Examfx Chapters 1-4

An insured stated on her application for life insurance that she had never had a heart attack, when in fact she had a series of minor heart attacks last year for which she sought medical attention. Which of the following will explain the reason a death benefit claim is denied? A. Estoppel B. Material misrepresentation C. Waiver D. Utmost Good Faith

B. Material misrepresentation

Which of the following is the use of false, misleading, or deceptive statements to describe the terms or benefits of any policy? A. Fraudulent disclosure B. Misrepresentation C. False advertisement D. Defamation

B. Misrepresentation

In what way can an agent demonstrate a high standard of ethics? A. Recommending qualified retirement plans to each client B. Putting the client's best interests before their own C. Making enough commissions to cover personal expenses D. Setting and meeting monthly production goals

B. Putting the client's best interests before their own

Following a career change, an insured is no longer required to perform many physical activities, so he has implemented a program where he walks and jogs for 45 minutes each morning. The insured has also eliminated most fatty foods from his diet. Which method of dealing with risk does this scenario describe? A. Retention B. Reduction C. Transfer D. Avoidance

B. Reduction

All of the following are marketing arrangements used by insurers EXCEPT A. Independent Agency System B. Reinsurance System C. General Agency System D. Direct Response Marketing System

B. Reinsurance System

What term best describes the act of withholding material information that would be crucial to an underwriting decision? A. Leading B. Breach of warranty C. Concealment D. Withholding

C. Concealment

An insurance contract requires that both the insured and the insurer meet certain conditions in order for the contract to be enforceable. What contract characteristic does this describe? A. Aleatory B. Unilateral C. Conditional D. Contingent

C. Conditional

An agent who includes a statement or omits a statement which, when taken in context of the whole presentation, may tend to mislead or deceive the persons addressed has committed A. Twisting B. Coercion C. Misrepresentation D. Defamation

C. Misrepresentation

Adverse selection is a concept best described as A. Risks with higher probability of loss seeking insurance more often than other risks B. Underwriters slanting the odds in favor of the company C. Poor choices of applicants to be covered D. Only offering coverage to good risks

A. Risks with higher probability of loss seeking insurance more often than other risks.

An agent who has had formal disciplinary action taken against them by a state regulatory agency must notify the Commissioner of this within A. 10 days B. 30 days C. 45 days D. 60 days

B. 30 days

Which of the following is the basis for a claim against an insurance policy? A. Misrepresentation B. Loss C. Material Change D. Hazard

B. Loss

All of the following are examples of risk retention EXCEPT A. Self-insurance B. Premiums C. Deductibles D. Copayments

B. Premiums

After the original hearing and a final order is issued, an aggrieved person may request a re-hearing within A. 40 days B. 15 days C. 20 days D. 30 days

C. 20 days

According to the rule of readability of insurance policies in the state, what is a required minimum score on the Flesch reading ease test for Medicare supplement policies? A. 30 B. 40 C. 50 D. 60

C. 50

Which authority is NOT stated in an agent's contract but is required for the agent to conduct business? A. Assumed B. Express C. Implied D. Apparent

C. Implied

The causes of loss insured against an insurance policy are known as A. Risks B. Hazards C. Perils D. Losses

C. Perils

All of the following are examples of risk retention EXCEPT A. Copayments B. Self-insurance C. Premiums D. Deductibles

C. Premiums

Which of the following is a statement that is guaranteed to be true, and if untrue, may breach an insurance contract? A. Indemnity B. Representation C. Warranty D. Concealment

C. Warranty

For the purpose of insurance, risk is defined as a. The certainty of loss b. The cause of loss c. An event that increases the amount of loss d. The uncertainty or chance of loss

D the uncertainty or chance of loss

What is the maximum penalty for habitual willful noncompliance with the Fair Credit Reporting Act? A. $1,000 B. $100 per violation C. Revocation of license D. $2,500

D. $2,500

Which type of insurance is based on mutual agreements among subscribers? A. Mutual insurance B. Limited Liability C. Reinsurance D. Reciprocal Insurance

D. Reciprocal Insurance

Which of the following would NOT be a violation of state insurance regulations? A. Agent D collects premiums due on policies and deposits the funds in his own personal account B. Agent A uses her license to write only insurance for herself and her immediate family C. Agent B charges his clients a consulting fee, in addition to the premium for placing a policy D. Agent C uses her license to write only business other than controlled

D. Agent C uses her license to write only business other than controlled

In insurance, an offer is usually made when a. an applicant submits an application to the insurer b. the insurer approves the application and receives the initial premium c. the agent hands the policy to the policyholder d. an agent explains a policy to a potential applicant

