Texas Insurance Laws
The federal government writes certain types of insurance for all of the following reasons EXCEPT to:
Answer: Reduce fraud Explanation: The federal government writes insurance to fill social needs (Medicare), promote economic development (terrorism) and to provide coverage for catastrophic events (flood). Unfortunately, many government insurance programs are rife with fraud.
A mortgage company may do all of the following EXCEPT:
Answer: Require you to buy insurance from them Explanation: A mortgage company may require that you buy insurance to cover a loan, but you can buy it wherever you want. To require that you buy it from them is coercion, an unfair trade practice.
If an insurer finds that the insured is guilty of material misrepresentation in connection with an auto insurance claim, they will most likely:
Answer: Send 10 days advance notice of cancellation Explanation: Insurers may cancel a Personal Auto Policy with only 10 days written notice to the named insured for non-payment of premium, submitting a fraudulent claim or the insured or a member of his household has had his driver's license suspended or revoked. Cancellation or non-renewal of a PAP for other reasons generally requires 30 days notice.
Which of the following is NOT a valid reason for an employer to elect to self insure for Workers Compensation:
Answer: Statutory benefits are minimal Explanation: Self insuring for Workers Compensation can be risky since the statutory benefits are significant. For example, an injured employee's medical bills are usually covered without either a time or dollar limit. Further, disability income benefits may continue for years.
The Commissioner shall approve a reasonable plan for the apportionment among authorized companies the applicants for auto insurance who are in good faith entitled to but are unable to procure insurance through ordinary means. This is known as:
Answer: The Texas Auto Insurance Plan Explanation: The Texas Auto Insurance Plan is the assigned risk pool for auto insurance. All authorized auto insurers must participate and they take turns writing coverage for high risk drivers.
An independent auto insurance agent's contract is terminated by the insurer he represents. How are his clients affected:
Answer: They may stay with the terminated agent and receive customary services Explanation: Independent insurance agents own their own accounts and may represent several insurance companies. If one of these insurers cancels the agent's contract, the agent may simply rewrite these accounts with another insurance company, with the client's approval.
All of the following are true about Surplus Lines insurers EXCEPT:
Answer: They sell mostly L&H insurance Explanation: Surplus Lines insurers are unregulated, so they are considered to be 'non-admitted' or 'unauthorized', since they are not required to obtain a Certificate of Authority from the state. They sell mostly P&C insurance, often either aviation or ocean marine coverages. Lloyds of London is the best known of many Surplus Lines insurers.
The maximum monetary penalty for an agent who violates an insurance law, rule or order is:
Answer: $25,000 Explanation: The Commissioner may impose a monetary penalty on a person who has violated the Texas Insurance Code not to exceed $25,000. The amount of the penalty will be based upon the seriousness of the violation and whether or not it was intentional.
Underinsured Motorists coverage limits, if written, must be at least:
Answer: $30,000/$60,000/$25,000 Explanation: Both Uninsured Motorist and Underinsured Motorist coverages are optional in this state, but if rejected, they must be rejected by the named insured in writing. If written, limits must be at least that which is required by law. Higher limits are available, but cannot be higher than the BI/PD limits carried by the named insured.
If an insured with a Personal Auto Policy has minimum limits, what is the most that their insurer will pay to others for injury and/or damage caused by the insured in an at-fault auto accident:
Answer: $85,000 Explanation: Required minimum auto limits in this state are $30/$60/$25, which means that if the accident is the insured's fault, his insurer will pay up to $30,000 for bodily injury to any one person, up to $60,000 for bodily injury to all persons injured in the same occurrence, and up to $25,000 for property damage as a result of a single occurrence. So, the most the insurer will pay in total for any one occurrence is $85,000.
An insurer must acknowledge receipt of a Notice of Claim within _____ days:
Answer: 10 Explanation: Under state Claims Methods and Practices laws, every insurer, upon receiving a notification of a claim shall, within 10 working days, acknowledge its receipt.
When canceling a commercial liability policy after 60 days, an insurer must give the first named insured:
Answer: 10 days advance written notice and a pro-rata refund Explanation: Not later than the 10th day before the date on which the cancellation of a liability policy takes effect, an insurer must deliver written notice of the cancellation to the first-named insured at the address shown in the policy, together with a pro-rata refund of the unearned premium.
