jknm

Insurance companies may be classified according to the legal form of their ownership. The type of company organized to return any surplus money to their policyholders is

A mutual insurer Mutual companies are owned and controlled by their policyholders. Any surplus money is returned to the policyholders as dividends

A tornado that destroys property would be an example of which of the following

A peril

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

A. Insured cannot be randomly selected

What is reinsurance?

An agreement between a ceding insurer and assuming insurer The originating company that produces on itself in another insurer is called the ceding insurer. The other is called assuming insurer.

Which of the following is true regarding a risk retention group? A. It is a company owned by the stockholders that provides nonparticipating policies B. It is a liability insurance company owned by its members C. It provides support for underwriters and is not an insurance company D. It is a benefit society formed to provide insurance for members of an affiliated lodge.

B. It is a liability insurance company owned by its members

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

B. The chief administrator of the insurer is called an "attorney-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 an attorney in fact who is empowered to bind each subscriber to assume a share of the losses of the group.

The document that indicates that an insurer has been approved and is authorized to transact insurance in a particular state is known as A. Certificate of insurance B. Binder C. Certificate of authority D. Discretionary Authority

C. Certificate of authority

A participating insurance policy may do which of the following? A. Pay dividends to the stockholder B. Require 80% participation C. Pay dividends to the policyholder D. Provide group coverage

C. Pay dividends to the policyholder A participating insurance policy will pay dividends to the owner based upon actual mortality cost, interest earned and costs.

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

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

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

C. The loss may be intentional To insure intentional losses would be against public policy

A state-issued document empowering an insurance company to become an admitted insurer is called what?

Certificate of Authority

Which of the following is issued by the state Department of Insurance to show that the insurer has power to write insurance contracts in that state?

Certificate of Authority

Which of the following entities is not an insurer but an organization formed to provide insurance benefits for members of an affiliated lodge or religious organization? A. Mutual company B. Stock company C. Reciprocal Association D. Fraternal Benefit Society

D. Fraternal Benefit Society Fraternal insurers operate on the basis of a lodge or charitable organization, but they may also sell formal insurance plans for the benefit of their members. Reciprocal insurers are also associations that provide insurance for their members, but they are formed only for the purpose of providing insurance.

All of the following are examples of risk retention EXCEPT A. Deductibles B. Co-payments C. Self- Insurance D. Premiums

D. Premiums Retention is a planned assumption of risk, or acceptance of responsibility for the loss by an insured through the use of deductibles, co-payments, or self- insurance

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

D. To minimize the insured's level of liability in the event of loss Retention usually results from three basic desires of the insured to: reduce expenses and improve cash flow, to increase control of claim reserving and claims settlements, and to fund losses that cannot be insured.

Which of the following is a unit of measurement an underwriter uses when determining the premium rates for insurance?

Exposure Exposure is a unit of measurement used to determine rates charged for insurance coverage.

Which of the following insurance providers must be nonprofit and sell insurance only to its members?

Fraternal

Events or conditions that increase the chances of an insured loss occurring are referred to as

Hazards Conditions such as lifestyle and existing health, or activities such as scuba diving are hazards and may increase the chance of a loss occuring.

What do individuals use to transfer their risk of loss to a larger group?

Insurance Insurance is the mechanism whereby an insured is protected against loss by a specified feature contingency or peril in return for the present payment of premium. Because many other individuals with the same or similar risk of lost are paying premiums, funds are available to indemnify those who actually suffer that loss.

The insurer may suspect that a moral hazard exists if the policyholder

Is not honest about his health on an application for insurance. Moral hazards refer to those applicants that may lie on an application for insurance, or in the past, have submitted fraudulent claims against an insurer.

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

An insurance company that does not issue insurance policies but provides a meeting place for underwriters to conduct business is known as 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.

Which of the following is the basis for a claim against an insurance policy?

Loss Claims result from losses by a peril insured against an insurance policy

Insurance is a contract by which one seeks to protect another from

Loss Insurance will protect a person, business, or entity from 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?

Morale A morale hazard is someone who has an indifferent attitude towards an insurance company. He is careless or irresponsible because he knows his loss will be covered by insurance.

What is the major difference between a stock company and a mutual company?

Ownership- Mutual companies are owned by policyholders, while stock companies are owned by stockholders.

The causes of loss insured against in an insurance policy are known as

Perils Perils are the causes of loss insured against in an insurance policy.

Who might receive dividends from a mutual insurer?

Policyholders A mutual insurer has no stock, and is owned by the policyholders. Since they may receive a divided, such policies are known as participating policies. Dividends received by policyholders of a mutual insurer are not taxable.

A situation in which a person can only lose or have no change represents

Pure risk Pure risk refers to situations that can only result in a loss or no change. Pure risk is the only type insurance companies are willing to accept.

The risk of loss may be classified as

Pure risk and speculative 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 be gain or loss. Speculative risks are generally uninsurable.

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?

Reduction The insured's change in lifestyle and habits would likely reduce the chances of health problems.

Insurance is the transfer of

Risk Insurance is the transfer of financial responsibility associated with a potential of a loss (risk) to an insurance company.

Adverse selection is a concept best described as

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

A hazard is best defined as:

Something that increases the risk of loss

Which of the following is a characteristic of a Reciprocal Insurance Exchange?

The chief of administrator of the insurer is called an "attorney-in-fact"

When an individual purchases insurance, what risk management technique is he or she is practicing?

Transfer Insurance is a transfer of the risk of financial loss from a covered peril from the insured to the insurance company.

For the purpose of insurance, risk is defined as

the uncertainty or chance of loss