Chapter 1 Quiz - General Insurance

Which of the following insurers are owned by stockholders? 1. Reciprocal 2. Fraternal 3. Stock 4. Mutual

Stock

Which is the following is NOT the consideration in a policy? 1. The application given to a prospective insured 2. Something of value exchanged between parties 3. The premium amount paid at the time of application 4. The promise to pay covered losses

The application given to a prospective insured

Which of the following is an example of a producer's fiduciary duty?

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

What is an example of a producer's fiduciary duty?

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

If only one party to an insurance contract has made a legally enforceable promise, what kind of contract is it?

Unilateral

In insurance policies, the insured is not legally bound to any particular action in the insurance contract, but the insurer is legally obligated to pay losses covered by the policy. What contract element does this describe?

Unilateral

The insurer must be able to reply on the statements in the application, and the insured must be able to reply on the insurer to pay valid claims. In the forming of an insurance contract, this is referred to as:

Utmost good faith

In the state of Louisiana, what is the minimum age to purchase life insurance?

15 years old

A tornado that destroys property would be an example of which of the following? 1. A peril 2. A pure risk 3. A loss 4. A physical hazard

A peril

Insurance policies are not drawn up through negotiations, and an insured has little to say about its provisions. what contract characteristic does this describe?

Adhesion

An insured pays a $100 premium every month for his insurance coverage, yet the insurer promises to pay $10,000 for a covered loss. What characteristic of an insurance contract does this describe?

Aleatory

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

Alien insurer

Because an agent is using stationery with the logo of an insurance company, applicants for insurance assume that the agent is authorized to transact on behalf of that insurer. What type of agent authority does this describe?

Apparent

Which of the following types of agent authority is also called "preserved authority"? 1. Fiduciary 2. Apparent 3. Express 4. Implied

Apparent

A state-issued document empowering an insurance company to become an admitted insurer is called what?

Certificate of Authority

What must an insurer obtain in order to transact insurance within a given state?

Certificate of Authority

A producer who fails to separate premium monies from his own person funds is guilty of:

Commingling

What term dest describes the act of withholding material information that would be crucial to an underwriting decision? 1. Leading 2. Breach of warranty 3. Concealment 4. Withholding

Concealment

The proposed insured makes the premium payment on a new insurance policy. If the insured should die, the insurer will pay the death benefit to the beneficiary if the policy is approved. This is an example of what kind of contract?

Conditional

Representations are written or oral statements made by the applicant that are

Considered true to the best of the applicant's knowledge

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

Which best describes an insurance company that has been formed under the laws of this state?

Domestic

What best describes the aleatory nature of an insurance contract?

Exchange of unequal values

The authority granted to an agent through the agent's contract is referred to as

Express authority

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

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

In insurance transactions, fiduciary responsibility means

Handling insurer funds in a trust capacity

On a participating insurance policy issued by a mutual insurance company, dividends paid to policyholders are

Not taxable since the IRA treats them as a return of a portion of the premium paid.

What is the major difference between a stock company and a mutual company?

Ownership

A participating insurance policy may do which of the following?

Pay dividends to the Policyowner

Who might receive dividends from a mutual insurer?

Policyholders

Which of the following is NOT the consideration in a policy? 1. The premium amount paid at the time of application 2. The promise to pay covered losses 3. The application given to a prospective insured 4. Something of value exchanged between parties

The application given to a prospective insured

In terms of parties to a contract, which of the following does NOT describe a competent party?

The person must have at least completed secondary education

Which of the following is NOT a goal of risk retention? 1. To increase control of claim reserving and claims settlements 2. To fund losses that cannot be insured 3. To minimize the insured's level of liability in the event of loss 4. To reduce expenses and improve cash flow

To minimize the insured's level of liability in the event of loss

Events or conditions that increase the chances of an insured loss occurring are referred to as

Hazards

Units with the same or similar exposure to loss are referred to as

Homogeneous

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

A life insurance policy has a legal purpose if both of which of the following elements exist?

Insurable interest and consent

All of the following actions by a person could be describe as risk avoidance EXPECT: 1. Investment in the stock market 2. Refusing to scuba dive 3. Never flying in an airplane 4. Not driving after being in an accident

Investing in the stock market

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

Is not honest about his health on an application for insurance

What is the basis for a claim against an insurance policy?

Loss

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

Material misrepresentation

An individual's tendency to be dishonest would be indicative for a

Moral hazard

A person who does not lock the doors or does not repair leaks shows an indifference attitude. This person present what type of hazard?

Morale

An insured purchased an insurance policy 5 years ago. Last year, she received a dividend check from the insurance company that was not taxable. This year, she did not receive a check from the insurer. From what type of insurer did the insured purchase the policy?

Mutual

Pertaining to insurance, what is the definition of a fiduciary responsibility?

Promptly forwarding premiums to the insurance company

Which of the following is the most common way to transfer risk?

Purchase insurance

The risk of loss may be classified as

Pure risk and speculative risk

In what way can an agent demonstrate a high standard of ethics?

Putting the client's best interest before their own

Which of the following insurance options would be considered a risk-sharing arrangement?

Reciprocal