Principles of Insurance and General Insurance

What are the five characteristics of an ideally insurable risk ?

1 ) Due to chance ; 2 ) Definite and measurable ; 3 ) Statistically predictable ; 4 ) Not catastrophic ; and 5 ) Randomly selected

What is consideration on the part of the insurer ?

A promise to pay in the event of a loss

What does the term unilateral contract mean ?

A unilateral contract is a one - sided contract . This means only one party makes an enforceable promise .

According to the Law of Agency , who represents the principal ?

Agent or producer

What are the four elements of an insurance contract ?

Agreement ( offer and acceptance ) , consideration , competent parties and legal purpose

When transacting business in this state an insurer formed under the laws of another country is known as a/an

Alien insurer An alien insurer is an insurance company that is incorporated outside the US.

What is a warranty in an insurance contract ?

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

What is a foreign insurer?

An insurer with a home office in another state A domestic insurer's home office is in this state, a foreign insurer's is in another state, and an alien insurer's is in another country.

What type of authority is based on the agent's actions , or words ?

Apparent

Which of the following types of agent authority is also called "perceived authority"?

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.

If an insurer holds a Certificate of Authority , it is known as what type of insurer ?

Authorized or admitted

What are the methods of managing risk ?

Avoidance , transfer , sharing , retention , and reduction

What does the term reasonable expectations mean in insurance ?

Certain expectations for coverage that a reasonable person would have based on sources other than just the policy language

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

Certificate of Authority

An applicant knowingly fails to communicate information that would help an underwriter make a sound decision regarding coverage. This is an example of

Concealment In insurance, concealment is the withholding of information that will result in an imprecise underwriting decision.

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?

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.

What is consideration in an insurance contract ?

Consideration is something of value that each party gives to the other . Consideration on the part of the insurer is binding .

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 Insurance policies are written by the insurer and submitted to the insured on a take- it-or-leave-it basis. The insured does not have any input into the contract, but simply adheres to the contract.

Which of the following is NOT an essential element of an insurance contract? A) Legal purpose B) Counteroffer C) Consideration D) Agreement

Counteroffer In order for insurance contracts to be legally binding, they must have four essential elements: agreement (offer and acceptance), consideration, competent parties, and legal purpose. Counteroffer is not required.

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

Domestic, foreign, and alien

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

Exchange of unequal values An aleatory contract is a contract in which unequal amounts or values are exchanged. The amount of premium the insured pays is much less than the potential loss assumed by the insurer.

What are the three types of agent authority ?

Express, implied and apparent

The requirement that agents not commingle insurance monies with their own funds is known as

Fiduciary responsibility. Money collected with respect to an insurance transaction must be held in a position of trust by the agent or broker.

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

Foreign

What insurance concept is associated with the names Weiss and Fitch?

Guides describing company financial integrity Because an insurance company's strength and stability are two very crucial factors in its sustainability, independent rating services have formed to publish regular updates on the financial integrity of different insurance companies. Weiss and Fitch are two of these services, although there are more.

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

Hazards

What provision states that if a policy allows for greater benefits than the financial loss incurred , the insured may be compensated only for the amount lost ?

Indemnity

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

Insurance

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

Insurer

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

Is not honest about his health on an application for insurance. Moral hazards refer to those applicants that may lie on an application for insurance, or in the past, have submitted fraudulent claims against an insurer.

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

Loss Claims result from losses by a peril insured against in an insurance policy.

On a participating insurance policy issued by a 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. With participating policies, policyowners are entitled to dividends, which, in the case of mutual companies, are nontaxable because they are considered a return of excess premiums.

A tornado that destroys a property would be an example of what ?

Peril

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

Peril

What are the three types of hazards ?

Physical , moral and morale

What is the term for the entity that an agent represents regarding contractual agreements with third parties?

Principal An agent represents the principal, acting on the entity's behalf in contractual agreements with third parties.

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

Pure risk

Which type of insurance is based on mutual agreements among subscribers?

Reciprocal insurance Reciprocals are insurance companies made up of subscribers, who are collectively known as a Reciprocal Insurance Company or Exchange. These types of companies are administered by an appointed Attorney in Fact.

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

Reduction Since we usually cannot avoid risk entirely, we often attempt to lessen the possibility or severity of a loss. Reduction would include actions such as installing smoke detectors in our homes, having an annual physical to detect health problems early, or perhaps making a change in our lifestyles.

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

Speculative

Which of the following insurers are owned by stockholders?

Stock Only stock insurance companies are owned and controlled by stockholders.

What does indemnify mean in insurance ?

To restore an insured to the same financial status as before a loss

What is a risk?

Uncertainty of a loss

Insurance contracts are aleatory in nature . What does that mean ?

Unequal values are exchanged between the parties to a contract

An insurance company receives an application with some information missing and issues the policy anyway. What is this called?

Waiver In insurance policies, a waiver is giving up one's known right or privilege.

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

When it is intentional and material

In insurance contracts , when is the offer usually made ?

When the insurance application is submitted

In insurance contracts , when does acceptance usually occur ?

When the insurer approves a prepaid application