Insurance Exam

Fraternal Benefit Societies

Life or health insurance companies formed to provide insurance for members of an affiliated lodge, religious organization, or fraternal organization with a representative form of government.

Moral Hazard

When the act of insuring an event increases the likelihood that the event will happen

D. Insurance Guaranty Association

Which of the following entities protects policy owners, insureds, and beneficiaries under insurance contracts when insurers fail to perform contractual obligations due to financial impairment? A. Insurance Consumer Protectorate B. Insurance Solvency Association C. Consumer Protection Agency D. Insurance Guaranty Association

Self-Insurer (INSURANCE)

An employer who can meet the state legal and financial requirements to assume by him or herself all of its risk and pay for the losses, although the employer may contract with an insurance carrier or others to provide certain essential services.

A.) Lloyd's Association A Lloyd's association itself does not issue insurance policies or provide insurance protection. Lloyd's associations provide a meeting facility for the individual underwriters to conduct the business of insurance

An insurance organization that does not issue insurance policies but provides a meeting place for underwriters to conduct business is known as? A.) Lloyd's association B.) Fraternal Society C.) Mutual Company D.) Capital Stock Company

B. Captive agent. A captive/exclusive agent has agreed, by contract, to produce insurance business only for the insurer they are contracted with

An insurance producer who by contract is bound to write insurance for only one company is classified as a/an A. Independent Producer B. Captive agent C. Solicitor D. Broker

reciprocal exchange

An unincorporated group of individuals who mutually insure one another, each separately assuming a share of each risk.

Law of Large Numbers

As the number of people in a risk pool increases, future losses become more predictable. This refers to:

Implied Authority

Authority that is not expressed or written into the contract, but which the agent is assumed to have in order to transact the business of insurance for the principal.

5 Methods of Risk Management

Avoidance Retention Sharing Reduction Transfer

Private Insurers

Life and Health insurance companies that specialize in one or more types of health or disability insurance, usually on a reimbursement basis.

D. Help legislators make informed decision on insurance issues

The National Conference of Insurance Legislators was created to A. Protect legislators' constituents from insurer insolvency B. Regulate insurance rates C. Create federal laws with greater restrictions on insurance. D. Help legislators make informed decisions on insurance issues.

Indemnity

(reimbursement): A provision in an insurance policy that states that in the event of loss, an insured or a beneficiary is permitted to collect only the extent of the financial loss, and is not allowed to gain financially because of the existence of an insurance contract. Insurance purpose is to restore, not profit.

A. Indifference to loss (Carelessness)

- A morale hazard may exist due to A. indifference to loss B. Past fraudulent claims against the insurer C. Past medical history. D. Tendency toward alcholism

Sources of Liability Loss

1. A court if it awards legal damages to a person from an organization responsible for negligently injuring that person 2. The cost of a legal defense; and 3. Loss prevention arising from potential legal liability

B. a ceding insurer and assuming insurer The originating company that procures insurance on itself in another insurer is called the ceding insurer. The other insurer called assuming insurer

Who is involved in a Reinsurance Agreement? A. Insurer and an insured B. a ceding insurer and assuming insurer C. An agreement between an originating insurer and a ceding insurer D. An agreement between a domestic insurer and a foreign insurer

contract

a binding agreement between two or more persons that is enforceable by law

Risk Retention Group (RRG)

a mutual insurance company formed to insure people in the same business, occupation, or profession

Physical Hazard

a physical condition that increases the chance of loss

Surplus Lines

any type of insurance for which there is no available market within the state, and the coverage must be placed with a non admitted insurer

Morale Hazard

carelessness or indifference to a loss because of the existence of insurance

Elements of Insurable Risk

Due To Chance (Accidental), Definite and Meaurable, Statistically Predictable, CANNOT be catastrophic, Exposure must involve large homogenous exposure units, Insurance must not be mandatory.

transfer

Gary wants to make sure that if he dies before his wife, she will have enough money to live on. His death is considered a risk. If he convinces another party to assume this risk, this risk handling method would be called?

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

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

D. Apparent

Which of the following types of agent authority is also called "Perceived authority"? A. Express B. Implied C. Fiduciary D. Apparent

Three acts of Authority

Selling, soliciting, and negotiating are the

Adverse Selection

A high-risk person benefits more from insurance, so is more likely to purchase it.

A. a Peril A peril is the cause of loss insured against in an insurance policy

A Tornado that destroys property would be an example of which of the following? A. a peril B. A Pure Risk C. A loss D. A physical hazard

Stop-loss coverage

A form of reinsurance for self-insured employers that limits the amount the employers will have to pay for each person's health care (individual limit) or for the total expenses of the employer (group limit).

A. The loss may be intentional

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

(NAIC) National Association of Insurance Comissioners:

Organization of insurance comissioners from 50 states, DC, US territories, and Puerto Rico. They resolve insurance regulatory problems. (Bring uniformity from state to state and simply the marketing of insurance.

Lloyd's Association

Organizations that provide support facilities for underwriters or groups of individuals that accept insurance risk.

