Chapter Quiz: Life/General Insurance

What documentation grants express authority to an agent? A) fiduciary contract B) state provisions C) agent's contract with the principal D) agent's insurance license

C) agent's contract with the principal The principal grants authority to an agent through the agent's contract

Which law is the foundation of the statistical prediction of loss upon which rates for insurance are calculated? A) law of masses B) law of averages C) law of group evaluation D) law of large numbers

D) law of large numbers The law of large numbers, which states that the larger a group is, the more accurately losses reported will equal the underlying probability of loss, is the basis for statistical prediction of loss upon which rates for insurance are calculated.

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? A) Mutual B) Reciprocal C) Nonprofit service organization D) Stock

A) Mutual Funds not paid out after paying claims and other operating costs are returned to the policyowners in the form of a dividend. If all funds are paid out, no dividends are paid.

The causes of loss insured against in an insurance policy are known as A) perils B) losses C) risks D) hazards

A) perils Perils are the causes of loss insured against in an insurance policy

The insurer must be able to rely on the statements in the application, and the insured must be able to rely on the insurer to pay valid claims. In the forming of an insurance contract, this is referred to as A) implied warranty B) utmost good faith C) reasonable expectations D) a warranty

B) utmost good faith The insurer must be able to rely on the statements given by the insured in the application. The insured must be able to rely on the insurer's promise to pay covered losses.

An insurance producer who is bound to write insurance for only one company is classified as a/an: A) independent producer B) captive agent C) solicitor D) broker

B) captive agent A captive/exclusive agent has agreed--by contract--to produce insurance business only for the insurer with which they are contracted.

The authority granted to an agent through the agent's contract is referred to as A) absolute authority B) express authority C) apparent authority D) implied authority

B) express authority Express powers are written into the contract between the insurer and the agent.

Which of the following is NOT the consideration in a policy? A) the premium amount paid at the time of application B) the promise to pay covered losses C) the application given to a prospective insured D) something of value exchanged between parties

C) the application given to a prospective insured Consideration is something of value that is transferred between two parties to form a legal contract

Which of the following is another term for an authorized insurer? A) licensed B) legal C) admitted D) certified

C) admitted Insurers who meet the state's financial requirements and are approved to transact business in the state are considered authorized or admitted into the state as a legal insurer.

The insurer may suspect that a moral hazard exists if the policyholder: A) is not honest about his health on an application for insurance B) is prone to depression C) is indifferent to activities that may be dangerous D) always drives over the speed limit

A) is not honest about his health on an application for insurance Moral hazards refer to those applicants that may lie on an application for insurance, or in the past, have submitted fraudulent claims against the insurer.

Not all losses are insurable, and there are certain requirements that must be met before a risk is a proper subject for insurance. These requirements include all of the following EXCEPT: A) the loss may be intentional B) the loss must not be catastrophic C) there must be a sufficient number of homogenous exposure units to make losses reasonably predictable D) the loss produced by the risk must be definite

A) the loss may be intentional To insure intentional losses would be against public policy

All of the following would be considered an insurance transaction EXCEPT: A) advising a policyholder regarding a claim B) negotiating coverage C) obtaining an insurance license D) soliciting a policy

C) obtaining an insurance license An insurance transaction means the carrying on of business in insurance, which could include the solicitation of a policy, advising, negotiation, or inducement related to coverage or claims. Obtaining an insurance license is a prerequisite to transacting insurance.

To legally transact insurance in this state, an insurer must obtain which of the following? A) business entity license B) certificate of insurance C) certificate of authority D) power of attorney

C) certificate of authority A certificate of authority is required in order to transact insurance.

Which of the following best describes the aleatory nature of an insurance contract? A) only one of the parties being legally bound by the contract B) ambiguities are interpreted in favor of the insured C) policies are submitted to the insurer on a take-it-or-leave-it basis D) exchange of unequal values

D) exchange of unequal values An aleatory contract is a contract in which unequal amounts or values are exchanged. The amount of premium the insured pays is much less than the potential loss assumed by the insurer.

Pertaining to insurance, what is the definition of a fiduciary responsibility? A) helping insureds file claims B) performing reviews of insured's coverage C) offering additional coverage to clients D) promptly forwarding premiums to the insurance company

D) promptly forwarding premiums to the insurance company Fiduciary refers to a position of trust. When an agent is handling the premiums that belong to an insurance company, they are acting in a fiduciary capacity.