Insurance chapter 1

Investigative consumer reports cannot be performed unless the consumer has been notified in writing of the report within ______ day(s) of when the report was initially requested.

3

With regard to an investigative consumer report, consumers must be informed that they have the right to request additional information about the report; such information must be provided to consumers within ____ day(s) if requested.

5 days

The information on a person's credit report is cleared after how many years?

7 years

Adverse selection is characterized by:

A sick person purchasing health insurance.

A nonparticipating insurer is:

A stock insurer

All of the following policies and contracts are typically covered by state insurance guaranty associations, EXCEPT:

A whole life insurance policy issued by a mutual insurer. A term life insurance policy issued by a stock insurer. An individually-owned annuity *A universal life insurance policy issued by a fraternal benefit society

ABC Insurer transfers risk to DEF Insurer. ABC Insurer decides to transfer some other risks to LMO Insurer. When ABC Insurer needs to submit a claim on risks that were reinsured to DEF Insurer, which insurer(s) pays the claims?

ABC and DEF insurers

Mathematicians who analyze statistical risk information for insurance companies are called:

Actuaries

Is the tendency for poorer than average risks to seek out insurance. Insurers must seek to minimize adverse selection.

Adverse Selection

The Fair Credit Reporting Act states that generally, consumer reports cannot contain the following information, EXCEPT

Adverse information about an individual that dates back over seven years.Tax liens older than seven years. An individual's criminal history *An individual's character

The purpose of the Gramm-Leach-Bliley Act is to:

Allow financial entities to merge and accommodate greater competition

Defamation occurs when:

An individual or entity makes false, derogatory statements about an insurer's financial condition that are calculated to injure the insurer's business

Bob has a second mortgage with XYZ bank, and Shirley has one checking and two savings accounts with ABC bank. Shirley decides to cash one of her paychecks at XYZ bank because she doesn't have time to stop at her bank. Which of the following is true under the Gramm-Leach-Bliley Act?

Bob is a customer of XYZ bank and Shirley is a consumer of XYZ bank.

A person who is guilty of a fraudulent act may be subject to the following penalties:

Civil fine up to $50,000 and imprisonment up to 10 years

The term describing the insured's notification to the insurer requesting payment for a covered loss is:

Claim

Risk pooling is best described by which of the following?

Combining similar losses from many people so the average loss over the entire group remains relatively constant

Judith is injured in a car accident. She incurs a covered loss of $50,000. She is required to pay $3,000 before the insurer will cover 80% of the covered loss. Which of the following terms best describes the $3,000 Judith must pay?

Deductible

All of the following correctly describe risk pooling:

Each member of the group shares in the losses of the group and is promised a future benefit. Risk pooling allows a large number of people to be insured for a small amount of money. Risk pooling transfers risk from an individual to a group.

What governmental agency operates the Fair Credit Reporting Act?

Federal Trade Commission

Which of the following statements best describes the taxation of insurance issued by fraternals?

Fraternals are exempt from federal income tax and state premium tax.

Service providers provide prepaid health care plans and;

HMOs are included in these providers. PPOs are included in these providers. Members are called subscribers.

Noncommercial organizations offer strictly:

Health insurance

Compensates the beneficiaries of the policy for their actual economic losses up to the limiting amount of the insurance policy "to make whole". For health insurance the policy agrees to indemnify the insured for accidents, illness or disability.

Indemnity insurance

According to the Fair Credit Reporting Act, consumer reports can have which of the following information?

Information concerning an individual's character

The law of large numbers and spreading the uncertainty of loss over a large number of people is:

Insurance

Which of the following correctly identifies the two types of reports insurance underwriters use to obtain credit information about an applicant?

Investigative consumer reports and consumer reports

JKL Insurer transfers risk to PQR Insurer. JKL Insurer transfers some other risks to GHI Insurer. When JKL Insurer has a loss on risks transferred to both PQR and GHI Insurers, which insurer(s) pays the claims?

JKL, PQR, and GHI Insurers

What are the two distinct characteristics that distinguish mutual insurers from stock insurers?

Mutual insurers lack capital stock and profits are distributed among the members.

Presented with a completed claim form, an insurer wrote to the insured claimant requesting a preliminary claim report from the physician. Upon receipt of that report, the insurer required the subsequent submission of a proof-of-loss form. Was this insurer acting within its legal and ethical rights?

No, the two forms provide the same information. This is a delaying action and thus illegal.

The consideration Walter pays for his insurance coverage is called the:

Premium

Which of the following is the consideration an insured pays for insurance coverage?