A. An applicant submits an application to the insurer

Because an insurance policy is a legal contract, it must conform to the state laws governing contracts which require all of the following elements EXCEPT A. Conditions B. Considerations C. Legal purpose D. Offer and acceptance

A. Conditions

Because an insurance policy is a legal contract, it must conform to the state laws governing contracts which require all of the following elements EXCEPT A. Conditions B. Consideration C. Legal purpose D. Offer and acceptance

A. Conditions

Which of the following best describes an insurance company that has been formed under the laws of this state? A. Domestic B. Sovereign C. Alien D. Foreign

A. Domestic

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? A. Indemnity B. Stop-loss C. Consideration D. Reasonable expectations

A. Indemnity

Which of the following is another term for an authorized insurer? A. Licensed B. Legal C. Admitted D. Certified

C. Admitted

Which of the following is true regarding a risk retention group? A. It is a liability insurance company owned by its members B. It provides support for underwriters and is not an insurance company. C. It is a benefit society formed to provide insurance for members of an affiliated lodge. D. It is a company owned by the stockholders that provides nonparticipating policies

A. It is a liability insurance company owned by its members

Which of the following is NOT a characteristic of an insurable risk? A. The loss exposure must be large B. The loss must be catastrophic C. The loss must be due to chance D. The loss must be measurable

B. The loss must be catastrophic

When would a misrepresentation on an insurance application be considered fraud? A. When the application is incomplete B. Any misrepresentation is considered fraud C. If it is intentional and material D. Never: statements by the applicant are only representations

C. If it is intentional and material

A life insurance policy has a legal purpose if both of which of the following elements exist? A. Offer and counteroffer B. Policy owners and named beneficiaries C. Insurable interest and consent D. Underwriting and reciprocity

C. Insurable interest and consent

A life insurance policy has a legal purpose if both of which of the following elements exist? A. Offer and counteroffer B. Policyowners and named beneficiaries C. Insurable interest and consent D. Underwriting and reciprocity

C. Insurable interest and consent

Insurance policies are not drawn up through negotiations, and an insured has little to say about its provisions. What contract characteristic does this describe? A. Unilateral B. Conditional C. Personal D. Adhesion

D. Adhesion

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. Reasonable expectations B. A warranty C. Implied warranty D. Utmost good faith

D. Utmost good faith

An insurance company receives an application with some information missing and issues the policy anyway. What is this called? A. Estoppel B. Subrogation C. Aleatory D. Waiver

D. Waiver

Events in which a person has both the chance of winning and losing are classified as A. Speculative risk B. Insurable C. Pure risk D. Retained risk

A. Speculative risk

According to the Law of Agency, a principal is represented by a/an A. Broker B. Insured C. Agent D. Insurer

C. Agent

Which of the following produces evaluations of insurers' financial status often used by the state departments of insurance? A. Consumer's guide B. SEC C. AM Best D. NAIC

C. AM Best

An individual's tendency to be dishonest would be indicative of a A. Moral hazard B. Morale hazard C. Pure hazard D. Physical hazard

A. Moral hazard

On a participating insurance policy issued by a mutual insurance company, dividend paid to policyholders are A. Not taxable since the IRS treats them as a return of a portion of the premium paid B. Paid at the fixed rate every year C. Taxable as ordinary income D. Guaranteed

A. Not taxable since the IRS 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? A. Ownership B. Amount of death benefit C. Number of producers D. Types of whole life policies

A. Ownership

A participating insurance policy may do which of the following? A. Pay dividends to the policy owner B. Provide group coverage C. Pay dividends to the stockholder D. Require 80% participation

A. Pay dividends to the policy owner

Installing deadbolt locks on the doors of a home is an example of which method of handling risk? A. Reduction B. Avoidance C. Transfer D. Self-insurance

A. Reduction

All of the following are marketing arrangements used by insurers EXCEPT A. Reinsurance System B. General Agency System C. Direct Response Marketing System D. Independent Agency System

A. Reinsurance System

Which of the following is a person other than an officer or employee of the ceding insurer, who solicits, negotiates, or places reinsurance cessions on behalf of a ceding insurer A. Reinsurance broker B. Managing general agent C. Ceding agent D. Reinsurance agent

A. Reinsurance broker

Peril is most easily defined as A. The cause of loss insured against B. An unhealthy attitude about safety C. The chance of a loss occurring D. Something that increases the chances of loss

A. The cause of loss insured against

Every producer must maintain a place of business in this state A. That is approved by the Department B. Accessible to the public C. With the exception of resident licenses D. And maintain an approval rating of 60%

B. Accessible to the public

Which of the following best describes the concept that the insured pays a small amount of premium for a large amount of risk on the part of the insurance company? A. Warranty B. Aleatory C. Adhesion D. Subrogation

