General Insurance

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

Unilateral.

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.

A situation in which a person can only lose or have no change represents...

Pure risk. (refers to situations that can only result in loss or no change. Pure risk is the only type insurance companies are willing to accept.)

What is a material misrepresentation?

A statement by the applicant that, upon discovery, would affect the underwriting decision of the insurance company.

What is a statement that is guaranteed to be true, and if untrue, may breach an i durante contract?

Warranty.

Adverse selection is a concept best described as...

Risks with higher probability of loss seeking insurance more often than other risks. (adverse selection means that there are more risks with higher probability of loss seeking to purchase and maintain insurance than the risks who present lower probability.)

An insured wants to transfer his personal insurance policy to a friend. Under what conditions would this be possible?

The insured will need a written consent of the insurer. (A personal insurance contract is written between an insurance company and an individual, and the company has a right to decide with whom it will and will not do business. An insured can transfer an insurance contract to another person, but they must first obtain written consent of the insurer.)

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

a. The person must not be under the influence of drugs or alcohol. b. The person must be of legal age. c. The person must be mentally competent to understand the contract. *d. The person must have at least completed secondary education. (The parties to a contract must be capable of entering into a contract in the eyes of the law. Generally, this requires that both parties be of legal age, mentally competent to understand the contract, and not under the influence of drugs or alcohol.)

If an insurer meets the states financial requirements and is approved to transact business in the state, it is considered to be...

Authorized. (or admitted into the state as legal insurer.)

A producer who fails to segregate premium monies from his own personal funds is guilty of...

Commingling. (it is illegal for insurance producers to commingle premiums collected from the applicants with their own personal funds.)

Which authority is NOT stated in an agent's contract but is required for the agent to conduct business?

Implied Authorities.

An insurance producer who by contract is bound to write insurance for only one company is classified as a/an...

Captive agent.

When applying for an individual life insurance policy, an applicant states that he went to the doctor for nausea, but fails to mention he was also having severe chest pain. This is...

Concealment (concealment = A person withholds a material fact that is crucial to making a decision)

When both parties to a contract must perform certain duties and follow rules of conduct to make the contract enforceable, the contract is...

Conditional. (The contract is formed on the basis that certain conditions are met.)

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

Is not honest about his health on an application for insurance.

Following a career change, an insured is no longer required to perform any physical activities, so he has implemented a program where he walks and jogs for 45 minutes each morning. He has also eliminated most fatty foods from his diet. Which method of dealing with risk does this describe?

Reduction. (The insured's change in lifestyle and habits would likely reduce the chances of health problems.)

NOT a goal of risk retention?

To minimize the insured's level of liability in the event of loss (retention usually results from three basic desires of the insured: to reduce expenses and improve cash flow, to increase control of claim reserving and claim settlement, and to fund losses that cannot be insured)

When an individual purchases insurance, what risk management technique is being used?

Transfer. (Insurance is transfer of risk of financial loss.)

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.

What documentation grants express authority to an agent?

Agent's contract with the principal. (The principal grants authority to an agent through the agents contract.)

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

Considered True to the best of the applicants knowledge. (made by applicant that they believe to be true.)

The authority granted to an agent through the agents contract is referred to as...

Express Authority.

In insurance transactions, fiduciary responsibility means...

Handling insurer funds in a trust capacity.

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

Hazards.

For the reported losses of insured group to become more likely to equal the statistical probability of loss for that particular class, the insured group must become...

Larger. (law of large numbers = the larger a group becomes, the easier it is to predict losses.

The cause of loss insured against in an insurance policy are known as...

Perils.

True vs False: Certificate of Authority

True: it may be necessary for transacting business in a specific state, it is equivalent to an insurance license, it is used by the state Department of insurance. False: it is issued to group insurance participants.

What Insurance concept is associated with the names Weiss and Fitch?

guides describing company financial integrity.

Insurance is a contract by which one seeks to protect another from...

Loss. (Insurance will protect a person, business or entity from loss.)

Statements regarding insurable risks:

NOT correct: insured's cannot be randomly selected. Correct: an insurable risk must involve loss that is definite as to cause, time, place, and amount. Insurance cannot be mandatory. The insurable risk needs to be statistically predictable.

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

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