Premium

Risk pooling is characterized by:

Similar and independent risks grouped together, and spreading risk over a large number of people

Reinsurance is defined as:

Spreading risk from one insurer to another

Who is subject to the provisions of the Fraud and False Statements Act?

State Insurance Commissioners Insurance companies Agents

Which of the following insurers pays dividends?

Stock and mutual companies

PQR only sells accident and health insurance policies, covering hospital, medical and surgical costs. PQR operates on a not-for-profit basis. Based on the information provided, PQR Insurer CANNOT be a:

Stock insurer

What consequences does an insurer's or producer's use of unfair marketing or unfair claims habits have for the company or agent?

The State Commissioner of Insurance can issue a cease and desist order.

Don, an insurance agent, told a member of his church who had recently experienced several personal and financial losses that he could see that she got a more favorable rate on her insurance policies than her health and general circumstances would warrant. The woman had been his kindergarten teacher and was a pillar in the community's life. He wanted to help her. Which of the following is FALSE?

The agent is compassionate. The agent was engaging in unfair discrimination. The agent is breaking the law. *the agent is involved in twisting is false

Which of the following correctly identifies the most important principle(s) of insurance?

The law of large numbers, risk pooling and insurable interest.

When an insurer requests an investigative consumer report on an applicant, which of the following is true?

The report includes information regarding the applicant's general reputation and personal characteristics.

Actuaries do all of these things:

They analyze exposure units. They are mathematicians. They analyze risk data.

Fraternal benefit societies are described by all of the following;

They provide insurance to their members. They can be religion-based. They include ethnic or charitable organizations.

The Unfair Trade Practices Act is divided into which two parts?

Unfair Marketing practices and Unfair Claims practices.

With respect to life and health insurance guaranty associations, what are agents prohibited from doing?

Using the existence of the life and health guaranty association as an inducement to selling an insurance contract

An agent is guilty of committing fraud. What must the person obtain in order to transact insurance?

Waiver of consent from the state insurance department

When must the two disclosures pertaining to the Gramm-Leach-Bliley Act be made?

When the consumer relationship is established; and after disclosure of protected information

Dividends paid out from mutual insurers are considered;

a non-taxable return of overcharged premium. Since mutual insurers issue dividends to their policyholders, they are referred to as participating insurers.

Credit insurance protects against the risk that;

a person in debt, termed debtor, cannot repay the debt to the creditor because of accident, sickness, disability or death. Credit life and credit health insurance cover these risks.

Requirements of selling variable products are;

a securities license and a life insurance producer license.

An insurer that conducts business in a country in which it wasn't incorporated.

alien insurer

The insurer that gives the risk to the reinsurer is termed the:

ceding company or primary insurer

The practice of using misrepresentation to induce a policyholder to replace a policy issued by the insurer the producer represents is called:

churning

An insurer that conducts business in the state it was incorporated is a

domestic insurer.

Stock insurers, also referred to as capital stock insurers, are

incorporated commercial companies owned by their stockholders. Stock insurers have a capital fund, surplus and reserves that are financially supported by their stockholders.

Casualty insurance protects against the risk of;

legal liability for injury, death, disability, damage and destruction of property.

Judith's health insurance will pay a maximum of $3 million for all of her claims. Which of the following terms best describes this policy feature?

limit of liability

The total amount an insurer will pay for an insured risk is the definition of:

limit of liability

Annuities protect against the risk of;

living longer than expected. Annuities provide a guaranteed life income to protect against the risk of depleting retirement funds.

BlueShield pays:

medical and surgical costs

Medicare is part of the Social Security program, and provides;

medical benefits to qualifying people age 65 and older.

HMOs provide the

medical care and finances required to fund health care services. Subscribers obtain medical care through hospitals and physicians that have contracted with the HMO.

Mutual companies pay dividends to which of the following in order to return overcharged premiums?

policyholders

Fraternal benefit societies, also known as fraternal insurers or simply fraternals, are; special types of mutual insurers/nonprofit religious, ethnic or charitable organizations that provide insurance exclusively to their members.

special types of mutual insurers/nonprofit religious, ethnic or charitable organizations that provide insurance exclusively to their members (exempt from federal income tax and state premium tax because they are categorized as charitable organizations).

In a conversation with an older family friend, an insurance agent, Sly, inquired with what company she had a Medicare supplement policy. When she told him, the agent was silent. Concerned by his silence, the woman asked if the company was a reliable company. The producer asked, "Have you received any financial statements regarding their solvency?" This producer was:

the agent is involved in defamation

Dividends paid out from stock insurers are simply;

the profits experienced by the company.

Which of the following best describes loss?

the unintentional decrease in the value of an asset.

