General Insurance

For insurance purpose, what is risk?

A chance of loss

An insurance producer who by contract is bound to write insurance for only one company is classified as a/an A: Captive agent B: Solicitor C: Broker D: Independent Producer

A: Captive agent A captive/exclusive agent has agreed, by contract, to produce insurance business only for the insurer they are contracted with.

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? A: Consideration B: Good Faith C: Representation D: Adhesion

A: 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.

The authority granted to an agent through the agent's contract is referred to as A: Express authority B: Apparent authority C: Implied Authority D: Absolute authority

A: Express authority Express powers are written into the contract between the insurer and the agent

What is the major difference between stock company and a mutual company? A: ownership B: Amount of benefits C: Number of producers D: Types of policies issued

A: Ownership Mutual companies are owned by policyholders, while stock companies are owned by stockholders

A participating insurance policy may do which of the following? A: Pay dividends to the policyowner B: provide group coverage C: Pay dividends to the stockholder D: Require 80% participation

A: Pay dividends to the policyowner a participating insurance policy will pay dividends to the owner based upon actual mortality cost, Interest earned and cost

A situation in which a person can only lose or have o change represents A: Pure risk B: Speculative risk C: Adverse selection D: Hazard

A: Pure risk Pure risk refers to situations that can only result in a loss or no change. Pure risk is the only type insurance companies are willing to accept

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 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 in a contract.

Which of the following insurance options would be considered a risk-sharing arrangement? A: reciprocal B: stock C: mutual D: surplus lines

A: reciprocal when insurance is obtained through a reciprocal insurer, the insureds are sharing the risk of loss with other subscribers of that reciprocal

Following a career change, an insured is no longer required to preform 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? A: Reduction B: Transfer C: Avoidance D: Retention

A: reduction The insured's change in lifestyle and habits would likely reduce the chance of health problems.

According to the Law of Agency, a principal is represented by whom?

Agent or producer

What are the four elements of an insurance contract?

Agreement, consideration, contempt parties, legal purpose

What type of insurer is formed under the laws of another country?

Alien

What is a warranty in an insurance contract?

An absolutely true statement upon which the validity of the policy depends

An individual was involved in a head-on Collison while driving home one day. His injuries were not serious, and he recovered. However, he decided that in order to never be involved in another accident, he would not drive or ride in a car ever again. Which method of risk management does this describe? A: retention B: Avoidance C: Reduction D: Sharing

B: Avoidance Avoidance is a method of risk management by which a person tries to eliminate risk of loss by avoiding any exposure to an event that could give rise to such loss. Risk avoidance is effective by seldom practical

A producer who fails to separate premium monies from his own personal funds is guilty of A: Theft B: Commingling C: Larceny D: Embezzlement

B: Commingling It is illegal for insurance producers to commingle premiums collected from the applicants with their own personal funds

All of the following are examples of risk retention EXCEPT A: Self Insurance B: Premiums C: Deductibles D: Copayments

B: Premiums Retention is a planned assumption of risk, or acceptance of responsibility for the loss by an insured through the use of deductibles, copayments or self-insurance

Which of the following insurers are owned by stockholders? A: fraternal B: Stock C: Mutual D: Reciprocal

B: Stock Only stock insurance companies are owned and controlled by stockholders

Which of the following is NOT a characteristic of an insurable risk? A: The loss exposure must be large B: The lost must be catastrophic C: The loss must be due to chance D: The loss must be measurable

B: The loss must be catastrophic. In order to be characterized as a pure risk, the loss must be; Due to chance, Definite, Measurable, and predictable but NOT catastrophic

If only one party to an insurance contract has made a legally enforceable promise, what kind of contract is it? A: A legal (but unethical) contract B: Unilateral C: Adhesion D: Conditional

B: Unilateral In a unilateral contract, only one of the parties to the contract is legally bound to do anything.

Which of the following best describes the concept that the insured pays a small amount of the premium for a large amount of risk on the part of the insurance company? A: subrogation B: warranty C: Aleatory D: adhesion

C: Aleatory An insurance contract is an aleatory contract in that requires a relatively small amount of premium for large risk

Which of the following is a statement that is guaranteed to be true, and if untrue, may breach an insurance contract? A: Indemnity B: Representation C: Warranty D: Concealment

C: Warranty A warranty in insurance is a statement guaranteed to be true. When an applicant is applying for an insurance contract, the statements they make are generally not warranties but representations. Representations are statements that are true to the best of the applicant's knowledge.

