Life Insurance
According to the Code, how many separate requirements should an insurance policy have?
6
Which of the following best defines an insurance policy?
A contract between an insured and an insurer that guarantees payment for loss caused by a specific event
The legal definition of "person" would NOT include which of the following?
A family
A tornado that destroys property would be an example of which of the following?
A peril
A contract between an insured and an insurance company which agrees to pay the insured for loss caused by specific events is
A policy
The protection of the insurer from adverse selection is provided in part by
A profitable distribution of exposures
Which of the following best describes a misrepresentation?
A statement intended to distract, mislead, or deceive a party to a contract
An insured pays a $100 premium every month for his insurance coverage, yet the insurer promises to pay $10,000 for a covered loss. What characteristic of an insurance contract does this describe?
Aleatory
In insurance, an offer is usually made when
An applicant submits an application to the insurer
All of the following are insurable events as defined in the Insurance Code EXCEPT
An insured loses a large sum in a poker game
Which of the following would qualify as an implied warranty in an insurance contract?
An oral representation by the applicant
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 by not exposing oneself to that activity is called
Avoidance
If a loss occurs, insurance policies pay the proceeds to
Beneficiary
The violation of a material warranty or other material provision of a policy allows
Both the insurer and the insured to rescind
When both parties to a contract must perform certain duties and follow rules of conduct to make the contract enforceable, the contract is
Conditional
Because an insurance policy is a contract between the insurer and the insured, it must conform to the state laws governing contracts which require all of the following elements EXCEPT
Conditions
Contracts that are prepared by one party and submitted to the other party on a take it or leave it basis are classified as
Contracts of adhesion
Which of the following best describes the policy nonrenewal?
Discontinuance of an insurance policy by the insured on the policy anniversary date
Which of the following is considered to be a morale hazard?
Driving recklessly
Which of the following best describes the aleatory nature of an insurance contract?
Exchange of unequal values
A set of legal regulatory conditions that affect an insurer's ability to collect premiums commensurate with the level of risk incurred would be considered a (n):
Legal Hazard
An insured stated on her application for the life insurance that she had never had a heart attack, when in fact she had a series of minor heart attacks last year for which she sought medical attention. Which of the following will explain the reason a death benefit claim is denied?
Material misrepresentation
An individual's tendency to be dishonest would be indicative of a
Moral Hazard
What other term is used to refer to unintentional torts?
Negligence
What is the definition of a unilateral contract?
One-sided: only one party makes an enforceable promise
During the grace period, the policyowner can
Pay a late premium without penalty
To achieve the profitable distribution of exposures,
Preferred risks and poor risks are balanced, with average risks in the middle
Profitable distribution of exposures serves the purpose of
Protecting the insurer against adverse selection
A situation in which a person can only lose or have no change represents
Pure risk
The risk loss may be classified as
Pure risk and speculative risk
Which of the following factors is NOT considered by an underwriter when determining the premium rates for an individual seeking insurance?
Race
The price of insurance for each exposure unit is known as
Rate
Following a career change, an insured is no longer required to perform 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?
Reduction
Installing deadbolt locks on the doors of a home is an example of which method of handling risk?
Reduction
Insurance is the transfer of
Risk
Adverse selection is a concept best described as
Risks with higher probability of loss seeking insurance more often than other risks
In terms of parties to contract , which of the following does NOT describe a competent party?
The person must have at least completed secondary education
For the purpose of insurance, risk is defined as
The uncertainty or chance of loss
Which of the following is the best reason to purchase life insurance rather than annuities?
To create an estate
Which of the following is NOT a goal of risk retention?
To minimize the insured's level of liability in the event of loss
What is a wrongful act or the violation of someone's rights that leads to legal liability called?
Tort
Hazards
are conditions or situations that increase the probability of an insured loss occurring.
Physical hazards
are individual characteristics that increase the chances of the cause of loss. Due to physical condition, past medical history, or a condition at birth, such as blindness.
Moral hazards
are tendencies towards increased risk. Refers to applicants who may lie on an application for insurance.
Speculative Risk
involves the opportunity for either loss or gain. They are NOT insurable. EX: gambling
Life Insurance
is a coverage upon a person's life, and granting, purchasing or disposing of annuities.
Broker
is an insurance producer not appointed by the insurer and represents the client
Policyowner
is the person who is entitled to exercise the rights and privileges in the policy and who may or may not be insured.
Beneficiary
is the person who receives the benefits from the policy of insurance.
