P&C CH.1 GENERAL INSURANCE REVIEW

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 Federal Fair Credit Reporting Act A) Prevents money laundering. B) Regulates consumer reports. C) Protects customer privacy. D) Regulates telemarketing.

B) Regulates consumer reports

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

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

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) Older. B) More active. C) Larger. D) Smaller.

C) Larger.

Installing deadbolt locks on the doors of a home is an example of which method of handling risk? A) Avoidance B) Transfer C) Self-insurance D) Reduction

D) Reduction

Units with the same or similar exposure to loss are referred to as A) Homogeneous. B) Catastrophic loss exposure. C) Insurable risks. D) Law of large numbers.

A) Homogeneous.

Question 4 of 15 What is the maximum penalty for habitual willful noncompliance with the Fair Credit Reporting Act? A) Revocation of license B) $2,500 C) $1,000 D) $100 per violation

B) $2,500

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

B) Apparent

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.

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

B)When an insurer's underwriter approves coverage

Any licensed person whose activities affect interstate commerce and who knowingly makes false material statements related to the business of insurance may be imprisoned for up to A) 3 years. B) 5 years. C) 10 years. D) 12 years.

C) 10 years.

Which of the following includes information regarding a person's credit, character, reputation, and habits? A) Consumer history B) Insurability report C) Agent's report D) Consumer report

D) Consumer report

All of the following are examples of risk retention EXCEPT A)Premiums. B)Deductibles. C)Copayments. D)Self-insurance.

A)Premiums.

A life insurance policy has a legal purpose if both of which of the following elements exist? A) Policyowners and named beneficiaries B) Insurable interest and consent C) Underwriting and reciprocity D) Offer and counteroffer

B) Insurable interest and consent

A state-issued document empowering an insurance company to become an admitted insurer is called A) Certificate of deposit. B) Certificate of admission. C) Certificate of authority. D) Certificate of title.

C) Certificate of authority.

When an individual purchases insurance, what risk management technique is he or she practicing? A) Sharing B) Retention C) Transfer D) Avoidance

C) Transfer

Within how many days of requesting an investigative consumer report must an insurer notify the consumer in writing that the report will be obtained? A) 3 days B) 5 days C) 10 days D) 14 days

A) 3 days

If a consumer requests additional information concerning an investigative consumer report, how long does the insurer or reporting agency have to comply? A) 5 days B) 7 days C) 10 days D) 3 days

A) 5 days

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

A) A peril

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

What is a 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

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 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) Express B) Implied C) Assumed D) Apparent

D) Apparent

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 is intentional and material

The reduction, decrease, or disappearance of value of the person or property insured in a policy by a peril insured against is known as A) Exposure. B) Hazard. C) Risk. D) Loss.

D) 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) Moral B) Legal C) Physical D) Morale

D) Morale

The causes of loss insured against in an insurance policy are known as A) Losses B) Risks C) Hazards D) Perils

D) Perils

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) Consideration B) Good faith C) Representation D) Adhesion

A) Consideration

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.

All of the following violations may result in an agent's imprisonment EXCEPT A) Failing to report to the department a criminal prosecution taken against the agent in another jurisdiction. B) Embezzling funds from the insurer. C) Knowingly obtaining information about a consumer under false pretenses. D) Engaging in the business of insurance after being convicted of breach of trust.

A) Failing to report to the department a criminal prosecution taken against the agent in another jurisdiction.

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

A) The uncertainty or chance of loss.

Which of the following is NOT correct regarding false statements by a person engaged in the business of insurance? A) Omissions of material fact on insurance application are fraud. B) False statements about financial condition of an insurer are unlawful. C) Statements made with the intent to deceive are unlawful. D) Only written statements can be considered fraud.

D) Only written statements can be considered fraud.

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

Which of the following is considered to be a morale hazard? A) Driving recklessly B) Smoking C) Working as a firefighter D) Engaging in illegal activities

A) Driving recklessly

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

A) The cause of loss insured against.

Untrue statements on the application unintentionally made by insureds that, if discovered, would alter the underwriting decision of the insurance company, are called A) Common errors. B) Material misrepresentations. C) Fraudulent statements. D) Warranties.

B) Material misrepresentations.

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.

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

A) To minimize the insured's level of liability in the event of loss

Federal law makes it illegal for any individual convicted of a crime involving dishonesty or breach of trust to work in the business of insurance affecting interstate commerce A) Without receiving written consent from an insurance regulatory authority. B) Under any circumstances. C) Unless they have served an appropriate prison sentence. D) Without receiving written consent from a Federal Judge.

A) Without receiving written consent from an insurance regulatory authority.

Representations are written or oral statements made by the applicant that are A) Immaterial to the actual acceptability of the insurance contract. B) Considered true to the best of the applicant's knowledge. C) Guaranteed to be true. D) Found to be false after further investigation.

B) Considered true to the best of the applicant's knowledge.

Which of the following protects consumers against the circulation of inaccurate or obsolete personal or financial information? A) Consumer Privacy Act B) The Fair Credit Reporting Act C) Unfair Trade Practices Law D) The Guaranty Association

B) The Fair Credit Reporting Act

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

B) The loss may be intentional.

