General life and health -205
Filing a fraudulent health insurance claim is an example of
a moral hazard
Which of the following is NOT a characteristic of an insurable risk?
Premeditated
When a reinsurer considers each risk as a single transaction before assuming it, this is called
facultative reinsurance
A peril is
A cause of loss
Which of the following is a promise in exchange for an action?
A unilateral contract
An insurance agent could be any of the following EXCEPT O A) an independent agent O B) an exclusive or captive agent O C) a general agent or managing general agent D) a direct-writing commissionable agent
D) a direct-writing commissionable agent
A false statement of fact is known as
D) a misrepresentation
Which of the following statements regarding exposure is NOT true?
It is measured in degrees.
Which of the following insurance companies are organized and incorporated under state laws but have no stockholders?
Mutual insurers
It takes advantage of small group situations. B) It involves one-on-one meetings between prospects and agents. C) It is marketed through various forms of print, visual, and aural media. D) It is considered unethical and is illegal in some states.
O C) It is marketed through various forms of print, visual, and aural media.
Which of the following is NOT a characteristic of fraternal benefit societies?
Profit-making organization with capital stock
A person who always wears a seatbelt in a car is using what risk handling method?
Reduction
Self-insurance is an example of what kind of risk treatment?
Retention
Which kind of insurance company is owned by individuals who buy shares but are not entitled to receive policy dividends?
Stock insurance company
Which of the following statements about fraternal benefit societies is NOT correct?
They are exempt from the licensing requirements if they provide insurance benefits to their members only.
Which of the following terms indicates that a life insurance contract contains the enforceable promises of only one party?
Unilateral
Individuals who own life insurance and are called certificate holders are members of a
a fraternal benefit society
All of the following are considered to be insurers
a group of employees enrolled in an insurance plan
An incorporated insurer whose governing body is elected by the policyowners is
a mutual company
An unincorporated group of subscribers who operate through an attorney-in-fact to provide indemnity insurance for each other is called
a reciprocal exchange
Miguel works for a mutual insurance company that was formed to handle the insurance needs of lawyers. The type of company that Miguel works for is called
a risk retention group
An incorporated insurer whose capital is divided shares and owned by its stockholders is
a stock insurer
In legal terms, the voluntary relinquishment of a known right is called
a waiver
The intentional failure to disclose known facts on an insurance application is called
concealment
Since the obligations of the insurance company hinge on certain acts of the policyowner, the beneficiary, or both, the insurance contract termed
conditional
All of the following are examples of social (governmental) insurance EXCEPT A) Medicaid B) workers' compensation O C) Medicare D) fraternals
fraternals
The insurance concept of returning consumers to the financial status they enjoyed prior to a loss is known as
indemnification
False information that will void an insurance contract is known as
material misrepresentations
A captive agent who has an exclusive contract with an insurer may
not represent another insurer selling an identical policy
Floods, heart attacks, theft, and choking are all examples of
perils
According to insurance law, an insurance agent is a person who
solicits, negotiates, procures or effects insurance or annulty contracts on behalf of an insurer
In an insurance transaction, an insurance producer who sells insurance policies to the public represents
the insurer
Insurance agents represent
the insurer
Licensed and appointed agents represent
the insurer
Hachiro, age 45, purchased a life insurance policy from AllPro Insurers and named his 8-year-old son, Takeshi, as a beneficiary. Which of the following statements regarding this situation is CORRECT?
Takeshi is not a party to the insurance contract.
Whom do independent insurance agents represent?
