SECTION 1 GENERAL INSURANCE +
A condition that leads to a loss is known as a: A: Risk B: Peril C: Hazard D: Speculative risk
C: Hazard Hazards are conditions that increase or lead to possibility or severity of a loss.
_________ involves the exchange of a premium for a promise, which means that the insurer is the only party making a legally enforceable promise to pay a claim. A: Aleatory Contract B: Conditional Contract C: Unilateral Contract D: Contract of Adhesion
C: Unilateral Contract A unilateral contract involves the exchange of a premium for a promise, which means that the insurer is the only party making a legally enforceable promise to pay a claim. The insured is not legally responsible to continue paying premiums. A bilateral contract has an exchange of a promise for a promise.
Alcoholism is an example of a: A: Speculative risk B: Physical hazard C: Peril D: Moral hazard
D: Moral hazard Moral hazards concern the persons ethics and habits. Alcoholism and drug addiction are considered to be moral hazards.
Which of the following is not correct concerning warranties? A: An implied warranty must be included in a document signed by the insured and made part of the contract. B: A warranty may be implied C: A warranty may be expressed D: Violation of a material warranty allows the other party to rescind the contract
A: An implied warranty must be included in a document signed by the insured and made part of the contract. An implied warranty is not in writing. An express warranty is in writing and must be in application or some document signed by the insured and made part of the contract.
The following information does NOT need to be communicated in a contract EXCEPT: A: Information the other party deems confidential. B: Known information. C: Information the other party waives. D: Information that should be known
A: Information the other party deems confidential. The following information does not need to be communicated in a contract: a) known information; b) information that should be known; c) information the other party waives.
A hazard that deals with attitudes, behavior, and habits is an example of: A: Moral hazard B: Morale hazard C: Legal hazard D: Physical hazard
A: Moral hazard Moral hazards deal with attitudes, behavior, and habits. Examples of moral hazards are drug abuse, dishonest claims, alcoholism, smoking, and driving over the speed limit.
Underwriting is a process of: A: Selecting, classifying, rating and determining coverages. B: Determining and establishing premiums C: Selecting, reporting and rejecting risks D: Selecting and issuing of policies
A: Selecting, classifying, rating and determining coverages. Underwriting if the process of risk selection, classification, rating, and determination of coverages.
All of the following describe an MGA EXCEPT: A: The legal entity which acts on behalf of, or in place of, it's principal. B: Has the power to appoint, supervise, and terminate the appointment of local agents in that territory C: Collects premium moneys from producing broker- agents and remits those moneys to those insurers pursuant D: Has the power to accept or decline risks.
A: The legal entity which acts on behalf of, or in place of, it's principal. In an agency there is a producer which is the legal entity which acts on behalf of, or in place of, it's principal.
Insurable interest is best described as: A: The policy owner must expect to suffer a loss when the insured dies or becomes disabled. B: The beneficiary, by definition, has an insurable interest in the insured. C: The insured must have a personal or business relationship with the beneficiary. D: All of these
A: The policy owner must expect to suffer a loss when the insured dies or becomes disabled. Insurable interest requires that the policy owner be expected to benefit from the insured's continuing to live or enjoying good health or to suffer a loss when the insured dies or is disabled. An insurable interest must exist between the applicant and the insured. It does not need to exist between the applicant and the beneficiary.
In regards to insurance, risk can be defined as: A: Uncertainty regarding loss B: Uncertainty regarding financial gain C: Certainty regarding financial loss D: Certainty regarding loss
A: Uncertainty regarding loss Risk is the possibility, uncertainty, or chance of loss. Insurance replaces this uncertainty with guarantees.
When large numbers of similar risks are combined in a group future claims become more A: predictable B: Catastrophic C: Measurable D: Uncertain
A: predictable According to the law of large numbers the larger within a group the more predictable the loss.
A peril is: A: a possibility of a loss. B: the actual cause of the loss. C: pure and speculative. D: anything that increases the chance of loss or severity of loss.
B the actual cause of the loss. A Peril is the actual cause of the loss. Some examples of common perils are fire, wind, hail, collision with another car, theft, etc.
An MGA acts as an agent and produces and underwrites gross direct written premium equal to or more than ________% of the policyholder surplus as reported in theinsurers last annual statement. A: 12% B: 5% C: 10% D: 7%
B: 5% An MGA acts as an agent and produces and underwrites gross direct written premium equal to or more than 5% of the policyholder surplus as reported in the insurers last annual statement.
An insurance contract promises to pay benefits based upon a future uncertainty such as death, or illness describes which feature of an insurance contract? A: Utmost Good Faith B: Aleatory C: Conditional D: Unilateral
B: Aleatory An aleatory contract is one where the benefit that is to be paid is contingent upon an uncertain future event (claim). An aleatory contract is defined as a mutual agreement in which the effects, in respect to both losses and advantages, depend on an uncertain event.
