Unit 1 Checkpoint
All the following statements regarding mutual insurers are correct EXCEPT A) a mutual insurer is owned by its policyholders B) a mutual insurer has stock and stockholders C) mutual insurers do not guarantee dividends D) mutual insurers pay dividends to policyholders
B) a mutual insurer has stock and stockholders Mutual insurers do not have stock or stocholders. Mutual insurers are owned by their policyholders, also knowns as policyholders.
At the state level, the governement is involved in A) providing flood insurance B) providing unemployment insurance C) providing federal crop insurance D) providing war risk insurance
B) providing unemployment insurance The state government is involved in providing unemployment insurance and may also provide workers' compensation through state funds. The federal governemnt provides flood, war risk, federal crop, aand nuclear energy liability insurance.
A fiduciary is A) a person in a position of financial trust B) another name for commingling C) a beneficiary D) an account for funds
A) a person in a position of financial trust Agents have a fiduciary responsibility to applicants, insured, and the insurance company.
ABC Insurance is licensed to sell in Wisconsin. When a company is licensed in a state, it is considered A) admitted B) approved C) unauthorized D) nonadmitted
A) admitted Licensed in the state is also known as authorized or admitted, and not licesned in the state or nonauthorized means the same as nonadmitted.
In an insurance contract, the second party is A) the insurer B) the underwriter C) the benefitary D) the insured
A) the insurer Insurance contracts have two parties: the first is the insured and the second is the insurer or insurance companies
According to the law of agency, the person on whose behalf the insurance agent is called upon A) the principal B) the insured C) the underwriter D) the agent
A) the principal In insurance, the insurer is the principal and the producer is the agent
All of the following are lements of insurable risks EXCEPT A) the risk must be catastrophic for the insurance company B) the risk must be noncatastrophic C) the premium must be calcuable D) the premium should be affordable
A) the risk must be catastrophic for the insurance company Remember the acronym CANHAM: calcuable, affordable, noncatrastrophic, homogenous, accidental, and measurable
Insurance is a contract that A) transfers the risk of financial loss from an individual to a business to an insurance company B) transfers the risk of financial loss from an insurance company to an individual or business C) eliminates all the risk for an individual D) eliminates all hazards for an individual
A) transfers the risk of financial loss from an individual to a business to an insurance company The purpose of insurance is to protect against losses cause by pure risk. This is accomplished through the insurance contract, which requires one party to pay a specified sum to another if a previously identified event occurs. For the cost of a premium, a person or entitiy can purchase protection offered by the insurance contract and transfer the risk to the insurer.
All of the following statments regarding suplus lines insurers are correct EXCEPT A) states keep a list of acceptable surplus lines insurers B) surplus lines insurance is place with an admitted carrier by a surplus lines agent C) surplus lines insurance covers high risk exposures D) surplus lines insurance is place with a nonadmitted carrier by a surplus lines agent
B) surplus lines insurance is place with an admitted carrier by a surplus lines agent Sometimes an individual or a business will have an exceptionally large or specilized risk that no authorized insurer can or will cover. In such cases, Insurance may be obtained from an inauthorized/nonadmitted insurer on a surplus lines basis. Surplus lines insurance is place with a nonadmitted carrier by a surplus lines agent or broker.
Which of the following represents a pure risk? A) Gambling at a casino B) Playing high stakes poker with friends C) A car accident A speculative risk has a change of loss or gain. A pure risk has a chance of loss only D) investing money in the stock market
C) A car accident A speculative risk has a change of loss or gain. A pure risk has a chance of loss only
ABC Insurance is headquartered in Wisconsin but doing business in Florida. While in Florida, ABC Insurance is classified as A) an alien insurer B) a nonresident insurer C) a foreign insurer D) an domestic insurer
C) a foreign insurer Depending on where an insurer is headquartered, it is classified as being domestic, foreign, or alien
Susan decides to drive fast in a horrible snowstorm because she knows that if she gets in an accident that her insurance will cover her. This is an example of A) a moral hazard B) a situational hazard C) a morale hazard D) a physical hazard
C) a morale hazard There are three types of hazards: physical-wet floor, fallen down tree, ice on sidewalk. morale-carelesness. and moral-dishonesty.
Jospehine sells insurance for one company and is an independent contractor, not an employee of the insurer. She is A) a general agent B) a captive agent C) an independent agent D) a direct writing agent
C) an independent agent Independent and captive agents sell insurance products for several companies; captive agents sell for only one company. Independent agents represent the insurer, not the insured. Brokers or consultants represent the insured.
A bulk mail insurance advertising brochure sent by the insurer to every home in one zip code is an example of A) personal advertising B) producer advertising C) direct response marketing D) agent marketing
C) direct response marketing Direct response marketing includes mail, newspaers, magazines, televeision, and the internet. There is no producer or agent involved and the insurance is sold directly to the public by the insurer
Which of the following levels of agent authority is a written agreement with the insurer? A) Assumed authority B) Implied authority C) Apparent authority D) Express authority
D) Express authority Express authority is a producer's written agency agreement with the insurer. Express authority is the specific wording in the contract that tells the producer what he can and cannot do.
If a house burns down in a fire, which of the following is the peril? A) The House is the peril. B) The insurer is the peril C) The insured is the peril D) The Fire is the peril.
D) The Fire is the peril. Peril is the cause of the loss
Which of the following risk management methods is used by insurance companies? A) Sharing B) Retention C) Reduction D) Transfer
D) Transfer Insurance transfers the risk that it takes on from thousands, If not millions of insured. Not everyone will have a claim are covering the losses for those that do.
According to the law of large numbers, A) the smaller the number of risks combined into one group, the less uncertainty there will be as to the amount of loss that will be incured B) the smaller the number of risks combined into one group, the larger the loss will be to any one individual in that group C) the larger the number of risks combined into one group, the smaller the loss will be to any one individual in that group D) the larger the number of risks combined into one group, the less uncertaintainty there will be as to the amount of loss that will be incurred.
D) the larger the number of risks combined into one group, the less uncertaintainty there will be as to the amount of loss that will be incurred. The law of large numbers operates under the principle that the larger the number of similar risks combined into one group, the less uncertainty there will be as to the amount of loss that group will incur. Thus, an insurance comapny is able to determine in advance the approximate number of claims it will recieve in a given time period for a given risk and place its business on a nonspeculative basis.