GENERAL INSURANCE QUIZ

Which of the following is NOT an essential element of an insurance contract? A. counteroffer B. consideration C. agreement D. legal purpose

A. counteroffer

An insurer that holds a Certificate of Authority in the state in which it transacts business is considered a/an: A. local insurer B. certified insurer C. self-insurer D. authorized insurer

D. authorized insurer

Hazard is best defined as A. neglect to communicate a material fact B. a deliberate attempt to deceive C. something that increases the risk of loss D. the uncertainty of loss

C. something that increases the risk of loss

Which authority is NOT stated in an agent's contract but is required for the agent to conduct businesses? A. implied B. apparent C. assumed D. express

A. implied

An applicant knowingly fails to communicate information that would help an underwriter make a sound decision regarding coverage. This is an example of: A. fraud B. breach of warranty C. concealment D. waiver

C. concealment

If a court ordered payment for a loss that was not covered in the policy even if it was clearly worded, it would be an example of which legal concept? A. reasonable expectations B. cease and desist C. nonforfeiture D. indemnity

A. reasonable expectations

Which of the following best describes an insurance company that has been formed under the laws of this state? A. alien B. foreign C. domestic D. sovereign

C. domestic

All of the following are examples of risk retention EXCEPT A. copayments B. self-insurance C. premiums D. deductible

C. premiums

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

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

B. an insurer with a home office in another state

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

C. an applicant submits an application to the insurer

An individual was involved in a head-on collision while driving home one day. His injuries were not serious, and he recovered. However, he decided that in order to never be involved in another accident, he would not drive or ride in a car ever again. Which method of risk management does this describe? A. sharing B. retention C. avoidance D. reduction

C. avoidance

Which of the following is the closest term to an authorized insurer? A. certified B. licensed C. legal D. admitted

D. admitted

If an insurer meets the state's financial requirements and is approved to transact business in the state, it is considered what type of insurer? A. certified B. qualified C. approved D. authorized

D. authorized

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. assumed B. apparent C. express D. implied

B. apparent

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

B. is not honest about his health on an application for insurance

All of the following actions by a person could be described as risk avoidance EXCEPT A. never flying in an airplane B. not driving after being in an accident C. investing in the stock market D. refusing to scuba dive

C. investing in the stock market

Which of the following is NOT a goal of risk retention? A. to increase control of claim reserving and claim settlements B. to fund losses that cannot be insured C. to minimize the insured's level of liability in the event of loss D. to reduce expenses and improve cash flow

C. to minimize the insured's level of liability in the event of loss

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

A. express authority

When an individual purchases insurance, what risk management technique is he or she practicing? A. avoidance B. sharing C. retention D. transfer

D. transfer

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

The risk of loss may be classified as A. high risk and low risk B. pure risk and speculative risk C. certain risk and uncertain risk D. named risk and un-named risk

B. pure risk and speculative risk

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

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

A tornado that destroys property would be an example of which of the following? A. a pure risk B. a loss C. a physical hazard D. a peril

D. a peril

When would a misrepresentation on the insurance application be considered fraud? A. never: statements by the applicant are only representations B. when the application is incomplete C. any misrepresentation is considered fraud D. if it is intentional and material

D. if it in intentional and material

Which of the following is NOT true regarding a Certificate of Authority? A. it may be necessary for transacting business in a specific state B. it is equivalent to an insurance license C. it is issued by the state department of insurance D. it is issued to group insurance participants

D. it is issued to group insurance participants

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

B. law of large numbers

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

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. legal purpose B. offer and acceptance C. conditions D. considerations

C. conditions

An individual applies for a life policy. Two years ago he suffered a head injury from an accident, so he does not remember parts of his past, but it otherwise competent. He has also been hospitalized for drug abuse, but does not remember this when applying for insurance. The insurer issues the policy and learns of his history one year later. What will probably happen? A. because the insured is currently not a drug user, his policy will not be affected B. the policy will not be affected C. the policy will be voided D. the insurer will sue the insured for committing fraud

B. the policy will not be affected

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

C. insureds cannot be randomly selected

When transaction business in this state an insurer formed under the laws of another country is known as a/an: A. admitted insurer B. alien insurer C. domestic insurer D. foreign insurer

B. alien insurer

Which of the following is the basics for a claim against an insurance policy? A. misrepresentation B. loss C. material change D. hazard

B. loss

A person who does not lock the doors or does not repair leaks shows an indifferent attitude. This person presents what type of hazard? A. legal B. physical C. morale D. moral

C. morale

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. nonprofit service organization B. stock C. mutual D. reciprocal

C. mutual

Which of the following is the basis for a claim against an insurance policy? A. material change B. hazard C. misrepresentation D. loss

D. loss

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

D. perils

Who might receive dividends from a mutual insurer? A. stockholders B. agents C. policyholders D. subscribers

D. policyholders

What is the term for the entity that an agent represents regarding contractual agreements with third parties? A. client B. designess C. insured D. principal

D. principal

What method do insurers use to protect themselves against catastrophic losses? A. indemnity B. pro rata liability C. risk management D. reinsurance

D. reinsurance

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

A. certificate of authority

What is 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 decision of the insurance company

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 is denied? A. estoppel B. material misrepresentation C. waiver D. utmost good faith