B. Aleatory

What is reinsurance? A. An agreement between an insurer and an insured B. An agreement between a ceding insurer and an assuming insurer C. An agreement between an originating insurer and a ceding insurer D. An agreement between a domestic insurer and a foreign insurer

B. An agreement between a ceding insurer and an assuming insurer

Representations are written or oral statements made by the applicant that are A. Immaterial to the actual acceptability of the insurance contract B. Considered true to the best of the applicant's knowledge C. Guaranteed to be true D. Found to be false after further investigation

B. Considered true to the best of the applicant's knowledge

Contracts that are prepared by one party and submitted to the party on a take-it-or-leave-it basis are classified as A. Binding contracts B. Contracts of Adhesion C. Unilateral contracts D. Aleatory Contracts

B. Contracts of Adhesion

An insurance company sells an insurance policy over the phone in response to a TV ad. Which of the following best describes this act? A. Insurance telemarketing B. Direct response marketing C. Independent agency marketing D. Illegal

B. Direct response marketing

Units with the same or similar exposure to loss are referred to as A. Law of large numbers B. Homogeneous C. Catastrophic loss exposure D. Insurable risks

B. Homogeneous

Any licensed person whose activities affect interstate commerce and who knowingly makes false material statements related to the business of insurance may be imprisoned for up to A. 3 years B. 5 years C. 10 years D. 12 years

C. 10 years

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? A. Implied B. Assumed C. Apparent D. Express

C. Apparent

An insurance contract must contain all of the following to be considered legally binding EXCEPT A. Consideration B. Competent parties C. Beneficiary's consent D. Offer and acceptance

C. Beneficiary's consent

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

Which of the following is considered to be a morale hazard? A. Working as a firefighter B. Engaging in illegal activities C. Driving recklessly D. Smoking

C. Driving recklessly

all of the following are CORRECT regarding temporary licenses EXCEPT A. The Commissioner may limit the authority of a temporary licenses B. The Commissioner may revoke temporary licenses if it is in the public's interest C. Examinations are never required for the issuance of a temporary license D. They are granted to representatives of licensed intermediaries who cannot currently transact business

C. Examinations are never required for the issuance of a temporary license

An insurance company is domiciled in Montana and transacts insurance in Wyoming. Which term best describes the insurer's classification in Wyoming? A. Domestic B. Unauthorized C. Foreign D. Alien

C. Foreign

What insurance concept is associated with the names Weiss and Fitch? A. Types of mutual companies B. Index used by stock companies C. Guides describing company financial integrity D. Policy dividends

C. Guides describing company financial integrity

Which of the following insurers are owned by stockholders? A. Reciprocal B. Fraternal C. Stock D. Mutual

C. Stock

What documentation grants express authority to an agent? A. Agent's insurance license B. Fiduciary contract C. State provisions D. Agent's contract with the principal

D. Agent's contract with the principal

The authority granted to an agent through the agent's contract is referred to as A. Apparent authority B. Implied authority C. Absolute authority D. Express authority

D. Express authority

In case of a loss, the indemnity provision in insurance policies A. Allows the insured to collect 20% more than the actual loss B. Pays the insured a percentage of the loss above and beyond the loss C. Pays the insured as much as 95% of the loss D. Restores an insured person to the same financial state as before the loss

D. Restores an insured person to the same financial state as before the loss

Hazard is best defined as a. The uncertainty of loss b. Neglect to communicate a material fact c. A deliberate attempt to deceive d. Something that increases the risk of loss

D. Something that increases the risk of loss

An insured wants to transfer his personal insurance policy to a friend. Under what conditions would this be possible? A. It is impossible to transfer a policy B. The insured would have to surrender his policy to the insurer, and his friend could then ask to buy it. C. The insured an transfer the policy to his friend and then notify the insurer of the change. D. The insured will need a written consent of the insurer

D. The insured will need a written consent of the insurer

If an insurer meets the state's financial requirements and is approved to transact business in the state, it is considered to be A. Approved B. Authorized C. Certified D. Qualified

B. Authorized

The risk management technique that is used to prevent a specific loss by not exposing oneself to that activity is called A. Sharing B. Avoidance C. Transfer D. Reduction

B. Avoidance

An insurance company assures its new policy holders that their premium costs will not increase for a period of at least five years. However, due to increasing financial strain, they plan to raise premium costs for all insureds by 10% over the next two years. What team best describes this act? A. Defamation B. Unfair discrimination C. Errors and omissions D. Fraud

D. Fraud

In insurance transactions, fiduciary responsibility means A. Maintaining a good credit record B. Being liable with respect to payment of claims C. Commingling premiums with agent's personal funds D. Handling insurer funds in a trust capacity

