U1 general insurance quiz
Which of the following would be considered a moral hazard in underwriting a health insurance risk? A)Excessive dieting B)A hazardous occupation C)A serious heart ailment D)A family history of diabetes
A)Excessive dieting
The inclination of higher-risk individuals to be "first in line" to get and keep insurance is called A)misrepresentation. B)adverse selection. C)substandard selection. D)excess risk.
B)adverse selection.
Which of the following is NOT a characteristic of an insurable risk? A)Expensive B)Accidental C)Measurable D)Calculable
A)Expensive
When agents act on behalf of insurers, they are acting under which legal principle? A)Utmost good faith B)Agency C)Estoppel D)Reasonable expectations
B)Agency
A corporation or other limited liability association that assumes and spreads the liability exposure for any of its group members is called A)a stock insurer B)a risk retention group C)a mutual insurer D)a reciprocal insurer
B)a risk retention group
Which of the following statements regarding representations is CORRECT? A)A representation must be material for the insurer to void the contract. B)If a representation is false on a material point, the insurer may alter the contract but may not rescind it. C)A representation is guaranteed to be true. D)Representations are statements the applicant may or may not believe to be true.
A)A representation must be material for the insurer to void the contract.
Insurers that deal directly with insureds without the use of agents are known as A)direct response B)writers independent insurers C)mass marketers D)reciprocals
A)direct response
The insurance concept of returning consumers to the financial status they enjoyed prior to a loss is known as A)indemnification B)restoration C)utmost good faith D)risk handling
A)indemnification
An exclusive insurance producer who solicits insurance represents A)the insurer B)the insured C)the beneficiary D)the Commissioner
A)the insurer
Purchasing insurance is an example of A)transferring risk B)avoiding risk C)retaining risk D)reducing risk
A)transferring risk
With regard to insurance, risk can be defined as A)uncertainty regarding loss B)certainty regarding financial gain C)ertainty regarding loss D)uncertainty regarding financial gain
A)uncertainty regarding loss
Which of the following is a promise in exchange for an action? A)A condition contract B)A unilateral contract C)An aleatory contract D)A contract of adhesion
B)A unilateral contract
With regard to insurable risks, which of the following statements is NOT correct? A)An insurable risk must be measurable. B)An insurable risk must involve loss that is within the insured's control. C)Only pure risks are insurable. D)Insurers will not insure risks that are catastrophic in nature.
B)An insurable risk must involve loss that is within the insured's control.
False information that will void an insurance contract is known as A)misrepresentations B)material misrepresentations C)breach of warranty D)indemnifications
B)material misrepresentations
Independent rating agencies evaluate all of the following factors of an insurer to assess their financial strength EXCEPT A)loss experience B)number of agents C)operating expenses D)investments
B)number of agents
According to insurance law, an insurance agent is a person who A)is compensated as an independent contractor to procure insurance on behalf of another person, but not on behalf of an insurer or agent B)solicits, negotiates, procures or effects insurance or annuity contracts on behalf of an insurer C)receives a fee as an independent contractor to investigate and negotiate the settlement of claims arising under insurance contracts D)receives a fee to advise insurance applicants on the merits and disadvantages of insurance policies
B)solicits, negotiates, procures or effects insurance or annuity contracts on behalf of an insurer
In insurance, A)contracts made by the principal are considered to be contracts of the agent B)the insurer is the principal and the producer is the agent C)the producer is the principal and the insurer is the agent D)contracts made by the agent are considered to be contracts of the producer
B)the insurer is the principal and the producer is the agent
If an agent or producer diverts funds belonging to an insurer to her own use, she has committed the illegal act of A)embezzlement B)theft C)fraud D)commingling
B)theft
Which characteristic of insurance contracts provides legal protection for insureds when coverages are not clearly stated in the policy? A)Indemnity B)Utmost good faith C)Adhesion D)Conditional
C)Adhesion
Which of the following statements regarding a producer's authority is NOT correct? A)Soliciting and negotiating insurance contracts on the company's behalf are considered part of an agent's express authority. B)An agent's apparent authority may be binding on an insurer under the law of agency. C)Advising an applicant to answer certain questions in a manner in order to pass underwriting is an example of apparent authority. D)Reviewing a prospective applicant's insurance program and recommending the purchase of a particular product is an example of implied authority.
C)Advising an applicant to answer certain questions in a manner in order to pass underwriting is an example of apparent authority.
An insurance contract is prepared by one party, the insurer, rather than through negotiation between the contracting parties. Which of the following statements explains this characteristic of insurance contracts? A)The insurance contract is a unilateral contract. B)The insurance contract is an aleatory contract. C)The insurance contract is a contract of adhesion. D)The insurance contract is a conditional contract.
C)The insurance contract is a contract of adhesion.
