Chapter 1

Which statement is false regarding 'materiality' in California?

Materiality of a representation is determined by different rules as compared to materiality of a concealment;

An underwriter will consider each of the following factors when evaluating a risk, except:

Rates; The underwriter protects the insurer against adverse selection, by evaluating the factors likely to contribute to a loss. Rates do not have such an impact.

Which of the following is classified as an insurance broker?

A person who negotiates insurance contracts on behalf of an insured; A broker represents the insured in dealing with insurance companies.

Which insurance company department determines the probability of loss and sets the premium rates?

Actuarial; The Actuarial Department interprets the statistical information used in rate making, whereas the Underwriting Department is responsible for risk selection

What is the name for an insurer authorized to write insurance policies in a particular state?

Admitted; An admitted insurer is an insurer that is authorized to transact insurance in a state by that state's insurance department, as evidenced by a Certificate of Authority to transact business.

In order for an insurance policy to be issued, the insured must have:

An Insurable interest with the policyowner; Insurance may not be issued for an illegal activity or an act contrary to public policy therefore every insured must have an insurable interest.

Regarding offer and acceptance, which one of the following is false?

Consideration is only required by the insurer

Which of the following is not a function of insurance?

It is designed to be used to protect the insured from dishonest acts; The function of insurance is to protect the insured's assets against loss by insurable perils.

All of the following are recognized classes of insurance in California, except:

Medicare Supplement ; These classes are: Life, Fire, Marine, Title, Surety, Disability, Plate glass, Liability, Workers' Compensation, Common Carrier Liability, Equipment Breakdown, Burglary, Credit, Sprinkler, Team and Vehicle, Automobile, Aircraft, Mortgage Guaranty, Insolvency, Legal Insurance, and Miscellaneous. Medicare Supplement is a subsection of Disability.

The company operations are directed by a board of directors elected by the policyholders in which of the following types of insurers?

Mutual; A mutual company is owned by its policyholders.

Surplus

Non-admitted business must be transacted through a Surplus lines broker or producer.: Non-admitted business must be transacted through a Surplus lines broker or producer.

An insurer that is not approved by the state Department of Insurance to transact insurance is called a(n) ___________ insurer.

Non-admitted,An admitted insurer has a Certificate of Authority issued by the Department or Division of Insurance to transact insurance.

The predictability of loss improves when the number of similar units increase because of which principle?

The Law of Large Numbers; The Law of Large Numbers is an underlying principle of insurance, stating that the greater the number of units of exposure, the greater the accuracy in predicting a loss

What does a material misrepresentation mean to an insurer?

The insurer may not have issued coverage if the correct information had been communicated; A material misrepresentation means the insurer would not have issued coverage, or the policyowner would not have accepted the policy, if the correct information had been communicated.

Risk is defined as;

Uncertainty or chance of loss; The uncertainty or chance of loss is the definition of risk.