The insured
An insurance company that transacts insurance directly with consumers without the assistance of producers is called
a direct response company
A producer who receives life insurance premiums holds the money in trust as
a fiduciary
An insurer that is domiciled in Ohio and does business in Alabama is considered to be
a foreign insurer
Express authority requires an agent to
act in accordance with the agency agreement
The tendency of higher-risk individuals to get and keep insurance is known as
adverse selection
A commercial insurer can take all of the following forms EXCEPT
an individual benefit society
All of the following are characteristics of an insurable risk EXCEPT
anomalistic
All of the following are characteristics of an insurable risk EXCEPT
loss must be intentional
The parties to an insurance contract must act in utmost good faith, which means that both the agent and the applicant
make no attempt to deceive each other
All of the following are considered competent parties to enter into insurance contracts EXCEPT
minors
The premiums insurance producers receive from insureds must be kept
separate from any personal funds
Jake and Sue signed a contract in which Sue agreed to pay half of the life insurance proceeds to Jake if he murdered her estranged spouse. The contract between Jake and Sue would not be enforceable in court because
the contract lacks a legal purpose
An exclusive insurance producer who solicits insurance represents
the insurer
All of the following are elements of an insurable risk EXCEPT A) the loss must have a determinable value B) the loss must be predictable O C) the loss must be the result of chance O D) the loss must be catastrophic
the loss must be catastrophic
A health insurance policy does NOT go into force if
the producer completes the application
If an agent or producer diverts funds belonging to an insurer to her own use, she has committed the illegal act of
theft
Which of the following is NOT a type of agent? A) General agents B) Independent agents C) Captive agents D) Absolute agents
Absolute agents
Which characteristic of insurance contracts provides legal protection for insureds when coverages are not clearly stated in the policy?
Adhesion
An insurance producer acts in what capacity when holding insurance premiums?
Fiduciary
Which of the following statements regarding the disposition of fiduciary funds is CORRECT?
Funds collected as premiums are to be kept separate from those used for personal expenses or investments.
Denicia is appointed by an insurance company to transact insurance on its behalf. She collects her clients' premiums and has them sign paperwork. By what authority can she do so?
Implied
Which of the following statements regarding Lloyd's associations is CORRECT?
Insurance is provided by individual underwriters.
Which of the following types of risk is insurable?
Pure risks
Beth and Tall's California neighborhood was ravaged by wildfires last summer. As a result, they installed a sprinkler system in their home to minimize damage in the event of a fire. This method of dealing with risk is called
.C) risk reduction
Which of the following activities is NOT an example of misrepresentation?
A producer tells a prospect that the policy has received a certain level of dividends for the past 5 years.
Who represents an insurance company in an insurance transaction?
The agent
In an insurance transaction, whom does a licensed agent legally represent?
The insurer
Which of the following statements regarding a stock insurer is NOT true?
The policies are participating policies.
An individual who occupies a position of trust when handling the financial affairs of another is
a fiduciary
An individual who recruits agents to sell insurance within a certain geographical
a general agent
A fiduciary responsibility is defined as
a relationship of special trust and confidence when a person is entrusted with another's funds
A corporation or other limited liability association that assumes and spreads the liability exposure for any of its group members is called
a risk retention group
Specialized risks that admitted insurers are not able to cover may often be obtained through
a surplus lines insurer
Insurers that deal directly with insureds without the use of agents are known as
direct response
Unincorporated groups of people that agree to insure each other's losses under a contract are known as
reciprocal insurers
Morris is a licensed insurance agent. His principal is
the insurer
A licensed independent life or health insurance producer may represent
1 or more authorized insurers
What is the definition of a fiduciary?
A person in a position of trust and confidence who handles the affairs and funds of others
Which of the following statements regarding insurance company organization is CORRECT?
A policyholder in a mutual company may receive a dividend.
When agents act on behalf of insurers, they are acting under which legal principle?
Agency
Which of the following statements regarding the fiduciary duty of a producer is CORRECT? A) Up to $5,000 a month of premium money may be used for the producer's personal needs. O B) All premiums received by an insurance producer must be held in trust and cannot be used for personal matters C) Premiums may be kept in the producer's personal account. O D) An insurance producer may never receive money meant for the insurer.
All premiums received by an insurance producer must be held in trust and cannot be used for personal matters
All of the following are types of hazards in life insurance EXCEPT O A) direct B) physical OO0 C) morale O D) moral
Ans is A direct
Which of the following statements pertaining to a life insurance contract is CORRECT? A) The term conditional indicates that the insurer will pay benefits regardless of a loss. O B) The term aleatory indicates that the values received by each party may be unequal. C) The term adhesion indicates that the parties to the contract have a right to expect honesty from each other. D) The term unilateral refers to the legal obligations of the policyowner.
