General Insurance Quiz

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 (the principal grants authority to an agent through the agent's contract)

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

A. loss (loss is the reduction, decrease or disappearance of value of the person or property insured in a policy by a peril insured against)

On a participating insurance policy issues by a mutual insurance company, dividends 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 a 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 (with participating policies, policyowners are entitled to dividends, which, in the case of mutual companies, are nontaxable because they are considered a return of excess premiums)

What is the major difference between a stock company and a mutual company? A. ownership B. amount of death C. number of producers D. types of whole life policies

A. ownership (mutual companies are owned by policyholders, while stock companies are owned by stockholders)

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

A. speculative risk (speculative risk involves the chance of gain or loss and is not insurable)

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. warranty B. concealment C. misrepresentation D. fraud

B. concealment (concealment occurs when a person withholds a material fact that is crucial to making a decision. in insurance, this involves withholding information that would be crucial to underwriting decisions)

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

B. express authority (express powers are written into the contract between the insurer and the agent)

For the purpose of insurance, risk is defined as: A. an event that increases the amount if 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 (risk, or the chance of loss occurring, is the basic reason for buying insurance)

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. representation B. adhesion C. consideration D: good faith

C. consideration (the binding force in any contract is consideration. consideration on the part of the insured is the payment of premiums and the health representations made in the application. consideration on the part of the insurer is the promise to pay in the event of loss)

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 (an insurance transaction means the carrying on of business in insurance, which could include the solicitation of a policy, advising, negotiation, or inducement related to coverage or claims. obtaining an insurance license is a prerequisite to transacting insurance)

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

C. premiums (retention is a planned assumption of risk, or acceptance of responsibility for the loss by an insured through the use of deductibles, copayments, or self-insurance)

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

C. pure risk and speculated risk (pure risks involve the probability or possibility of loss with no chance for gain. pure risks are generally insurable. speculative risks involve uncertainty as to whether the final outcome will he gain or loss. speculative risks are generally uninsurable)

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

D. authorized (insurers who meet the state's financial requirements and are approved to transact business in the state are considered authorized or admitted into the state as a legal insurer)

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 D. insureds cannot be randomly selected

D. insureds cannot be randomly selected (granting insurance must not be mandatory, selecting insureds randomly will help the insurer to have a fair proportion of good risks to poor risks. all other statements are true)

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 (indemnity (sometimes referred to as reimbursement) is a provision in an insurance policy that states that in an event of loss, an insured or a beneficiary is permitted to collect only to the extent of the financial loss, and is not allowed to gain financially because of the existence of an insurance contract)