Agents must inform applicants that a credit report may be performed:

upon application

Variable insurance is comprised of;

variable life and variable annuities.

Jones applies for a life insurance policy. The insurer will need to view Jones' credit report to determine his credit-worthiness, and if he is a good risk to insure. When must the insurance company inform Jones of his rights under the Fair Credit Reporting Act?

when he completes the application

Mutual insurers are distinct from stock insurers in two primary ways:

1. They lack capital stock, and 2. Profits are distributed among their members - the policyholders.

All of the following may not be included in a consumer report, unless the consumer credit report is requested for a life insurance policy with a face amount of $150,000 or more, EXCEPT:

Civil suits and judgments dating back more than seven years Bankruptcies dating back more than 10 years.Tax liens dating back more than seven years *Adverse information dating back more than three years

Which of the following correctly describes the law of large numbers?

It states that as a group's size increases, it is easier to predict the number of future losses over a specific time period.

In the underwriting of insurance policies, some amount of discrimination is:

Present in many cases, because of differing levels of risk

Is defined as spreading risk from one insurer to one or more other insurers.

Reinsurance

All of the following are providers of government insurance;

TRICARE, Medicaid, Social security, and Medicare

An insurer requests an investigative consumer report on an applicant. All of the following are true, EXCEPT:

The applicant can request further information about the report, which must be provided to the applicant within five business days. The applicant must be notified in writing about the report. The report includes information regarding the applicant's general reputation and personal characteristics. *The credit report includes information about the applicant's account balances.

Insurance is:

a transfer of of uncertainty of loss from the insured to the insurance company.

What term means the insured's demand for payment of benefits?

claim

Which type of insurer/organization is in the business of insurance to make a profit?

commercial

Mutual insurers are;

commercial companies owned by their policyholders. There are no stockholders.

Property insurance protects against the risk of;

damage and destruction to all types of property.

Transformation of a mutual insurer into a stock insurer is termed;

demutualization

Social Security, also known as OSADI (Old Age, Survivors' and Disability Insurance), provide;

disability income, survivor benefits and retirement benefits.

PPOs provide

discounted medical services to members. A group wishing to provide health care services to its members forms a PPO. The PPO receives a special discounted rate by using certain medical practitioners, hospitals and clinics. In exchange, the PPO will refer members to these medical professionals.

An insurer that conducts business in a state or district in which it wasn't incorporated.

foreign insurer

Transferring uncertainty of loss to the insurance company is the definition of:

insurance

Another term which means the same as insurance policy is:

insurance contract

Another term for insurance company is:

insurer

Variable insurance products invest premium dollars in securities, which carry;

more risk due to price fluctuations.

Transformation of a stock insurer into a mutual insurer is termed;

mutualization

The _________ is a small amount of money the insured pays to keep an insurance policy in force.

premium

Life insurance is designed to;

protect against the risk of premature death. The financial risks associated with premature death include: Final expenses, Burial, Funeral, Family and dependents' continued income, and Business income.

Health insurance is designed to;

protect against the severity of financial loss due to illness, disease, short or long-term disability, wages lost while ill or disabled, and medical expenses.

The purpose of social insurance is to;

provide protection against fundamental risks by redistributing income to help people who cannot afford to pay the cost of incurring such losses themselves. Government insurance also provides insurance protection for catastrophic risks that private insurers will not cover.

Authorized insurers, also referred to as admitted or licensed insurers, are insurers who have;

received a certificate of authority authorizing them to transact insurance in a particular state for a particular line or lines of insurance.

The insurer that accepts the additional risk is termed the;

reinsurer

Policies may also contain sub limits, termed inside limits, which:

restrict the dollar amount of certain coverages within a policy, such as a room and board limit of $200 per day.

Which of the following terms means risk is spread by sharing the possibility of loss over a large number of people?

risk pooling

Service providers, or noncommercial organizations, are not technically "insurers" and do not sell insurance. They are better described as;

service organizations that provide prepaid health plans for medical, surgical, and hospital expenses. Two types; HMOs- Health Maintenance Organizations PPOs- Preferred Provider Organizations.

A limit of liability is:

the total amount the insurer will pay for an insured risk; more often used in the property and casualty lines, but the concept is transferable to health insurance as the lifetime maximum benefits.

In life and health insurance, a person's greatest asset is:

their earning power

Medicaid provides health care;

to impoverished people.

What is the purpose of the Fair Credit Reporting Act?

to regulate the way credit information is collected and used.

Making a misleading statement to induce a person to lapse, surrender, or convert an insurance policy is known as:

twisting