B) The term aleatory indicates that the values received by each party may be unequal.
Assured Insurance Company deals directly with insureds and does not have any agents. Assured is
B) a direct writer
All of the following are types of insurers EXCEPT A) fraternal B) communal C) mutual D) stock
B) communal
Brian met with an insurance producer to discuss how much life insurance he would need to support his family in the event of his premature death. Both parties agreed that a $750,000 life insurance policy would be sufficient. When Brian stated that he wanted to discuss the matter with his spouse, the producer asked him to sign a general background information form before he left. However, the document was actually an application form that the producer submitted to the insurer. If the insurer then issues a contract, it will be legally unenforceable because
Brian did not make a valid offer
Which of the following terms correctly describes a life insurance company that is organized outside the United States or its possessions?
C) Alien
Which of the following statements regarding fraternal benefit societies is NOT true?
C) Policies are called contracts.
An agent that hires, trains, and supervises other agents within a specific geographical area is
C) a managing general agent
Dying too soon is an example of
C) a peril
All of the following are elements of a contract EXCEPT A) agreement B) competent parties O C) acknowledgment D) legal purpose
C) acknowledgment
Which of the following describes facultative reinsurance?
D) The reinsurer considers each risk before allowing the transfer to be made from the ceding company.
Which of the following statements regarding exclusive agents is NOT true?
Exclusive agents represent the insured.
Which of the following types of agent authority is specifically set forth in writing in the agent's contract?
Express
Which of the following statements regarding insurance is NOT true?
O A) All types of insurance are implemented through a contractual agreement between the insurance owner and the insurer. O B) All types of insurance indemnify the insured against financial loss. O C) All types of insurance are based on the law of large numbers. O D) There are no physical hazards in life and health insurance. The ans is D
Which of the following statements regarding insurers is CORRECT?
O D) The primary purpose of an insurance company that is organized as a stock insurer is to earn a profit for its stockholders.
Andrei is a newly licensed insurance agent. In any insurance transaction, his primary duty is to serve
O D) the insurer
What is the difference between a stock insurer and a mutual insurer?
Stock insurers have shareholders and mutual insurers have policyholders.
Which of the following is the definition of risk?
The uncertainty about whether a loss will occur
Which of the following statements about participating policies is NOT correct?
They are issued only by stock companies.
Mark and Steve signed a contract in which Mark agreed to apply for health insurance and Steve would submit fraudulent medical claims through his physician billing service. Mark and Steve plan to share the proceeds. The contract between Mark and Steve can best be described as
V O A) void
All of the following are types of agent authority EXCEPT O A) implied authority B) apparent authority C) express authority D) dubious authority
dubious authority
Agents that work on behalf of 1 specific insurance carrier are known as
exclusive or captive agents
The authority that an insurer gives to its agents by means of the agent's contract is known as
express authority
When an agent's duties are specifically spelled out in the contract with the insurance company, this is an example of
express authority
A contract in which one insurer cedes all or part of a risk to another insurer is known as
reinsurance
All statements made by an applicant in an application for life insurance are considered to be
representations
Statements made by an applicant in completing a life insurance application are considered to be
representations
With regard to insurable risks, which of the following statements is NOT correct?
C) An insurable risk must involve loss that is within the insured's control.
Who are the parties to a life insurance contract?
C) The applicant and the insuring company
In an insurance contract, only one party is legally bound to perform under the contract. This describes
C) a unilateral contract
A contract based on the principle of indemnity
C) attempts to return the insured to his original financial position
After comparing policies for the last 3 months, Carol has finally found a health insurance policy that she would like to purchase. When Carol submits the application with the initial premium,
Carol has made an offer that the insurance company can accept or reject
An insured gives a premium to a producer with the expectation that the producer will act with the utmost good faith in forwarding it to the insurer. In this case, the producer is said to have what kind of responsibility to or relationship with the insured?
