General insurance practice questions

Which of the following best describes the concept that the insured pays a small amount of premium for a large amount of risk on the part of the insurance company

Aleatory

What is reinsurance

An agreement between a ceding insurer and assuming insurer

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

A participating insurance policy may do which of the following A. Pay dividends to the stockholder B. Require 80% participation C. Pay dividends to the policy owner D. Provide group coverage

C. Pay dividends to the policy owner

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

All of the following actions by a person could be described as risk avoidance except A. Refusing to scuba dive B. Never flying in an airplane C. Not driving after being in an accident D. Investing in the stock market

D. Investing in the stock market

All of the following would be considered an insurance transaction except A. Soliciting a policy B. Advising a policyholder regarding a claim C. Negotiating coverage D. Obtaining an insurance license

D. Obtaining an insurance license

An insurance company sells an insurance policy over the phone in response to a TV ad. Which of the following best describes this act

Direct response marketing

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

Domestic

Which of the following best describes the aleatory nature of an insurance contract

Exchange of unequal values

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

Fraternal benefit society

In insurance transactions, fiduciary responsibility means

Handling insurer funds in a trust capacity

Units with the same or similar exposure to loss are referred to as

Homogeneous

Courts will interpret any ambiguity in an insurance contract

In favor of the insured

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

Insurance

The insurer may suspect that a moral hazard exists if the policyholder

Is not honest about his health on an application for insurance

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

Law of large numbers

Insurance is a contract by which one seeks to protect another from

Loss

The reduction, decrease, or disappearance of value of the person or property insured in a policy by apparel insured against is known as

Loss

Which of the following is not a characteristic of an insurable risk

Loss must be catastrophic

And individuals tendency to be dishonest would be indicative of a

Moral hazard

And individuals tendency to be dishonest would be indicative of a what type of hazard

Moral hazard

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

Play participating insurance policy issued by mutual insurance company, dividends paid to policyholders are

Not taxable since the IRS treats them as a return of a portion of the premium paid

What is the major difference between a stock company and a mutual company

Ownership

Who might receive dividends from a mutual insurer

Policy holders

All the following are examples of risk retention except A. Deductibles B. Copayments C. Self insurance D. Premiums

Premiums

Which of the following factors is not considered by an underwriter when determining the premium rates for an individual seeking insurance

Race

Which services are associated with standard and Poors and a.m. best

Rating The financial strength of insurance companies

Which of the following insurance options would be considered a risk sharing arrangement

Reciprocal

Which type of insurance is based on mutual agreement among subscribers

Reciprocal insurance

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

Reduction

Adverse selection is a concept best described as

Risks with higher probability of lost seeking insurance more often than other risks

Hazard is best defined as

Something that increases the risk of loss

Which of the following insurers are owned by stockholders

Stock

A nonadmitted insurer who provides unique insurance coverage that is not available from an in admitted insurer is called a

Surplus lines insurer

Which of the following is not the consideration in a policy

The application given to a prospective insured

Peril is most easily defined as

The cause of loss insured against

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 the following except A. There must be a sufficient number of the homogenous exposure units to make losses reasonably predictable B. The loss produced by the risk must be definite C. The loss may be intentional D. The lost must not be catastrophic

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 parts 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

When an individual purchases insurance, what risk management technique is he or she practicing

Transfer

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

avoidance

Which of the following is not an essential element of an insurance contract

counteroffer

A tornado that destroys property would be an example of which of the following

peril

The causes of loss insured against an insurance policy are known as

perils

The causes of loss insured against in an insurance policy are known as

perils

Installing deadbolt locks on the doors of a home is an example of which method of handling risk

reduction

Which statement regarding insurable risks is not correct A. Insureds cannot be randomly selected B. Insurance cannot be mandatory C. The insurable risk needs to be statistically predictable D. An insurable risk must involve a lost that is definite as to cause, time, place and amount

A. Insureds cannot be randomly selected

An individual was involved in a head on collision 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?

Avoidance

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

Avoidance

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

Avoidance

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 A. There must be a sufficient number of homogeneous exposure units to make losses reasonably predictable B. The loss produced by the risk must be definite C. The loss may be intentional D. The laws must not be catastrophic

C. The last may be intentional

Which of the following must an insurer obtain in order to transact insurance with a given state

Certificate of authority

Which of the following is not a characteristic of an insurable risk A. The lost must be due to chance B. The laws must be miserable C. The last exposure must be large D. The lost must be catastrophic

D. The loss must be catastrophic

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

D. To minimize the insurance level of liability in the event of loss

Which of the following is not a goal of risk retention A. Reduce expenses and improve cash flow B. To increase control of claim reserving and claim settlement C. To find losses that cannot be insured D. To minimize insureds level of liability in the event of loss

D. To minimize the insurance level of liability in the event of loss

Which of the following is NOT a goal of risk retention? A. To reduce expenses and improve B. To increase control of claim reserving and claims settlements C. To fund losses that cannot be insured D. To minimize the insured's level of liability in the event of loss

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

Which of the following is considered to be a morale hazard

Driving recklessly

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

Express authority

Requirement the agents not come commingle insurance monies with their own funds is known as

Fiduciary responsibility

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

Fraternal benefit society

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

Hazards

An insurance organization that does not issue insurance policies but provides a meeting place for underwriters to conduct business is known as a

Lloyd's association

An insured purchased an insurance policy five 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 insure did the insured purchase the policy

Mutual

All of the following would be considered an insurance transaction except

Obtaining an insurance license

A participating insurance policy may do which of the following

Pay dividends to the policy owner

What method do ensures used to protect themselves against catastrophic losses

Reinsurance

What method do insurers are used to protect themselves against catastrophic losses

Reinsurance

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

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

loss

What is the major difference between a stock company and a mutual company

ownership

Causes of loss insured against in an insurance policy are known as

perils

Which of the following is the most common way to transfer risk

purchase insurance

Which of the following insurance options would be considered a risk- sharing arrangement?

reciprocal

Insurance is the transfer of

risk

Which of the following insurers are owned by stockholders

stock

Which of the following is a statement that is guaranteed to be true, and if untrue, may breach an insurance contract

warranty