Insurance is a contract whereby one undertakes to indemnify another against: A: Physical hazard B: Damage C: Exposure D: Uncertainty
B: Damage According to the California Code of Insurance, insurance is a contract whereby one undertakes to indemnify another against loss, damage, or liability arising from a contingent or unknown event.
Which of the following describes the situation when one party intentionally gives false information in order to benefit from unlawful gain? A: Concealment B: Fraud C: Misrepresentation D: Theft
B: Fraud Fraud occurs when one party intentionally gives false information in order to benefit from unlawful gain.
What is rescission? A: Rescission is a supplemental agreement attached to and made part of the policy. B: Rescission is the revocation of a contract. C: The act of terminating an insurance policy. D: A written response to questions or statements made on an application for insurance.
B: Rescission is the revocation of a contract. Rescission is the revocation of a contract.
For insurable interest to exist: A: the insured's loss cannot be catastrophic. B: the insured must establish that they actually own something to be insured. C: the insured must be restored to the condition that they were in before the loss occurred. D: the loss needs to be significant enough to cause the insured to struggle financially.
B: the insured must establish that they actually own something to be insured. Insurable interest means that the insured must establish that they actually own something before they can insure it. This means that the insured has the possibility that they will suffer financial loss.
Risk is: A: the chance that might prove profitable. B: the uncertainty or chance of a loss occurring. C: an unknown loss. D: what everybody takes when dealing with insurance.
B: the uncertainty or chance of a loss occurring. Risk is the uncertainty or chance of a loss occurring.
Which of the following statements is incorrect concerning warranties? A: A risk excluded by a warranty and is not otherwise material does not need to be communicated. B: Violation of a warranty on the party of either party entitles the other party to rescind C: An implied warranty is must be included in the contract or some document signed by the insured and made part of the contract. D: Warranties can be either implied or expressed
C: An implied warranty is must be included in the contract or some document signed by the insured and made part of the contract. An implied warranty is not in writing. It is an expressed warranty that must be included in the contract or some document signed by the insured.
Balancing poor risk with preferred risk, with the average or standard risk being in the middle is known as what? A: Retention B: Waiver or estoppel C: Distribution of exposures D: Reduction in coverage
C: Distribution of exposures A profitable distribution of risk exposures exists when poor and preferred risk are balanced, with stand risk making them up the middle.
For an insurance contract, utmost good faith means: A: The policy owner will be indemnified in case of loss. B: Each party is equally responsible for the value of the policy. C: Each party relies upon the truthfulness of the other. D: The contract just involves the policy owner and the insurer.
C: Each party relies upon the truthfulness of the other. Utmost good faith means each party has a reasonable expectation that the other party is not attempting to conceal or disguise relevant information and material facts.
When can a representation be altered or withdrawn? A: It can be altered or withdrawn while the insurance is being issued. B: It can be altered or withdrawn after the insurance is issued. C: It can be altered or withdrawn before the insurance is issued. D: It cannot be withdrawn but can be altered within the 30 day grace period.
C: It can be altered or withdrawn before the insurance is issued. A representation can be altered or withdrawn only before the insurance is issued.
Which of the following is false? A: Concealment or false statements about material facts may allow the injured party to rescind the contract, even at a later date. B: An immaterial misrepresentation does not void coverage. C: Materiality of concealment is judged different than materiality of a misrepresentation. D: Materiality is determined not by the event but by the influence of the facts on the party to whom communication is due, in form their estimate of the disadvantages of the proposed contract.
C: Materiality of concealment is judged different than materiality of a misrepresentation. Materiality of a misrepresentation or concealment is determined the same.
What is meant by the term adverse selection? A: Selling types of insurance to applicants who do not need that particular kind of coverage B: Underwriting practices that discriminate against applicants in certain geographical areas C: The tendency of people with greater than average exposure to loss to purchase insurance. D: Agency marketing practices that promote only the policies that pay the highest commissions
C: The tendency of people with greater than average exposure to loss to purchase insurance. Adverse selection is when those more likely to have a loss purchase and keep their policies to a greater extent than those less likely to have a loss. This creates a disproportionate amount of losses to the insurer.
Which of the following becomes part of the contract, is guaranteed to be true, and if untrue, may be grounds for rescinding the policy? A: Consideration B: Contract of adhesion C: Warranty D: Facility of payment clause
C: Warranty Warranties are statements guaranteed to be true in all respects.
