Principles of Insurance and General insurance

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

D Insurable interest and consent To ensure legal purpose of a life insurance policy, it must have both insurable interest and consent.

A producer who fails to segregate premium monies from his own personal funds is guilty of A Commingling. B Larceny. C Embezzlement. D Theft.

A Commingling. It is illegal for insurance producers to commingle premiums collected from the applicants with their own personal funds.

In which of the following examples would a contract between an insurer and prospective insured be legal? 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. When an insurer and insured enter into a contract, both parties must be of legal age and mentally competent. It is legal for a person convicted of a felony to buy an insurance contract. An intoxicated person, however, may not be mentally competent, a 12-year-old student is considered to be underage in most states and a person under mind-impairing medication most likely would not be mentally competent.

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

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

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

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 Consideration is something of value that each party gives to the other. The consideration on the part of the insured is the payment of premium and the representations made in the application.

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 Assumed B Apparent C Express D Implied

B Apparent Apparent authority (also known as perceived authority) is the appearance or the assumption of authority based on the actions, words, or deeds of the principal or because of circumstances the principal created.

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

B 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.

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

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

If only one party to an insurance contract has made a legally enforceable promise, what kind of contract is it? A Conditional B A legal (but unethical) contract C Unilateral D Adhesion

C Unilateral In a unilateral contract, only one of the parties to the contract is legally bound to do anything.

An insurance company is domiciled in Montana and transacts insurance in Wyoming. Which term best describes the insurer's classification in Wyoming? A Alien B Domestic C Unauthorized D Foreign

D Foreign A foreign insurer is domiciled in one state and transacts insurance in another. A domestic insurer transacts insurance in the domicile state (in this case, Montana). An alien insurer is domiciled in one country and transacts insurance in another.

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

B Avoidance. Risk avoidance is elimination of risk of loss by avoiding any exposure to an event that could give rise to such loss.

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.

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

D Driving recklessly Morale hazards arise from a state of mind that causes indifference to loss, such as carelessness.

Which of the following is an example of a producer's fiduciary duty? A The trust that a client places in the producer in regard to handling premiums. B An obligation to state every known fact about the policy the producer is selling. C A duty to base all transactions upon the principle of Utmost Good Faith. D The obligation to tell the truth to the best of one's knowledge

A -The trust that a client places in the producer in regard to handling premiums. An agent acts in a fiduciary capacity, based upon trust and confidence, when handling the financial affairs of their customers, including the handling of premiums.

An insurer has made all of the decisions regarding the provisions included in the insured's policy. The insured finds an objectionable provision and wants to negotiate it with the insurer but is not allowed to do so. Her only options are to reject the policy or accept it as is. Which contract feature does this describe? A Personal B Adhesion C Unilateral D Conditional

B Adhesion A contract of adhesion is prepared by only the insurer; the insured's only option is to accept or reject the policy as it is written.

If an insurer meets the state's financial requirements and is approved to transact business in the state, it is considered to be A Approved. B Authorized. C Certified. D Qualified.

B 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 of the following insurance providers must be nonprofit and sell insurance only to its members? A Service B Mutual C Reciprocal D Fraternal

D Fraternal To be characterized as a fraternal benefit society, the organization must be nonprofit, have a lodge system that includes ritualistic work and maintain a representative form of government with elected officers. Insurance may only be sold to members of the society.

A hazard is best defined as: A A deliberate attempt to deceive. B Something that increase the risk of loss C The uncertainty of loss D Neglect to communicate a material fact

B Something that increases the risk of loss Hazards are conditions or situations that increase the probability of an insured loss occurring.

An insurance company sells an insurance policy over the phone in response to a TV ad. Which of the following best describes this act? A Independent agency marketing B Illegal C Insurance telemarketing D Direct response marketing

D Direct response marketing A direct response marketing system effectively bypasses the insurance agent. Business is conducted over the phone, through the mail, or online. This is a perfectly legal approach to selling insurance. It is not mandatory in all situations for the insured to physically sign any documents in order for coverage to go into effect.