D) Fiduciary
In an insurance transaction, licensed agents legally represent which of the following?
D) The insurer
Murt Enterprises wants to build 3 new casinos in Illinois. It is possible the necessary insurance coverages will be placed through
D) a surplus lines company
A stock insurer is owned by its
D) shareholders
In order for any contract, including an insurance policy, to be legal it must contain all of the following elements EXCEPT
O B) representations
Which of the following is NOT a type of insurance agent?
Underwriter
An insurer that issues participating policies is
a mutual insurer
Paul is a single father with 2 young daughters. He has decided to give up his 2 favorite hobbies-skydiving and race car driving-because they are risky pursuits that could lead to his premature death. This method of dealing with risk is called
risk avoidance
Which of the following statements regarding representations is CORRECT? A representation must be material for the insurer to void the contract. B) If a representation is false on a material point, the insurer may alter the contract but may not rescind it. C) Representations are statements the applicant may or may not believe to be true. D) A representation is guaranteed to be true.
A representation must be material for the insurer to void the contract.
Assume there are 4 different mortality tables. Of these, the most reliable would be the mortality table covering
A) 10 million lives
The inclination of higher-risk individuals to be "first in line" to get and keep insurance is called
A) adverse selection.
All of the following are characteristics of an insurable risk EXCEPT A) intentional B) measurable XO C) affordable D) calculable
A) intentional
All of the following are methods of handling risk EXCEPT
A) repetition is the ans, B) transfer C)sharing D) avoidance
A producer owes a fiduciary responsibility to all of the following EXCEPT A) the Commissioner for license fees B) the prospective purchaser of insurance, when the application is rejected C) the insured, on canceled policies D) the insurer, for premiums due
A) the Commissioner for license fees
A producer owes a fiduciary responsibility to all of the following EXCEPT AO A) the Commissioner for license fees B) the insured, on canceled policies C) the prospective purchaser of insurance, when the application is rejected D) the insurer, for premiums due
AO A) the Commissioner for license fees
An agent for Zephyr Insurance Company, equipped with business cards, sample Zephyr policies, and an Zephyr rate book, informs a prospect that Zephyr has given him unlimited binding authority. The prospect assumes this is true. Which of the following terms correctly defines the agent's authority in this case?
Apparent authority
To avoid adverse selection, insurers determine many different factors and rely on an extensive amount of information before issuing a policy. This process is called
B) underwriting
Angela, a recent applicant for a $50,000 life insurance policy, failed to state on her application that she suffered a heart attack a year earlier, fearing it would affect her insurability. Which of the following terms describes Angela's action?
C) Concealment
Which of the following types of agent authority is specifically set forth in writing in the agent's contract? O A) Implied XO B) Apparent C) Express D) Personal
C) Express
The financial strength rating of an insurance company is similar to
C) a report card
When there is no coverage available through an authorized carrier in the state, this insurance is referred to as
C) excess and surplus lines
A contract in which one insurer cedes all or part of a risk to another is known as
C) reinsurance
Jill met with an insurance agent to discuss purchasing a $500,000 term life insurance policy. If Jill signs a contract 2 weeks later while intoxicated,
C) she will not be presumed to be competent
Which of the following statements best summarizes the function of insurance?
D) It spreads financial risk over a large group so as to minimize the loss to any one individual.
Independent rating agencies evaluate all of the following factors of an insurer to assess their financial strength EXCEPT A) investments B) operating expenses C) loss experience D) number of agents
D) number of agents
In order for any contract, including an insurance policy, to be legal it must contain all of the foliowing elements EXCEPT A) competent parties B) legal purpose C) consideration D) representations
D) representations
Which of the following would be considered a moral hazard in underwriting a health insurance risk?
Excessive dieting
Which of the following is NOT a characteristic of an insurable risk?
Expensive
Insurance may be sold to members as well as nonmembers. B) Life insurance is one of the benefits of membership. O C) Policies are called certificates. D) The society must operate under a lodge system of government.