Binders must be replaced by an original policy within ____ days:
Answer: 30 Explanation: Binders must be replaced by an original insurance policy for the required coverage on or before the 30th day after the date the binder was issued.
If an insurer wants to non-renew a Personal Auto Policy, they must give the insured ____ days advance written notice:
Answer: 30 Explanation: When non-renewing a Personal Auto Policy at its normal expiration date, insurers are required to send at least 30 days advance written notice to the named insured.
When non-renewing a commercial liability policy, the insurer must give ____ days advance written notice to the first named insured:
Answer: 60 Explanation: An insurer may refuse to renew a liability policy if it delivers written notice of the non-renewal to the first-named insured no later than the 60th day before the date on which the policy expires.
If an injury covered by Workers Compensation results in an employee's death, the insurer must pay a death benefit to the employee's legal beneficiary in the amount of ____% of the employee's average weekly wage:
Answer: 75 Explanation: If an injury covered by workers compensation results in an employee's death, the insurer must pay a death benefit to the employee's legal beneficiary in the amount of 75% of their average weekly wage. Burial expenses are also covered up to a maximum of $6,000.
You sell a Homeowner's policy. You may share your commission with:
Answer: Any licensed Property and Casualty agent Explanation: You cannot compensate an unlicensed agent or split commissions with agents unless they are also licensed for the same lines of insurance as you are.
Agents have immunity from lawsuits for reporting fraud to all of the following EXCEPT:
Answer: Claimant Explanation: State law protects agents from lawsuits when reporting fraud to the NAIC, the insurer or the State Department of Insurance. However, no such immunity exists when an agent accuses a claimant of fraud.
One of the main purposes of the Property and Casualty Guaranty Fund is to:
Answer: Cover claims of insolvent insurance companies Explanation: All authorized insurers must participate in the P&C Guaranty Fund to honor claims and unearned premium refunds of insolvent insurers in proportion to the amount of premiums written. There is a separate guaranty fund for L&H insurers.
An insurance company authorized to sell insurance in Texas, but with their home office in Illinois, is called a/an:
Answer: Foreign company Explanation: Domestic insurers have their home office in this state. Foreign are based in another state and alien are based in another country. For example, State Farm is domestic in Illinois, foreign in Texas and alien in Canada.
Regarding Claims Methods and Practices, all of the following are true EXCEPT:
Answer: Insurers cannot deny unsubstantiated claims Explanation: Insurers may deny 'unsubstantiated' claims, meaning that the insured failed to provide proper Proof of Loss, which is required by a condition in the policy. Although the insurer cannot require the insured to pay any of the cost of investigating, they can require that the insured pay the expenses involved in filing proper Proof of Loss.
Liquid monies kept by insurers in order to honor their future liabilities to policy holders are called:
Answer: Legal reserves Explanation: Insurers are required by law to maintain adequate legal reserves in order to pay future claims.
What type of insurance is unregulated by state law:
Answer: Ocean Marine Explanation: Ocean marine is one of the oldest types of insurance. Due to its risky nature, most ocean marine insurance is written by surplus lines companies, such as Lloyds of London. Surplus lines companies do not have to file their rates or policy forms, so are virtually unregulated. However, this type of insurance is not covered by the State Guaranty Fund for insolvency.
Who might receive dividends from a mutual insurer:
Answer: Policy Holders Explanation: A mutual insurer has no stock, and is owned by the policy holders. Since they may receive a dividend (not guaranteed), such policies are known as 'participating' policies. Dividends received by policy holders of a mutual insurer are not taxable.
All of the following are true regarding the federal Fair Credit Reporting Act EXCEPT:
Answer: Reports may be sent to anyone who requests one Explanation: Credit reports may only be ordered by those involved in insurance underwriting, bank loans or employment, so they cannot be ordered by just anyone. If adverse action is taken, an insurer must tell the insured which credit reporting agency furnished the report, but the insurer does not have to furnish a copy of it. If a report is wrong, there are procedures to get it corrected without the need of filing a lawsuit (litigation).
