General Insurance

Disclosure or lack of disclosure in a statement that would change an insurer's decision to issue a policy for the same premium is considered: A. Material B. Waived C. Estoppel D. False

A. A statement is material if its disclosure or lack of disclosure would change the insurer's decision to issue a policy for the same premium.

An insurance policy is a legal contract between how many parties? A. 2 B. 3 C. 4 D. 5

A. An insurance policy is a legal contract between 2 parties.

When an insured fails to disclose known facts in an application for insurance, he/she may be guilty of: A. Concealment B. Waiver C. Breach of warranty D. Twisting

A. Concealment is the failure to disclose known facts.

All of the following statements concerning contract law are correct, except: A. An insurance policy is a legal contract between 4 parties B. Contract law pertains to the formation and enforcement of contracts C. A tort is a civil wrong other than a crime or a breach of a contract D. An individual committing a tort may be referred to as a tortfeasor

A. Insurance is a legal contract between 2 parties.

Elements of an insurable risk do not include: A. Catastrophic perils B. The ability to set a measurable value on it C. Accidental loss D. Large number of homogenous units

A. Insurers want to avoid catastrophic perils.

A loss exposure is best defined as: A. The possibility of a loss B. The loss itself C. Something that increases the chance of a loss D. A reduction in, decrease in, or disappearance of, value

A. One does not need to suffer a loss to have a loss exposure, which is simply the possibility of a loss occurring. Having a loss exposure does not mean a loss will ever occur.

A physical hazard describes which of the following? A. Dishonesty on the part of an insured B. The storage of flammables near a furnace C. The insured's attitude that good housekeeping is not important D. The storage of all flammables in a fireproof container

B. A physical hazard is a condition on the property, or exposed to the property, that increases the probability of loss to the property.

An individual committing a tort may be referred to as a: A. Felon B. Tortfeasor C. Tort producer D. Disinterested party

B. An individual committing a tort may be referred to as a tortfeasor.

A condition in an insurance policy or certain statements made in an application to which the policyholder is bound under penalty of the policy being declared void is called: A. A parol evidence rule B. A warranty C. A waiver D. A guarantee

B. The insured must abide by the warranty or coverage will be void.

Which statement defines estoppel? A. Estoppel is the intentional misrepresentation of a material fact B. Estoppel prevents one from denying a fact, if the fact was admitted to be true by a previous action C. Estoppel is the intentional abandonment of a known right D. Estoppel is the failure to disclose known facts

B. This is the legal definition of estoppel. The intentional misrepresentation of a material fact defines Fraud. The intentional abandonment of a known right defines Waiver. The failure to disclose known facts defines Concealment.

Which of the following is assumed to be a competent party for the purpose of entering into an insurance contract? A. A person under age 14 B. A person under the influence of drugs or alcohol C. A person over the age of 21 D. A person institutionalized based on the diagnosis of a mental disorder

C. A competent party is assumed to be one who is 16 years of age or older, is mentally competent, and not under the influence of drugs or alcohol

Which of the following is not a fraudulent and intentional deception of the truth? A. Misrepresentation used to induce another to part with something of value B. Concealment C. Warranty D. Deceit

C. A warranty is a statement in the application guaranteed true in all respects.

Self-insurance is an example of which of the following? A. Avoiding the risk B. Eliminating the risk C. Pooling the risk D. Retaining the risk

D. Self-insurance is an example of retaining the risk.

An insurer authorized to transact insurance in a particular state by that state's Department or Division of Insurance is called: A. An alien insurer B. A fraternal insurer C. An admitted insurer D. A permitted insurer

C. An admitted insurer has a Certificate of Authority issued by the Department or Division of Insurance to transact insurance.

All of the following statements regarding materiality are correct, except: A. It is determined by the facts that a party failed to communicate or miscommunicated B. It is judged by the importance or relevance to the contract C. It is determined by the event D. Disclosure or lack of disclosure would change the insurer's decision to issue a policy

C. Materiality is not determined by the event but rather by the facts that a party failed to communicate or miscommunicate and is judged by the importance or relevance to the contract.

The Law of Large Numbers states: A. Small certain losses are substituted for large uncertain losses B. The number of insured units increases, then the losses decrease C. The number of insured units increases, predictability improves D. Funds are insufficient to pay claims, and the insured is assessed additional premium

C. The larger the sample is, the more accurate the prediction is.

Which authority is created when a producer exceeds the authority expressed in his agency contract by taking an insured's premium check after the policy cancels for non-payment and the insurer accepts the check? A. Express B. Implied C. Actual D. Apparent

D. A producer has apparent authority when he accepts premium on a lapsed policy, and the insurer reinstates the policy.

The idea that there are always some insureds (risks) that are less desirable than average risks, and that these insureds tend to seek or continue insurance coverage to a greater extent than better risks is termed: A. Estoppel B. Sharing C. Law of Large Numbers D. Adverse selection

D. Adverse selection is seen in the insured's propensity to obtain coverage for risks more prone to loss than average risks. Underwriting seeks to prevent adverse selection.

A(n) ___________ insurer is authorized to write insurance policies in a particular state. A. Foreign B. Non-Admitted C. Domestic D. Admitted

D. An admitted insurer is an insurer that is authorized to transact insurance in a state by that state's insurance department, as evidenced by a Certificate of Authority to transact business.

An agent has authority to do all of the following, except: A. Solicit applications on insurer's behalf B. Countersign insurance contracts C. Appoint a solicitor as his or her representative D. Represent the insured's interest

D. An agent is primarily the representative of an insurer. A broker represents the insured. However, agents still have a responsibility to provide insureds with the most suitable products.

Purchasing insurance is an example of: A. Retention of risk B. Reduction of risk C. Elements of risk D. Transfer of risk

D. Purchasing insurance is one way of employing the risk management technique of transferring.

All of the following are true, except: A. Under a unilateral contract, only one party is legally bound to future performance B. Reserves are accounting measurements of insurer's future obligations to the policyholder C. Proximate cause is the immediate or actual cause of a loss D. A representation is a statement made in the application by the insured, which is guaranteed

D. Representations are statements made by the insured that are true to the best of the insured's knowledge, but not guaranteed.

The ___________ branch of the state government influences public policy regarding insurance laws. A. State Courts B. House of Representatives C. Senate D. Executive

D. The Executive branch also appoints the state insurance regulator in many states.

The insurer has the right to rescind a policy due to all of the following, except: A. Concealment (intentional or unintentional) B. Material breach of warranty C. Material misrepresentation D. Failing to pay the premium in full and on time

D. The insurer has the right to rescind a policy due to concealment (intentional or unintentional), material misrepresentation, or material breach of warranty.

Under the California Financial Information Privacy Act, all of the following are ways or reasons a financial institution is permitted to share consumer's personal financial information, except: A. Sharing customer data between affiliates in a single line of business under the same regulators B. With law enforcement in the course of an investigation and subject to orders of the court C. To comply with provisions of the USA PATRIOT Act D. To increase company revenue with more targeted marketing campaigns the consumer is likely to want or need

D. Under the California Financial Information Privacy Act a financial institution has the authority to share consumer's personal financial information for transactions in which it is 'necessary to effect, administer or enforce a transaction requested or authorized by the consumer and with the consent of or at the direction of the consumer.