In addition to penalties, fines and possible imprisonment for violating the provision relating to misrepresentation, the Commissioner may suspend the license of such a person for a period up to
3 years
A person caught violating provisions regarding misrepresentations could be subject to
A fine up to $25,000
What is a material misrepresentation?
A statement by the applicant that, upon discovery, would affect the underwriting decision of the insurance company
Insurance policy is
A written instrument in which a contract of insurance is set forth
Insurance policies are not drawn up through negotiations, and an insured has little to say about its provisions. What contract characteristics does this describe?
Adhesion
Which of the following would be covered by contract law?
An insured suing the insurer for failure to provide promised benefits
Which of the following is a term for a person who seeks insurance from an insurer?
Applicant
Representations are written or oral statements made by the applicant which
Are considered true to the best of the applicant's knowledge
If found material for underwriting, a misrepresentation
Can void a contract
The act of revoking or terminating an insurance policy is called
Cancellation
What term best describes the act of withholding material information that would be crucial to an underwriting decision?
Concealment
When an insured makes truthful statements on the application for insurance and pays the required premium, it is known as which of the following?
Consideration
Events or conditions that increase the chances of an insured loss occurring are referred to as
Hazards
Units with the same or similar exposure to loss are referred to as
Homogeneous
When would a misrepresentation on the insurance application be considered fraud?
If it is intentional material
The key factor of representation that allows the injured party to rescind the contract is
If the representation is false in a material point
Which insurance principle states that if a policy allows for greater compensation than the financial loss incurred, the insured may only receive benefits for the amount lost?
Indemnity
A contract which one party undertakes to indemnify another against loss is called
Insurance
What do individuals use to transfer their risk of loss to a larger group?
Insurance
All of the following actions by a person could be described as risk avoidance EXCEPT
Investing in the stock market
The insurer may suspect that a moral hazard exists if the policyholder
Is not honest about his health on an application for insurance
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 law is the foundation of the statistical prediction of loss upon which rates for insurance are calculated?
Law of large numbers
Kayla's husband died in a plane crash. She needs a new source of funding that will help put her child through daycare. Which of the following would be the best source?
Life insurance proceeds
Which of the following is NOT true regarding the needs approach method of determining the value of an individual's life?
Need is predicted using the number of years until the insured's retirement
When may a representation be withdrawn?
Prior to the insurance policy
What describes a situation when poor risks are balanced with preferred risks, and average risks are in the middle?
Profitable distribution of exposures
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
An intentional or unintentional concealment entitles the affected party to which of the following?
Rescission of a contract
In case of a loss, the indemnity provision in insurance policies
Restores an insured person to the same financial state as before the loss
Hazard is best defined as
Something that increases the risk of loss
Events in which a person has both the chance of winning or losing are classified as
Speculative Risk
All of the following are reasons an insurer or an insured would have the right to rescind a policy EXCEPT
The amount of paid claims exceeds the premiums paid
Which of the following would qualify as a competent party in an insurance contract ?
The applicant has prior felony conviction
Which of the following is NOT a consideration in a policy?
The application given to a prospective insured
The title page of the policy provides a summary of the benefits and coverages provided by the policy. All of the following information is included in the title page EXCEPT
The insured's beneficiary
Which of the following does NOT need to be identified in an insurance policy?
The insurer's financial rating
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
The loss may be intentional
When an individual purchases insurance, what risk management technique is he or she practicing?
Transfer
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
Which of the following would be least likely to be considered a legitimate need that would be paid by insurance proceeds?
Vacation travel expenses
If an applicant for a life insurance policy and person to be insured by the policy are two different people, the underwriter would be concerned about
Whether an insurable interest exists between the individuals
Perils
are the causes of loss insured against in an insurance policy. Life Insurance = Financial loss caused by the premature death of the insured Health Insurance = Medical expenses and/or loss of income caused by the insured's sickness or accidental injury. Property Insurance = Loss of physical property or the loss of its income-producing abilities. Casualty Insurance = Loss and/or damage of property and resulting liabilities.
Morale hazards
arise from the state of mind that causes indifference
Insurance Policy
is a contract between policy owner (and/or insured) and an insurance company which agrees to pay the insured or the beneficiary for loss caused by specific events.
Insurance
is a contract whereby one undertakes to indemnify another against loss, damage, or liability arising from a contingent or unknown event. It is a transfer of risk of loss from an individual or a business entity to an insurance company, which spreads the costs of unexpected losses to many individuals.
Agent
is a person who acts for another person or entity with regard to contractual arrangements with third parties. Agents of the insurer.
Pure Risk
is a situation that can only result in a loss or no change where there is no opportunity for financial gain. The ONLY type of risk that insurance companies are willing to accept.