D. Handling insurer funds in a trust capacity

When transacting business in this state an insurer formed under the laws of another country is known as a/an A. Domestic insurer B. Foreign insurer C. Admitted insurer D. Alien insurer

D. Alien insurer

What is a foreign insurer? A. An insurer with a home office in another country B. An insurer with licensed agents doing business in other countries C. An insurer with licensed agents who are citizens in more than one country D. An insurer with a home office in another state

D. An insurer with a home office in another state

When an insured makes truthful statements on the application for insurance and pays the required premium, it is known as which of the following? A. Legal purpose B. Contract of adhesion C. Acceptance D. Consideration

D. Consideration

Which of the following are the authorities that an agent can hold? A. Apparent and allowed B. Authorized and admitted C. Primary and secondary D. Express and implied

D. Express and implied

Which statement regarding insurable risks is NOT correct? A. Insurance cannot be mandatory B. The insurable risk needs to be statistically predictable C. An insurable risk must involve a loss that is definite as to cause, time, place and amount D. Insureds cannot be randomly selected

D. Insureds cannot be randomly selected

Who might receive dividends from a mutual insurer? A. Subscribers B. Stockholders C. Agents D. Policyholders

D. Policyholders

In insurance policies, contract ambiguities are automatically ruled in the favor of the insured. What privilege does the insurer have in order to balance this? A. The right to raise premiums as a result of court rulings B. The right to determine the wording of a policy C. The right to refute the rulings D. The right to revoke the policy

B. The right to determine the wording of a policy

What documentation grants express authority to an agent? A. Agent's contract with the principal B. Agent's insurance license C. Fiduciary contract D. State provisions

A. Agent's contract with the principal

A producer who fails to separate premium monies from his own personal funds is guilty of A. Commingling B. Larceny C. Embezzlement D. Theft

A. Commingling

An insurance producer who by contract 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

Forcing a client to buy insurance from a particular lender as a condition of granting a loan is defined as A. Defamation B. Coercion C. Rebating D. Misleading advertising

B. Coercion

Insurers must report or list all appointments and any terminations of appointments to what authority? A. NAIC B. Commissioner C. Department of Insurance D. Federal Insurance Regulation Board

B. Commissioner

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

A. The application given to a prospective insured

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 homogeneous exposure units to make losses reasonably predictable D. The loss produced by the risk must be definite

A. the loss may be intentional

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

B. Exchange of unequal values

An insurance organization that does not issue insurance policies but provides a meeting place for underwriters to conduct business is known as a A. Capital stock company B. Lloyd's association C. Fraternal society D. Mutual Company

B. Lloyd's association

What is the definition of a unilateral contract? A. If one party makes a condition, the other party can counteroffer B. One-sided; only one party makes an enforceable promise C. Two or more parties go into a contract understanding there may be an unequal exchange of value D. One author; the company wrote the contract; the insured must accept it as written

B. One-sided; only one party makes an enforceable promise

Under the Fair Credit Reporting Act, if the consumer challenges the accuracy of the information contained in his or her report, the reporting agency must A. Send an actual certified copy of the entire report to the consumer B. Respond to the consumer's complaint C. Defend the report if the agency feels it is accurate D. Change the report

B. Respond to the consumer's complaint

When an individual purchases insurance, what risk management technique is he or she practicing? A. Retention B. Transfer C. Avoidance D. Sharing

B. Transfer

In insurance policies, the insured is not legally bound to any particular action in the insurance contract, by the insurer is legally obligated to pay losses covered by the policy. What contract element does this describe? A. Conditional B. Unilateral C. Unidirectional D. Aleatory

B. Unilateral

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

An insurance company receives an application with some information missing and issues the policy anyway. What is it called? A. Aleatory B. Waiver C. Estoppel D. Subrogation

B. Waiver

When forming an insurance contract, when does acceptance usually cover? A. When an insured submits an application B. When an insurer's underwriter approves coverage C. When an insurer delivers the policy D. When an insurer receives an application

B. When an insurer's underwriter approves coverage

In insurance transactions, fiduciary responsibility means A. Being liable with respect to payment of claims B. Commingling premiums with agent's personal funds C. Handling insurer funds in a trust capacity D. Maintaining a good credit record

C. Handling insurer funds in a trust capacity

When agents are acting within the scope of their contract, their actions will be assumed to be the acts of the A. Department of Insurance B. Insured C. Insurer D. Policyowners

C. Insurer

Knowledge and actions of an agent are deemed to be out of A. The insured B. The agent only C. The insurer D. The Department of Insurance

C. The insurer

Principles of Insurance and General Insurance A. The right to revoke the policy B. The right to raise premiums as a result of court rulings C. The right to determine the wording of a policy D. The right refute the rulings

C. The right to determine the wording of a policy