Insurance may be sold to members as well as nonmembers.
Which of the following statements regarding a risk retention group is TRUE? A) Its sole purpose is to provide liability insurance to its policyholders. B) A risk retention group may provide any type of insurance. C) Risk retention groups are federally regulated. D) Policyholders may be from any type of industry.
Its sole purpose is to provide liability insurance to its policyholders.
Which of the following is NOT encompassed by agency law?
Knowledge of the principal is knowledge of the agent.
Which of the following is NOT a common characteristic of an insurance contract?
Legal purpose
Which of the following is an incorporated insurer that does not have capital stock and has a governing body that is elected by its policyholders?
Mutual insurer
Which of the following statements regarding mutual insurers is TRUE?
Mutual insurers issue participating policies.
Which of the following statements pertaining to an agent's handling of premium money is NOT correct? A) An agent may spend premium money for his personal use. O B) An agent holds premium money for the insured; the money belongs to the insurer. O C) An agent who violates regulations concerning handling premium money may be charged with embezzlement or mishandling funds. O D) An agent must not make personal use of premium money received from policyowners.
O A) An agent may spend premium money for his personal use.
Concerning mutual insurers, which of the following statements is CORRECT?
O A) Policyholders may participate in dividends. O B) Mutual companies are sometimes referred to as nonparticipating companies. O C) In a mutual company, there are shareholders. O D) In a mutual company, there are stockholders. A is correct
Which of the following statements regarding a producer's authority is NOT correct? O A) Reviewing a prospective applicant's insurance program and recommending the purchase of a particular product is an example of implied authority. O B) Advising an applicant to answer certain questions in a manner in order to pass underwriting is an example of apparent authority. O C) An agent's apparent authority may be binding on an insurer under the law of agency. O D) Soliciting and negotiating insurance contracts on the company's behalf are considered part of an agent's express authority.
O B) Advising an applicant to answer certain questions in a manner in order to pass underwriting is an example of apparent authority.
With a life insurance contract, which of the contracting parties makes an enforceable promise?
The insurer
Which of the following statements regarding direct-writing companies is NOT true? A) The insurer owns all of the business that is produced. B) Producers are considered employees. C) Employees are paid a salary, commission, or both to sell the company's insurance products. D) The producer owns the book of business.
The producer owns the book of business.
Which of the following statements regarding exclusive agents is NOT true? XO A) Exclusive agents represent the insurer. VO B) Exclusive agents represent the insured. C) Exclusive agents represent only 1 company. D) Exclusive agents are usually compensated
VO B) Exclusive agents represent the insured.
An agent that represents only 1 insurance company is
a captive agent
The license an insurer usually needs to sell insurance in a state is called
a certificate of authority
An insurance company that is owned by its policyholders, who share in the company's profits in the form of dividends, is known as
a mutual insurance company
A contract in which one party may receive considerably more in value than the other party is
an aleatory contract
An insurance company formed under the laws of any country other than the United States would be considered
an alien insurance company
An agent that represents only 1 insurance company is known as
an exclusive or captive agent
All of the following are distribution systems EXCEPT A) claims handling B) direct response C) independent agencies D) direct writing
claims handling
When important and material facts are hidden by an insured on an application, this is known as
concealment
Direct response marketing is
conducted through ads in the mail, in magazines, and on the internet
With regard to insurance, consideration means
directly giving something of value
When Harry sells his car to his brother, Nate, he transfers his auto insurance policy to him as well. Harry's insurer will
disallow the process because auto insurance is a personal contract
Which of the following statements about Lloyd's of London is NOT correct?
is an insurance carrier that underwrites insurance.