Which of the following reports will provide the underwriter with the information about an insurance applicant's credit? A) Agent's report B) Any federal report C) Consumer report D) Inspection report

C) Consumer report

According to the Fair Credit Reporting Act, all of the following would be considered negative information about a consumer EXCEPT A) Late payments. B) Failure to pay off a loan. C) Disputes regarding consumer report information. D) Tax delinquencies.

C) Disputes regarding consumer report information.

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.

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) Nonforfeiture B) Indemnity C) Reasonable expectations D) Cease and desist

C) Reasonable expectations

Which of the following is the most common way to transfer risk? A) Increase control of claims B) Lessen the possibility of loss C) Name a beneficiary D) Purchase insurance

D) Purchase insurance

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) Transfer B) Avoidance C) Retention D) Reduction

D) Reduction

Events in which a person has both the chance of winning or losing are classified as A) Insurable. B) Pure risk. C) Retained risk. D) Speculative risk.

D) Speculative risk.

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

D) The person must have at least completed secondary education.

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) Reasonable expectations. B) A warranty. C) Implied warranty. D) Utmost good faith.

D) Utmost good faith.

An applicant knowingly fails to communicate information that would help an underwriter make a sound decision regarding coverage. This is an example of A) Concealment. B) Waiver. C) Fraud. D) Breach of warranty.

A) Concealment

An insurance company assures its new policyholders that their premium costs will not increase for a period of at least five years. However, due to increasing financial strain, they plan to raise premium costs for all insureds by 10% over the next two years. What term best describes this act? A) Fraud B) Defamation C) Unfair discrimination D) Errors and omissions

A) Fraud

The risk management technique that is used to prevent a specific loss by not exposing oneself to that activity is called A) Avoidance. B) Transfer. C) Reduction. D) Sharing.

A) Avoidance.

When an insured makes truthful statements on the application for insurance and pays the required premium, it is known as which of the following? A) Consideration B) Legal purpose C) Contract of adhesion D) Acceptance

A) Consideration

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) Indemnity B) Stop-loss C) Consideration D) Reasonable expectations

A) Indemnity

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

A) Is not honest about his health on an application for insurance.

The risk of loss may be classified as A) Pure risk and speculative risk. B) Certain risk and uncertain risk. C) Named risk and un-named risk. D) High risk and low risk.

A) Pure risk and speculative risk.

Under the Fair Credit Reporting Act, if a consumer challenges the accuracy of the information contained in a consumer or investigative report, the reporting agency must A) Send an actual certified copy of the entire report to the consumer. B) Respond to the consumer's complaint. C) Defend the report if the agency feels it is accurate. D) Change the report.

B) Respond to the consumer's complaint.

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.

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.

Under the Fair Credit Reporting Act, individuals rejected for insurance due to information contained in a consumer report A) Must be informed of the source of the report. B ) Are entitled to obtain a copy of the report from the party who ordered it. C) Must be advised that a copy of the report is available to anyone who requests it. D) May sue the reporting agency in order to get inaccurate data corrected.

A) Must be informed of the source of the report.

A situation in which a person can only lose or have no change represents A) Pure risk. B) Speculative risk. C) Adverse selection. D) Hazard.

A) Pure risk.

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

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

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

A) The application given to a prospective insured

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 insurance options would be considered a risk-sharing arrangement? A) Surplus lines B) Reciprocal C) Stock D) Mutual

B) Reciprocal

How is it determined whether an insurer is allowed to write business in a state? A) The insurer's net income will determine whether a company will be allowed to write business in a state. B) The insurer's domicile or location of incorporation will determine whether a company is domestic, foreign, or alien. C) The insurer's domicile will determine whether an insurance company is domestic, foreign, or alien. D) The insurer's location of incorporation will determine whether a company is domestic, foreign, or alien.

B) The insurer's domicile or location of incorporation will determine whether a company is domestic, foreign, or alien.

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) Avoidance B) Reduction C) Sharing D) Retention

A) Avoidance

An individual applies for a life policy. Two years ago he suffered a head injury from an accident, so he cannot remember parts of his past, but is 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) The policy will be voided. B) The insurer will sue the insured for committing fraud. C) Because the insured is currently not a drug user, his policy will not be affected. D) The policy will not be affected.

D) The policy will not be affected.

An applicant is denied insurance because of information found on a consumer report. Which of the following requires that the insurance company supply the applicant with the name and address of the consumer reporting company? A) Disclosure rule B) Fair Credit Reporting Act C) Consumer Privacy Act D) Conditional receipt

B) Fair Credit Reporting Act

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

Which of the following factors is NOT considered by an underwriter when determining the premium rates for an individual seeking insurance? A) Sex B) Race C) Age D) Medical history

B) Race

Events or conditions that increase the chances of an insured loss occurring are referred to as A) Risks. B) Perils. C) Hazards. D) Exposures.

C) Hazards.

Which authority is NOT stated in an agent's contract but is required for the agent to conduct business? A) Assumed B) Express C) Implied D) Apparent

C) Implied

In comparison to consumer reports, which of the following describes a unique characteristic of investigative consumer reports? A) They provide information about a customer's character and reputation. B) The customer has no knowledge of this action. C) The customer's associates, friends, and neighbors provide the report's data. D) They provide additional information from an outside source about a particular risk.

C) The customer's associates, friends, and neighbors provide the report's data.