is an example of a producer's fiduciary duty?

The trust that a client places in the producer in regard to handling premiums. "An agent acts in a fiduciary capacity, based upon trust and confidence, when handling the financial affairs of their customers, including the handling of premiums."

If an insurance company wishes to order a consumer report on an applicant to assist in the underwriting process, and if a notice of insurance information practices has been provided, the report may contain all of the following information EXCEPT the applicant's

Ancestry. "The Fair Credit Reporting Act regulates what information may be collected and how the information may be used. Consumer Reports include written and/or oral information regarding a consumer's credit, character, reputation, and habits collected by a reporting agency from employment records, credit reports, and other public sources. Ancestry is not a relevant factor assessed in these reports.

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. " In a unilateral contract, the insured is not legally bound to do anything. The insurer, however, must pay losses covered by the policy."

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. " A material misrepresentation is a statement that, if discovered, would alter the underwriting decision of the insurance company."

ABC insurance company receives an incomplete application and issues the policy anyway. Six months later ABC realizes the missing information. What term is used that prevents ABC from forcing the policyowner to answer further questions?

Estoppel. "ABC had waived its right to receive answers to the missing information once the policy was issued; therefore, they are estopped from enforcing those waived rights."

Under the Fair Credit Reporting Act, if the consumer challenges the accuracy of the information contained in his or her report, the reporting agency must?

Respond to the consumer's compliant. "The consumer has the right to request the information on the report, the reasons for turn down and any adverse underwriting decisions. The reporting agency is required to respond to the consumer's complaint, and, if necessary, to reinvestigate the report."

What is the maximum number of insurance risks an agent can place with a single insurer in one calendar year if the agent is not listed with that insurer?

5. "Unless proven otherwise, an agent is presumed to have exceeded the occasional exchange of business if he/she places more than 5 insurance risks per calendar year with a single insurer with which he/she is not listed as an agent, or exchanges more than 25 insurance risks per calendar year with all insurers."

Which of the following best describes an insurance company that has been formed under the laws of this state?

Domestic. " A company is domestic when doing business within the state in which it is incorporated."

The authority granted to an agent through the agent's contract is referred to as?

Express authority. "Express powers are written into the contract between the insurer and the agent."

The Federal Fair Credit Reporting Act?

Regulates consumer reports. " The Federal Fair Credit Reporting Act regulates consumer reports, also known as consumer investigative reports, or credit reports."

Insurance policies are not drawn up through negotiations, and an insured has little to say about its provisions. What contract characteristic does this describe?

Adhesion. "A contract of adhesion is prepared by only the insurer; the insured's only option is to accept or reject the policy as it is written."

The Commissioner conducts an examination of a domestic insurer and believes that the costs of examination places an unreasonable financial burden on the insurer. Which of the following will happen?

The Commissioner's office may pay all or part of the costs. " If the Commissioner finds that the costs of an examination places an unreasonable burden on the examinee, the Commissioner's office may pay all or part of the costs."

Which of the following is NOT a characteristic of an insurable risk?

The loss must be catastrophic. "In order to be characterized as pure risk, the loss must be due to chance, definite, measurable, and predictable, but not catastrophic.

An applicant is purchasing a homeowners policy. A producer comes to her home, fills out the paperwork, and tells the applicant that her home will be covered as soon she signs all of the paperwork, and that she will receive a new policy in the mail in 5 business days. Even though the policy is not issued, the applicant's home is temporarily covered until then. Which of the following makes that possible?

Binder. "A binder is a temporary agreement issued, usually in writing, but may be oral, by a producer or insurer providing temporary coverage until a policy can be issued."