Rates for Workers Compensation are based upon an employer's past claims frequency as reflected in:
Answer: Their experience modification factor Explanation: Most Workers Compensation insurers are members of a rating bureau known as the National Council of Compensation Insurers or NCCI. The NCCI tracks each employer's claims frequency (not severity) each year and assigns them an experience modification factor. For example, if an employer has an experience modification factor of 1.25, their rates would be 25% higher than the manual rate.
If an insured with a Personal Auto Policy has minimum limits, what is the most that their insurer will pay to others for injury and/or damage caused by the insured in an at-fault auto accident:
Answer: $85,000 Explanation: Required minimum auto limits in this state are $30/$60/$25, which means that if the accident is the insured's fault, his insurer will pay up to $30,000 for bodily injury to any one person, up to $60,000 for bodily injury to all persons injured in the same occurrence, and up to $25,000 for property damage as a result of a single occurrence. So, the most the insurer will pay in total for any one occurrence is $85,000.
Except for non-payment of premium, insurers non-renewing commercial policies in this state must give _____days' advance notice to the first named insured:
Answer: 60 Explanation: 60 days notice must be given when canceling or non-renewing commercial lines, such as a CPP or BOP. Notice does not have to be sent to all named insureds, just the 1st named insured.
Which of the following indicates free competition is occurring:
Answer: There are substantial differences between rate levels of various insurers Explanation: Although most auto and HO policies contain similar coverages, rates may vary substantially between insurers due to the competitive nature of the marketplace and each insurer's claims and expense experience.
An independent auto insurance agent's contract is terminated by the insurer he represents. How are his clients affected:
Answer: They may stay with the terminated agent and receive customary services Explanation: Independent insurance agents own their own accounts and may represent several insurance companies. If one of these insurers cancels the agent's contract, the agent may simply rewrite these accounts with another insurance company, with the client's approval.
Which of the following are true regarding banks selling insurance in this state:
Answer: They must keep their banking and insurance operations separate and distinct Explanation: Banks may sell insurance in this state if properly licensed and they keep their banking and insurance operations separate and distinct from one another. Banks may sell any type of insurance and their licensing requirements are no different.
What company usually writes Surplus Lines coverage in Texas:
Answer: An unauthorized company Explanation: Generally, it is illegal for an unauthorized company to do business in this state. However, Surplus lines companies, like Lloyds of London, are exempt from obtaining a Certificate of Authority. They are considered unauthorized or non-admitted, but legally so.
A person who is in charge of supervision and the collection of premiums on behalf of a reciprocal insurer is known as a(n):
Answer: Attorney-in-Fact Explanation: Reciprocal insurers are unincorporated companies who sell insurance to 'subscribers', who insure each other in a reciprocal (or circular) manner by exchanging reciprocal agreements of indemnity. Reciprocals are managed by an Attorney-in-Fact, who is in charge of supervising the operation of the company and premium collections.
Regarding Workers' Compensation, a state that allows an employer to insure with the State Fund or a private carrier is:
Answer: Competitive Explanation: Texas offers employers a "competitive" method of complying with mandatory Workers' Compensation requirements. Employers may buy insurance from any authorized carrier, from the state compensation fund or they can self insure by posting a surety bond. Some states are "monopolistic," in that employers may buy coverage from the state fund only.
All of the following are true EXCEPT:
Answer: It is unlawful for a non-resident agent to sell insurance in this state Explanation: It is legal for agents who reside in another state to write insurance for residents of this state as long as they have a Texas Non-Resident insurance license.
When an insurer elects to base their rates on their underwriting experience rather than upon actuarial data, they are utilizing:
Answer: Judgment rating Explanation: In judgment rating, the rate charged is based upon the underwriter's past experience in rating similar risks. For risks that are difficult to price, or for risks for which no actuarial data is available, many experienced underwriters have a good idea what premium may be appropriate for a particular risk.
Defamation is:
Answer: Misstating financial condition Explanation: Defamation is making false or maliciously critical statements regarding the financial condition of any agent or insurer for the purpose of ruining their reputation. This is considered to be an unfair trade practice and is subject to major penalties.