time. This explains why one of the characteristics of an insurable risk is that the risk be Certain perils, like war, are usually excluded from most insurance policies because they have the potential to adversely affect large numbers of insureds at the same
noncatastrophic
A mutual insurance company is an incorporated entity owned by its
policyowners
Self-insurance is
practiced by organizations that establish reserves to protect themselves against loss
Statements made on an application regarding the applicant's medical history or health that require a medical opinion to be confirmed are called
representations
Making appropriate product recommendations based on the needs, objectives, and circumstances of a client is referred to as
suitability considerations
The law of large numbers states that
the larger the number of risks combined into 1 group, the less uncertainty there will be as to the amount of loss that will be incurred
The law of large numbers states that
the larger the number of risks combined into 1 group, the less uncertainty there will be as to the amount that be incurred
With life, accident, and health insurance, an insured's oral misrepresentation or false warranty will NOT void a policy unless
there was intent to deceive or it materially affects the insurer's decision to accept the risk
A contract agreement between a ceding insurer and reinsurer to underwrite certain classes of risks is known as
treaty reinsurance
With regard to insurance, risk can be defined as
uncertainty regarding loss
A life insurance company is incorporated under the laws of the state of Michigan and maintains its home office in Detroit. The company would be considered
a domestic company
An insurance company that is owned by its policyowners, who share the insurer's divisible surplus in the form of participating policy dividends, is known as
a mutual insurance company
An insurance company that is owned by its policyowners is known as
a mutual life insurance company
A life insurance policy is all of the following EXCEPT
a personal contract
An insurer of an insurer is known as
a reinsurer
If an agent fails to perform an act required by a policy, the insurer
is still required to fulfill its obligation
Daniel owns an insurance agency in a small town and represents just 1 insurer. He wears apparel with the company logo, has the company name on his vehicle, and hands out merchandise with the company's name imprinted on it. What type of authority does this represent?
Apparent
An insurance contract is prepared by one party, the insurer, rather than through negotiation between the contracting parties. Which of the following statements explains this characteristic of insurance contracts?
The insurance contract is a contract of adhesion.
Purchasing insurance is an example of
transferring risk
Jamir is an agent for Assured Insurance. He visits Ada, a prospect, in her home. He arrives with business cards, sample policies from Assured, and an Assured rate book. He recommends Assured policies that can meet Ada's needs for insurance. Which of the following terms describes the kind of authority that Jamir has in this situation?
Apparent
Which of the following insurance companies is owned by its policyholders?
Mutual life insurance company
Which of the following is NOT a type of agent authority?
Obvious
Jessica saw an advertisement in the local newspaper for a new type of health insurance policy offered by Protective Insurers, Inc. She noticed that Protective Insurers was also selling these policies through vending machines. Protective Insurers would be considered what type of insurer?
A) A direct response writer
Bonita's written contract with the insurance company she represents specifically addresses issues such as her duties in collecting premium payments. This is an example of
A) express authority
The type of risk that involves the chance of both loss and gain is
A) speculative risk
The fact that an insurance contract promises to pay benefits contingent on a future uncertainty (such as death or illness) makes it what type of contract?
B) Conditional
Which of the following is a distinctive feature of fraternal life insurance?
Some policies are referred to as open contracts.
An insurance company that is owned by its policyholders, who share the insurer's divisible surplus in the form of participating policy dividends, is known as a
a mutual insurance company
An insurance company that holds a certificate of authority in a state may be known as any of the following EXCEPT
accepted
The premium for transferring a risk should be
affordable
In the direct-selling marketing system, insurance can be sold to the public through all of the following methods EXCEPT
agents
Susan is the receptionist at an insurance agency. She is currently studying for her life insurance license. One day at lunchtime, Carla comes in the office to pay her auto Insurance premium. Susan talks to her about the importance of life insurance, and Carla immediately completes an application and gives Susan a check for the premium. Carla leaves the agency believing she is covered by life insurance. Susan has acted with
apparent authority
Funds held by an insurance producer in a fiduciary capacity
cannot be converted to an individual's or a firm's own use
A nonprofit organization with a representative form government and an elected officer that sells life insurance only to its members would be considered
fraternal benefit society
In insurance,
the insurer is the principal and the producer is the agent
When negotiating a contract of insurance, the parties make no attempt to conceal or disguise important facts deceive each other. The contact is said to be one of
utmost good faith