Insurance policies are not drawn up through negotiations. and an insured has little to say about its provisions. What contract characteristic does this describe? A: Conditional B: Personal C: Adhesion D: Unilateral

C: 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

Which of the following types of agent authority is also called " perceived authority "? A: Implied B: Fiduciary C: Apparent D: express

C: 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

Which of the following is NOT the consideration in a policy? A: the premium amout paid at the time of application B: the promise to pay covered losses C: the application given to a prospective insured D: Something of value exchanged between parties

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

What document is required for an insurance company to transact insurance?

Certificate of authority

When a change needs to be made on the application for insurance, which is the best method for correcting the information?

Complete a new application of ask the applicant to initial the correction on the original application

Who might receive dividends from a mutual insurer? A: Subscribers B: Stockholders C: Agents D: Policyholders

D: Policyholders 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

Which of the following is an example of a producer's fiduciary duty? A: an obligation to state ever known fact about the policy the producer is selling. B: A duty to base all transactions upon the principle of utmost good faith C: The obligation to tell the truth to the best of one's knowledge D: the trust that a client places in the producer in regard to handing premiums

D: 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 the customers, including the handling of premiums.

Insurers are classified according to their domicile. What are the three types of insurers?

Domestic, Foreign, alien

The requirements that agents must account for and promptly remit all insurance funds collected is know as what type of agent responsibility?

Fiduciary

An insurance company is domiciled in CA and transacts insurance is Nevada. What is this insurer's classification in Nevada?

Foreign

Conditions that increase the chance of loss are known as what?

Hazards

What two elements are necessary for a life insurance contract to have a legal purpose?

Insurable interest and consent

What two elements are necessary for a life insurance contract to have legal purpose?

Insurable interest and consent

What do individuals use to transfer their risk of loss to a larger group?

Insurance

What entities make up the Medical Information Bureau?

Insurers

Insurance is a contract that protects the insured from what?

Loss

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

Loss

What are the five characteristics of an ideally insurable risk?

Loss must be; due to chance definite and measurable statistically predictable not catastrophic and coverage cannot be mandatory

An applicant conceals relevant health information on the application. The applicant presents what type of hazard?

Moral

A person who does not lock the doors to his or her house shows an indifferent attitude. This person presents what type of hazard?

Morale

An insurance policy paid a nontaxable dividend to the insured one year, and nothing the next. From what type of insurer did the insured purchase the policy?

Mutual

The Type of insurance company organized to return any surplus money to its policyholders is known as what?

Mutual Company

What are the three types of hazards?

Physical, Moral, Morale

What are the strategies used by underwriters to prevent adverse selection?

Restriction of coverage, refusal to accept a risk, and accepting a risk at a higher rate

What is the best way to handle incomplete insurance applications?

Return the application to the applicant for completion

wagering on a sporting event is known as what type of risk?

Speculative

If an applicant does not receive their insurance policy, who would be held responsible?

The agent

Whose responsibility is it to determine that all the questions on an insurance application are answered?

The agents

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

When it is intentional and material

In Insurance, when is the offer usually made on a contract?

When the application is submitted

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

When the insurer approves a prepaid application

When does an insurance policy go into effect?

When the policy is delivered and the premium is paid

If an insurer meets the state's financial requirements and is approved to transact business in the state, it is considered what type of insurer?

admitted/authorized

When risks with higher probability of loss are seeking insurance more often than other risks, this is known as what?

adverse selection

what are the tree types of agent authority?

expressed, apparent, implied

AN insurance company that is formed under the laws of another state is known as what type of insurer?

foreign

In the agent/insurer relationship, who is considered the principal?

insurer

When agents act within the scope of their contract, their actions will be assumed to be the acts of whom?

insurer

What is the term for the causes of loss insured against in an insurance policy?

peril

A situation in which a person can only experience a loss and no gain presents what type of risk

pure risk

What type of risk is insurable?

pure risk

If an agent fails to obtain the applicant's signature on the insurance application, what must the insurer do?

send the application back to the applicant for signature

Whom does an insurance agent represent?

the insurer