General Insurance

A couple bought tickets to a college hockey tournament. At the game, a stray puck flies into the stands and hits the wife in the face, breaking her nose. Which legal defense may bar her from recovering damages for the injury she received at the hockey game?

Assumption of risk

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 authority

An agent sells insurance over the phone. One of his applicants is heavily drunk when she applies for and then almost instantly receives her policy. Which of the following is true? A. The policy is legal; only mental retardation and psychiatric illness qualify as limiting factors. B. The policy is not legal if it can be proven that the applicant was drunk during the application process. C. The contract is legal, since the agent, acting on behalf of the insurer, granted her the policy. D. The policy is legal; it would only be illegal if the agent had been drunk.

B. The policy is not legal if it can be proven that the applicant was drunk during the application process.

ABC insurance company receives an incomplete application and issues the policy anyway. 6 months later ABC realizes the missing information. What term is used that prevents ABC from forcing the policy-owner to answer further questions?

Estoppel

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

Foreign insurer

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

Implied authority

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

Installing deadbolt locks on the doors of a home is an example of which method of handling risk?

Risk reduction

Example of risk management if individual purchases insurance

Risk transfer

Adverse Selection

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

What statement must be true and is guaranteed to be true, and if untrue, may breach an insurance contract?

Warranty

All of the following actions by a person could be described as risk avoidance except... A. Investing in the stock market B. Refusing to scuba dive C. Never flying an airplane D. Not driving after being in an accident

A. Investing in the stock market

What documentation grants express authority to an agent?

Agent's contract with principal

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

What is a material misrepresentation? A. Concealment B. A statement by the applicant that, upon discovery, would affect the underwriting decision of the insurance company C. Any misstatement made by an applicant for insurance D. Any misstatement by the producer

B. A statement by the applicant that, upon discovery, would affect the underwriting

What best describes rescission? A. An insured allows a policy to lapse B. An insurer cancels a policy after it has been issued and refunds all paid premiums C. An insurer cancels a policy after an insured files a suspicious claim D. An insured agrees to cancel a policy for the return of the most recent premium paid

B. An insurer cancels a policy after it has been issued and refunds all paid premiums

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

B. Insureds cannot be randomly selected

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 interest before their own C. Making enough commissions to cover personal expenses D. Setting and meeting monthly production goals

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

Agent vs Broker

Both are known as producers. Agent: tied to an insurance company. Broker: represents the buyer and can sell many insurance carriers

What is typically not found in an insurance policy's conditions?

Insuring agreement

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 is the following is NOT an insurable risk? A. Loss must be measurable B. Loss exposure must be large C. Loss must be catastrophic D. Loss must be due to chance

C. Loss must be catastrophic

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

C. Reinsurance system

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 personal funds is guilty of

Commingling

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

Conditional

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

Considered true to the best knowledge of the applicant

With respect to the business of insurance, a hazard is _____ A. The risk is taken when performing something dangerous B. The tendency of poorer risks to seek insurance more often than better risks C. Basic reason for an insured to purchase insurance D. Any condition or exposure that increases the possibility of loss

D. Any condition or exposure that increases possibility of loss

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.

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.

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

Domestic insurer

What authority is given through an agent's contract?

Express authority

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

Loss

What insurance company provides dividend checks to its policyholders and is not taxed?

Mutual insurance company

An individual applies for a life policy. Two years ago he suffered a head injury, cannot remember parts of his past, but competent. And has also been hospitalized for drug abuse, but does not remember this when applying for insurance. What will happen if the insurer learns of his history after issuing the policy?

Nothing, the policy will not be affected. NOT intentional fraud

What is risk retention?

Planned assumption of risk by an insured through the use of deductibles, co-payments, or self-insurance.

Term for entity that an agent represents

Principal/Insurer/Agent

What insurance options would be considered a risk-sharing arrangement?

Reciprocal

Method insurers use to protect themselves against catastrophic losses

Reinsurance

What is an agreement between a ceding insurer and assuming insurer?

Reinsurance

Risk management technique used to prevent a specific loss by not exposing oneself to that activity

Risk avoidance

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?

Risk reduction

What is risk reduction?

Steps taken to prevent losses from occurring

What must the policyholder do in order to transfer their current policy to a friend?

The policyholder will need to get written consent from the insurer before the policy can be reassigned.

What is the principle of indemnity?

The principle of indemnity restores the insured person, in whole or in part, to the condition he or she enjoyed prior to the loss. Restoration may take the form of payment, repair, or replacement.

The process an insurer uses to evaluate applications and determine if a policy should be issued and on what terms, conditions, and rates is known as

Underwriting

When an insurer must be able to rely on the statement in the application, and the insured must be able to rely on the insurer to pay valid claims

Utmost good faith

What is a peril?

cause of loss

Pro rata liability clause is designed to protect the principle of

indemnity

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

larger

In the case of a loss, indemnity provision in insurance policies____

restores an insured person to the same financial state as before the loss

In insurance, risk is defined as

the uncertainty or chance of loss