B. material misrepresentation

For the purpose of insurance, risk is defined as A. an event that increase the amount of loss B. the uncertainty or chance of loss C. the certainty of loss D. the cause of loss

B. the uncertainty or chance of loss

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

D. an agreement between a ceding insurer and an assuming insurer

When applying for an individual life insurance policy, an applicant states that he went to the doctor for nausea, but fails to mention that he was also having severe chest pains. This is an example of: A. misrepresentation B. fraud C. warranty D. concealment

D. concealment

When an insured truthful statements on the applicant 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 is considered to be a morale hazard? A. smoking B. working as a firefighter C. engaging in illegal activities D. driving recklessly

D. driving recklessly

The requirement that agents not commingle insurance monies with their own funds is known as: A. premium accountability B. express authority C. accepted accounting principal D. fiduciary responsibility

D. fiduciary responsibility

An insurance company is domiciled in Montana and transacts insurance in Wyoming. Which term best describes the insurer's classification in Wyoming? A. alien B. domestic C. unathorized D. foreign

D. foreign

What is the major different 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

Which of the following are the authorities that an agent can hold? A. primary and secondary B. express and implied C. apparent and allowed D. authorized and admitted

B. express and implied

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. reasonable expectations B. indemnity C. stop-loss D. consideration

B. indemnity

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

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

Which of the following would qualify as a competent party in an insurance contract? A. the applicant is under the influence of a mind-impairing medication at the time of application B. the applicant has a prior felony conviction C. the applicant is intoxicated at the time of application D. the applicant is a 12-year-old student

B. the applicant has a prior felony conviction

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

B. the application given to a prospective insured

The reduction, decrease, or disappearance of value of the person or property insured in a policy is known as A. exposure B. hazard C. risk D. loss

D. loss

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

A. promptly forwarding premiums to the insurance company

A situation in which a person can only lose or have no change represents: A. adverse selection B. hazard C. pure risk D. speculative risk

C. pure risk

Which of the following is a unit measurement an underwriter uses when determining the premium rates for insurance? A. hazard B. risk C. exposure D. loss

C. exposure

When doing business in this state, an insurance company that if formed under the laws of another state is known as which type of insurer? A. alien B. nonadmitted C. foreign D. domestic

C. foreign

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

An insurer neglects to pay a legitimate claim that is covered under the terms of the policy. Which of the following insurance principles has the insurer violated? A. adhesion B. consideration C. good faith D. representation

B. consideration

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

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

B. the cause of loss insured against

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. utmost good faith B. reasonable expectations C. a warranty D. implied warranty

A. utmost good faith

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

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

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

Events in which a person has both the chance of winning or losing are classified as A. speculative risk B. insurble C. pure risk D. retained risk

A. speculative risk

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 must not be catastrophic B. there must be a sufficient number of homogenous exposure units to make losses reasonably predictable C. the loss produced by the risk must be definite D. the loss may be intentional

D. the loss may be intentional

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

D. when an insurer's underwriter approves coverage

What method do insurers use to protect themselves against catastrophic losses? A. reinsurance B. indemnity C. pro rata liability D. risk management

A. reinsurance

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 A. smaller B. older C. more active D. larger

D. larger

Which of the following types of agent authority is also called "perceived authority"? A. fiduciary B. apparent C. express D. implied

B. apparent

The risk management technique 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

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

A. the loss must be catastrophic

Which of the following is an example of a producer's fiduciary duty? A. the trust that a client places in the producer in regard to handling premiums B. an obligation to state every known fact about the policy the producer is selling C. a duty to based all transactions upon the principle to Utmost Good Faith D. the obligation to tell the truth to the best of one's knowledge

A. the trust that a client places in the producer in regard to handling premiums

Which of the following must an insurer obtain in order to transact insurance within a given state? A. producer's certificate B. business entity license C. insurer's license D. certificate of authority

D. certificate of authority

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

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

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

A participating insurance policy may do which of the following? A. require 80% participation B. pay dividends to the policyowner C. provide group coverage D. pay dividends to the stockholder

B. pay dividends to the policyowner

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

Which of the following insurance options would be considered a risk sharing arrangement? A. surplus lines B. reciprocal C. stock D. mutual

B. reciprocal

Which of the following insurers are owned by stockholders who have the usual rights of ownership, including the right of voting? A. fraternal B. stock C. mutual D. reciprocal

B. stock

In terms of parties to a contract, which of the following does NOT describe a competent party? A. the person must be mentally competent to understand the contract B. the person must have at least completed secondary education C. the person must not be under the influence of drugs or alcohol D. the person must be of legal age

B. the person must have at least completed secondary education

A producer who fails to segregate premium monies from his own personal funds is guilty of A. larceny B. embezzlement C. theft D. commingling

D. commingling

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

D. considered true to the best of the applicant's knowledge

Events or conditions that increase the chances of an insured loss occurring are referred to as: A. exposures B. risks C. perils D. hazards

D. hazards

Which of the following is the most common way to transfer risk? A. increase control of claims B. lessen the probability of loss C. name a beneficiary D. purchase insurance

D. purchase insurance

Which of the following is a statement that is guaranteed to be true, and if untrue, may breach an insurance contract?A. concealment B. indemnity C. representation D. warranty

D. warranty