Life Insurance Questions

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

A peril

Insurance policies are not drawn up through negotiations, and an insured has little to say about provisions. What contract characteristic does this describe?

Adhesion

When risks with higher probability of loss are seeking insurance more often than other risks, this is known as what?

Adverse selection

What document is required for an insurance company to transact insurance?

Certificate of Authority

Insurers are classified according to their domicile. What are the three types of insurers?

Domestic, foreign, and alien

Which of the following are the authorities that an agent can hold?

Express and implied

What are the three types of agent authority?

Express, implied and apparent

a life insurance policy has a legal purpose if both of which of the following elements exist?

Insurable interest and consent

What 2 elements are necessary for a life insurance contract to have a legal purpose?

Insurable interest and consent.

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

Insurance

Whom does an insurance agent represent?

Insurance company

In the agent/insurer relationship, who is considered the principal?

Insurer

When agents act within the scope of their contract, their actions will be assumed to be the acts of whom?

Insurer

What entities make up the Medical Information Bureau?

Insurers

Insurance is a contract that protects the insured from what?

Loss

A person who does not lock the doors to his or her house shows an indifferent attitude. This person presents what type of hazard?

Morale

An insurance policy paid a nontaxable dividend to the insured one year, and nothing the next. From what type of insurer did the insured purchase the policy?

Mutual

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?

Mutual

The type of insurance company organized to return any surplus money to its policyholders is known as what?

Mutual company

On a participating insurance policy issued by a mutual insurance company, dividends paid to policyholders are

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

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?

Reasonable expectations

Which of the following insurance options would be considered a risk-sharing arrangement?

Reciprocal

What are the strategies used by underwriters to prevent adverse selection?

Restriction of coverage, refusal to accept a risk, and accepting a risk at a higher rate.

What is the best way to handle incomplete insurance applications?

Return the application to the applicant for completion.

If an agent fails to obtain the applicant's signature on the insurance application, what must the insurer do?

Send the application back to the applicant for signature.

Wagering on a sporting event is known as what type of risk?

Speculative

which of the following insurers are owned by stockholders?

Stock

Which of the following is an example of a producer's fiduciary duty?

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

For the purpose of insurance, what is risk?

Uncertainty of loss

In insurance policies, the insured is not legally bound to any particular action in the insurance contract, but the insurer is legally obligated to pay losses covered by the policy, What contract element does this describe?

Unilateral

In forming an insurance contract, when does acceptance usually occur?

When an insurer's underwriting approves coverage

When would a misrepresentation on an insurance application be considered fraud?

When it is intentional and material.

In insurance, when is the offer usually made on a contract?

When the insurance application is submitted.

In forming an insurance contract, when does an acceptance usually occur?

When the insurer approves a prepaid application.

When does an insurance policy go into effect?

When the policy is delivered and the premium is paid.

In insurance, an offer is usually made when

An applicant submits an application to the insurer

The risk management technique that is used to prevent a specific loss by not exposing oneself to that activity is called

Avoidance

When a change needs to be made on the application for insurance, which is the best method for correcting the information?

Complete a new application or ask the applicant to initial the correct on the original application.

An applicant knowingly fails to communicate information that would help an underwriter make a sound decision regarding coverage. This is an example of

Concealment

When both parties to a contract must perform certain duties and follow rules of conduct to make the contract enforceable, the contract is

Conditional

the authority granted to an agent through the agents contract is referred to as

Express authority

The requirement that agents must account for and promptly remit all insurance funds collected is known as what type of agent responsibility?

Fiduciary

The requirement that agents not commingle insurance monies with their own funds is known as

Fiduciary responsibility

An insurance company is domiciled in California and transacts insurance in Nevada. What is this insurer's classification in Nevada?

Foreign

An insurance company that is formed under the laws of another state is known as what type of insurer?

Foreign

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

The reduction, decrease, or disappearance of value of the person or property insured in a policy is known as what?

Loss

What are the five characteristics of an ideally insurable risk?

Loss must be 1. due to chance, 2. definite and measurable, 3. statistically predictable, 4. not catastrophic, and 5. coverage cannot be mandatory.

An applicant conceals relevant health information on the application. The applicant presents what type of hazard?

Moral

What is a definition of a unilateral contract?

One-sided: only one party makes an enforceable promise.

The insurer organized to return a profit to the stockholders is what type of insurer?

Stock company.

Who owns stock companies?

Stockholders

According to the Law of Agency, a principal is represented by whom?

Agent or producer

What documentation grants express authority to an agent?

Agent's contract with the principal

What are the four elements of an insurance contract?

Agreement (offer and acceptance), consideration, competent parties, and legal purposes.

An insured pays a $100 premium every month for his insurance coverage, yet the insurer promises to pay $10,000 for a covered loss. What characteristic of an insurance contract does this describe?

Aleatory

What type of insurer is formed under the laws of another country?

Alien

When transacting business in this state an insurer formed under the laws of another country is known as a/an

Alien insurer

What is a warranty in an insurance contract?

An absolutely true statement upon which the validity of the policy depends

which of the following types of agent authority is also called perceived authority?

Apparent

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?

Authorized or admitted

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

Certificate of authority

Conditions that increase the chance of a loss are known as what?

Hazards

Which authority is NOT stated in an agent's contract but is required for the agent to conduct business?

Implied

What is the term for the causes of loss insured against in an insurance policy?

Peril

What are the three types of hazards?

Physical, moral and morale

Who might receive dividends from a mutual insurer?

Policyholders

Pertaining to insurance, which of the following is an example of a producer's fiduciary responsibility?

Promptly forwarding premiums to the insurance company.

A situation in which a person can only experience a loss and no gain presents what type of risk?

Pure risk

What type of risk is insurable?

Pure risk

Whose responsibility is it to determine that all the questions on an insurance application are answered?

The agent's

If an applicant does not receive his or her insurance policy, who would be held responsible?

The agent.

an insured wants to transfer his personal insurance policy to a friend. Under what conditions would this be possible?

The insured will need a written consent of the insurer