Quiz: General Insurance Concepts

What are characteristics of insurance risk?

• The loss exposure must be large. • The loss must be due to chance. • The loss must be measurable. • The loss must not catastrophic.

Implied Authority

Authority that is not expressed or written into the contract, but which the agent is assumed to have in order to transact the business of insurance for the principal.

If an insurer meets the states financial requirements and is approved to transact business in the state, it is considered to be?

Authorized

What term best describes the active withholding material information that would be crucial to an underwriting decision?

Concealment Concealment occurs when a person withholds a material fact that is crucial to making a decision. In insurance, this involves withholding information that would be important for making underwriting decisions.

Untrue statements on the application unintentionally made by insurance, that if discover, would alter the underwriting decision of the insurance company are called?

Material misrepresentations A material misrepresentation is a statement that, if discovered, would alter the underwriting decision of the insurance company.

A tornado that destroys property would be an example of which of the following? a) A loss b) Physical hazard c) Peril d) Pure risk

Peril A peril is the cause of loss insured against in an insurance policy.

What is a producers fiduciary duty?

The trust that a client places in the producer in regard to handling premiums. An agent acts in a fiduciary capacity, based upon trust and confidence, when handling the financial affairs of their customers, including the handling of premiums

In forming an insurance contract, when does acceptance usually occur?

When an insurer's underwriter approves coverage

Which of the following is an example of a producer's fiduciary duty? a) The trust a client places in the producer in regard to handling premiums. b) An obligation to state every known fact about the policy the producer is selling. c) a duty to base all transactions upon the principle of Utmost Good Faith. d) The obligation to tell the truth to the best of one's knowledge.

a) The trust a client places in the producer in regard to handling premiums.

What do you call the company that issues an insurance policy

Insurer

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

Alien An insurer formed under the laws of another country.

Commingling is the practice of..

A producer, who fails to separate premium monies from his own personal funds, is guilty of commingling.

What is another term for authorized insurer?

Admitted/authorized Insurers who meet the states financial requirements and are approved to transact business in the state are considered authorized or admitted into the state as a legal insurer.

An Insurance producer, not appointed by an insurer and his team to represent the client is known as?

Broker

To legally transact insurance in this state, what must an insurer obtain?

Certificate of Authority This is required in order to transact insurance.

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

Concealment Knowingly withholding information on an Insurance application.

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? a) Consideration b) Good faith c) Representation d) Adhesion

Consideration The binding force in any contract is consideration. Consideration on the part of the insured is the payment of premiums and a health representation made in the application. Consideration on the part of the insurer is the promise to pay in the event of loss.

Insurance is the transfer of risk of loss, true or false?

True

What do you call a person applying for insurance?

Applicant or proposed insured

A mutual interchange of rights and privileges

Reciprocity/Reciprocal

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

Alien insurer Alien insurer is defined as an insurer formed under the laws of another country.

A contract between a policy owner, and or insured and an insurance company which agrees to pay the insured or the beneficiary for loss caused by specific events is known as what?

An Insurance policy

What type of agent authority is also called perceived authority?

Apparent authority The appearance or assumption of authority, based on the actions, words, or deeds of the principal or because of the circumstances the principal create.

Which method of risk management describes someone who decides not to drive in a car as a way to never be involved in a car accident?

Avoidance This is a method of risk management, by which a person tries to eliminate risk of loss by avoiding any exposure to an event that could ever give rise to such loss. Risk avoidance is effective, but seldom practical.

Name the 5 risk managements.

Avoidance Retention Reduction Sharing Transfer

The practice were agents do not commingled funds with their own money is called?

Fiduciary responsibility

An insurance company is domiciled in Montana and transacts insurance in Wyoming. Which term best describes the insurer's classification in Wyoming?

Foreign

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 The principle of indemnity stipulates that the insured can only collect for the amount of the loss even if the policy is written with greater benefit limits.

The purpose of the insurance is to restore the insured to the same position as before the loss. What is the term used to describe this?

Indemnity/indemnify

All of the following actions by a person could be described as risk, avoidance, except? a) investing in the stock market b) refusing to scuba dive c) never flying in an airplane d) not driving after being in an accident

Investing in the stock market It creates a possibility of a loss

What is the term used to describe the following: The larger the number of people, with a similar exposure to loss, the more predictable, an actual last will be?

Law of large numbers

An individuals tendency to be dishonest, would be indicated of what type of hazard?

Moral hazard An applicant that is dishonest in completing an application for insurance, or submitting fraudulent claims, would be deemed a moral hazard, and could be uninsurable from an underwriting standpoint .

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.

What are pure risks?

Pure risks involve the possibility or probability of loss with no chance for gain. Pure risks are generally insurable.

What are speculative risks?

Speculative risk involve uncertainty as to whether the final outcome will be gain or loss. Speculative risks are generally uninsurable.

A person who receives the benefits of an insurance policy is known as?

The Beneficiary

What is a peril?

The cause of loss insured against in an insurance policy

Which of the following is not a characteristic of an insurable risk? a) The loss of exposure must be large b) The loss must be catastrophic c) The loss must be due to chance d) The loss must be measurable

The loss must be catastrophic

What is a premium?

The money paid to the insurance company for the insurance policy

The person entitled to exercise. The rights and privileges in a policy is known as?

The policy owner

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

Transfer Insurance is a transfer of the risk of financial loss from a covered peril from the insured to the insurance company.