Three types of hazards

Physical, Moral, Morale

D. The U.S. vs. The south-Eastern Underwriters Association In 1942, the AG of the US filed a brief on the Sherman Act against the South-Eastern Underwriters Association. In 1944, the Supreme Court reversed its decision of Paul vs. Virginia, stating that insurance is interstate commerce and is therefore subject to regulation by the federal government. (Current)

The Supreme Court Stated that insurance is interstate commerce, and is therefore subject to regulation by federal government in the decision of what case? A. McCarran-Ferguson vs. New York B. Rosche-Wall vs. Alabama C. Paul vs. Virginia D. The U.S. vs. The south-Eastern Underwriters Association

Apparent Authority

The appearance or the assumption of authority based on the actions, words, or deeds of the principal or because of circumstances the principal created.

Express Authority

The authority granted to an agent by means of the agent's written contract.

D. The NAIC

The formation and recommendation of model insurance legislation and regulations designed to bring uniformity from state to state is one of the purposes of A. The Gauranty Association B. The Insurance Legislation Commission C. The Association for Insurance Regulation. D. The NAIC

C. The NAIC The National Association of Insurance Commissioners is the organization of insurance regulators that resolve insurance regulatory problems.

The formation and recommendation of model insurance legislation and regulations designed to bring uniformity from state to state is one of the purposes of A. The insurance Legislation Commision B. The Association for Isurance Regulation C. The NAIC D. The Guaranty Association

A. Guides describing company financial integrity Because an insurance company's strength and stability are two very crucial factors in its sustainability, independent rating services have formed to publish regular updates on the financial integrity of different insurance companies. Weiss and Fitch are two of these services, although there are more

What insurance concept is associated with the words "Weiss" and "Fitch"? A. Guides describing company financial integrity B. Policy Dividends C. Types of mutual companies D. Index used by stock companies

Public Law 15

What is another name for the McCarran-Ferguson Act?

D. Transfer When insurance is purchased, the insured is, in return for the payment of the premium, transferring the risk of financial loss by certain perils to the insurance company

When a homeowner purchases insurance on his home, what risk management technique is he practicing? A. Avoidance B. Sharing C. Retention D. Transfer

D. Reciprocal When insurance is obtained through a reprocal insurer, the insureds are sharing the risk of loss with other subscribers of that reciprocal

Which of the following insurance providers would be considered a risk sharing arrangement? A. Stock B. Mutual C. Surplus Lines D. Reciprocal

A.) Underwriting the Contract: The agent is responsible for submitting the application to an insurer, who then performs the underwriting and decides whether a policy will be issued. At that point, the agent then delivers the policy to the policyowner, explains the policy, and collects the premium paymment if it has not yet been paid

Which of the following is NOT a responsibility of an insurance agent? A.) Underwriting the contract B.) Delivering the Contract C.) Explaining Policy Provisions D.) Submitting the application to the insurer

D. The chief administrator of the insurer is called an "atterney-in-fact". A "reciprocal" is an unincorporated aggregation of individuals, called subscribers, who exchange insurance risks. If the premiums charged for coverage are not sufficient to pay the losses of the group, subscribers may be assessed an additional premium. A reciprocal is administered by and attorney-in-fact who is empowered to bind each subscriber to assume a share of the losses of the group

Which of the following is a characteristic of a Reciprocal Insurance Exchange? A. Normally write all lines of insurance B. Stock holders share in any profits C. Issues non-assessable policies D. The chief administrator of the insurer is called an "atterney-in-fact".

C. The Armstrong Investigation The Armstrong Investigation occurred because of public complaint of insurer abuses. This led to the creation of the New York Insurance Code.

Which of the following led to the creation of the New York Insurance Code, setting a precedent for other states to create their own insurance codes? A. US vs South-Eastern Underwriters Association B. The McCarran-Ferguson Act C. The Armstrong Investigation D. Paul v. Virginia

C. Rating the financial strength of insurance companies Reports generated by Standard & Poors and AM Best help prospective consumers to judge the financial security of various insurance companies.

Which services are associated with Standard & Poor's and AM Best? A. Providing employment histories for investigative consumer reports B. Storing medical information collected by insurance companies C. Rating the financial strength of insurance companies D. Investigation violations of The Fair Credit Reporting Act

A. Mutual Insurance Reciprocals are insurance companies made up of subscribers, who are collectively known as a reciprocal insurance company or exchange. These type of companies are admisnistered by an appointed Attorney in Fact.

Which type of insurance is based on mutual agreements among subscribers? A. Mutual insurance B. Limited liability C. Reinsurance D. Reciprocal Insurance

exclusive agency system

the insurance company contracts with agencies, which are independent businesses, to represent and sell insurance only for that insurance company.

Risk Purchasing Groups

• Comprised of members whose business or activities expose them to a similar liability and form a group to purchase liability insurance on a group basis

Government Insurers

• Federal programs - Social Security = Old Age, Survivors, and Disability Insurance (OASDI) • State programs - Unemployment insurance - Workers' program - Medicare - Medicaid - Military programs compensation benefits - State-run medical expense insurance plans