What are the four major elements of a contract? A: Indemnity, aleatory, utmost good faith, consideration B: Aleatory, agreement, legal purpose, indemnity C: agreement, competent parties, legal purpose, consideration D: competent parties, legal purpose, unilateral, contract of adhesion
C: agreement, competent parties, legal purpose, consideration The four major elements of a contract are: agreement, competent parties, legal purpose, and consideration.
A hazard is best defined as: A: any action from a court that increases the likelihood or size of a loss. B: risk shifted from one to another. C: anything that increases the chance of loss or severity of loss due to a peril. D: a possibility of a loss.
C: anything that increases the chance of loss or severity of loss due to a peril. A Hazard is anything that increases the chance of loss or severity of loss due to a peril.
A representation in an insurance contract qualifies as: A: An express warranty B: An opinion C: A policy provision D: An implied warranty
D: An implied warranty A representation cannot qualify an express provision in a contract of insurance but it may qualify as an implied warranty.
For an insurance contract to be enforceable, which of the following parties must be considered competent? A: All of these B: Beneficiary C: Insured D: Applicant
D: Applicant The applicant must be competent. The insured and beneficiary need not be considered competent if they are not the same person as the applicant.
Regarding the materiality of representations and concealment which is true? A: The degree of materiality is determined after a loss is calculated and pai B: Materiality has no effect on either of these C: It does not apply to health insurance, only property and casualty insurance D: It is determined by the effect of the facts on each party to the contract in determining his or her estimate of the disadvantages of the contract.
D: It is determined by the effect of the facts on each party to the contract in determining his or her estimate of the disadvantages of the contract. Rationale - If not knowing placed either party at a disadvantage then the representation or concealment was material. Keywords - materiality (how is it determined)
The function of insurance is best described as: A: It's a form of legalized gambling. B: It's a pooling of diverse group of people who are exposed to risks that are not homogenous. C: It protects against out living your financial resources. D: It spreads financial risk over a large group so as to minimize the loss to any one individual.
D: It spreads financial risk over a large group so as to minimize the loss to any one individual. The purpose of insurance is to have losses of a few paid by the contributions of many who are exposed to the same risk.
The principle used as the basis for establishing probability of losses occurring in the insurance industry is: A: Rating principle B: Rate-making C: Murphy's law D: Law of large number
D: Law of large number The greater the number the more predictable the loss. If the insurer takes a large enough number of past losses then it can predict future losses which allows them to set appropriate premiums.
What is the term that describes balancing preferred risks with poor risks, and average risks in the middle? A: Spread of risk B: Ideally insurable risk C: Adverse selection D: Profitable distribution of exposures
D: Profitable distribution of exposures Balancing preferred risks with poor risks and average risks in the middle creates a profitable distribution of exposures.
The price of insurance for each exposure is referred to as: A: Supplemental rate B: Unearned premium C: Earned premium D: Rate
D: Rate Rate is the price of insurance for each exposure unit.
Which of the following statements in regards to representations is false? A: A representation can qualify as an implied warranty B: Representations are used to define the truth C: Representations are false when the facts fail to correspond with its assertions or stipulations D: Representations can be altered or withdrawn after issuance of the contract
D: Representations can be altered or withdrawn after issuance of the contract Representations are oral or written statements made at the time of application or before policy issuance, therefore they may only be withdrawn or altered before the contract is issued.
Which of the following are the main types of risks? A. Sharing and Transfer B: Avoidance and Retention C: Pure and Transfer D: Speculative and pure
D: Speculative and pure There are two main types of risk: pure risk and speculative risk.
Which of the following is NOT part of a contract that is enforced by the law? A: Legal purpose B: Competent parties C: Offer and acceptance D: Tort law
D: Tort law For a contract to be enforced by the law it must contain these four elements: offer and acceptance, consideration, competent parties, and legal purpose
A relinquishment of a known right is considered to be? A: Concealment B: Omission C: Estoppel D: Waiver
D: Waiver Relinquishment or abandonment of a known right is considered a waiver.
The law of large numbers is a principal that basically says: A: the more insurance you have, the more protected you are. B: the larger the possibility of a loss, the greater the exposure. C: the larger the number of people in an insurance company, the more stable it is. D: the larger the amount of information gathered, the more reliable that information will be.
D: the larger the amount of information gathered, the more reliable that information will be. The law of large numbers is a principle that basically says, the larger the amount of information gathered, the more reliable that information will be.
Ideally Insurable Risk means: A: a risk that is above the normal means of the common people. B: a risk that is definite as to cause, time, place and amount C: the degree to which a person or their property is at risk for loss. D: the risk is financially within reason and is reasonable to insure.
D: the risk is financially within reason and is reasonable to insure. The term ideally insurable risk means that the risk is financially within reason and is reasonable to insure. Pg. 36