Whom do independent insurance agents represent? A)The state insurance department B)Themselves C)The insured D)The insurer
C)The insured
Assured Insurance Company deals directly with insureds and does not have any agents. Assured is A)a mass marketer B)a reciprocal insurer C)a direct writer D)an independent insurer
C)a direct writer
In legal terms, the voluntary relinquishment of a known right is called A)a withdrawal B)a concealment C)a waiver D)a warranty
C)a waiver
Unincorporated groups of people that agree to insure each other's losses under a contract are known as A)mutual insurers B)stock insurers C)reciprocal insurers D)fraternal insurers
C)reciprocal insurers
All of the following are elements of an insurable risk EXCEPT A)the loss must be the result of chance B)the loss must be predictable C)the loss must be catastrophic D)the loss must have a determinable value
C)the loss must be catastrophic
A contract agreement between a ceding insurer and reinsurer to underwrite certain classes of risks is known as A)retroceding insurance B)assuming reinsurance C)treaty reinsurance D)facultative reinsurance
C)treaty reinsurance
When negotiating a contract of insurance, the parties make no attempt to conceal or disguise important facts or deceive each other. The contact is said to be one of A)offer and acceptance B)sharing C)utmost good faith D)value
C)utmost good faith
Assume there are 4 different mortality tables. Of these, the most reliable would be the mortality table covering A)4 million lives B)500,000 lives C)100,000 lives D)10 million lives
D)10 million lives
An insurance producer acts in what capacity when holding insurance premiums? A)Representative B)Legal C)Official D)Fiduciary
D)Fiduciary
Denicia is appointed by an insurance company to transact insurance on its behalf. She collects her clients' premiums and has them sign paperwork. By what authority can she do so? A)Express B)Apparent C)Fiduciary D)Implied
D)Implied
Which of the following is NOT a common characteristic of an insurance contract? A)Adhesion B)Utmost good faith C)Indemnity D)Legal purpose
D)Legal purpose
Self-insurance is an example of what kind of risk treatment? A)Reduction B)Transference C)Avoidance D)Retention
D)Retention
Which of the following is a distinctive feature of fraternal life insurance? A)Policies are only available to men who have lived in a fraternity. B)Members must be related. C)Fraternal societies are exempt from income taxes. D)Some policies are referred to as open contracts.
D)Some policies are referred to as open contracts.
Which of the following terms indicates that a life insurance contract contains the enforceable promises of only one party? A)Aleatory B)Conditional C)Adhesion D)Unilateral
D)Unilateral
An insurance agent could be any of the following EXCEPT A)a general agent or managing general agent B)an independent agent C)an exclusive or captive agent D)a direct-writing commissionable agent
D)a direct-writing commissionable agent
Susan is the receptionist at an insurance agency. She is currently studying for her life insurance license. One day at lunchtime, Carla comes in the office to pay her auto insurance premium. Susan talks to her about the importance of life insurance, and Carla immediately completes an application and gives Susan a check for the premium. Carla leaves the agency believing she is covered by life insurance. Susan has acted with A)implied authority B)express authority C)illegal authority D)apparent authority
D)apparent authority
Beth and Talli's California neighborhood was ravaged by wildfires last summer. As a result, they installed a sprinkler system in their home to minimize damage in the event of a fire. This method of dealing with risk is called A)risk retention B)risk transference C)risk avoidance D)risk reduction
D)risk reduction
The type of risk that involves the chance of both loss and gain is A)whole risk B)impure risk C)pure risk D)speculative risk
D)speculative risk
When there is no coverage available through an authorized carrier in the state, this insurance is referred to as A)risk retention B)excess and surplus lines C)reinsurance D)reciprocal insurance
B)excess and surplus lines
Since the obligations of the insurance company hinge on certain acts of the policyowner, the beneficiary, or both, the insurance contract is termed A)unilateral B)aleatory C)bilateral D)conditional
D)conditional
Which of the following statements regarding Lloyd's associations is CORRECT? A)Insurance is provided by individual underwriters. B)Insurance can only be offered in London. C)Lloyd's of London is an insurance company. D)Lloyd's associations are insurance companies.
A)Insurance is provided by individual underwriters.
Which of the following statements about Lloyd's of London is NOT correct? A)It is an insurance carrier that underwrites insurance. B)It gathers and disseminates underwriting information. C)It is an association of individuals and companies that individually underwrite insurance. D)It helps its associates settle claims and disputes.
A)It is an insurance carrier that underwrites insurance.
Which of the following statements regarding mass marketing insurance is CORRECT? A)It is marketed through various forms of print, visual, and aural media. B)It involves one-on-one meetings between prospects and agents. C)It is considered unethical and is illegal in some states. D)It takes advantage of small group situations.
A)It is marketed through various forms of print, visual, and aural media.
Which of the following is NOT encompassed by agency law? A)Knowledge of the principal is knowledge of the agent. B)A contract completed by the agent on behalf of the principal is a contract of the principal. C)Payments made to an agent intended for the principal are payments made to the principal. D)The acts of an agent are the acts of the principal.
A)Knowledge of the principal is knowledge of the agent.
Which of the following statements regarding fraternal benefit societies is NOT true? A)Policies are called contracts. B)Life insurance is a benefit of membership. C)They are organized under a lodge system. D)The society exists for the benefit of its members.
A)Policies are called contracts.
Which of the following statements regarding insurers is CORRECT? A)The primary purpose of an insurance company that is organized as a stock insurer is to earn a profit for its stockholders. B)if a life insurance company is owned by its policyowners, it is a stock company. C)A stock company that issues both participating and nonparticipating life insurance policies is classified as a full lines company. D)Mutual insurance companies sell insurance to insurers.
A)The primary purpose of an insurance company that is organized as a stock insurer is to earn a profit for its stockholders.
An agent that represents only 1 insurance company is A)a captive agent B)a broker C)a special agent D)a general agent
A)a captive agent
Jamir is an agent for Assured Insurance. He visits Ada, a prospect, in her home. He arrives with business cards, sample policies from Assured, and an Assured rate book. He recommends Assured policies that can meet Ada's needs for insurance. Which of the following terms describes the kind of authority that Jamir has in this situation? A)Binding B)Apparent C)Implied D)Express
B)Apparent
Which of the following statements about fraternal benefit societies is NOT correct? A)They are nonprofit societies that have a representative form of government. B)They are exempt from the licensing requirements if they provide insurance benefits to their members only. C)They operate on a lodge system. D)They do not have capital stock.
B)They are exempt from the licensing requirements if they provide insurance benefits to their members only.
All of the following are characteristics of an insurable risk EXCEPT A)measurable B)intentional C)calculable D)affordable
B)intentional
Brian met with an insurance producer to discuss how much life insurance he would need to support his family in the event of his premature death. Both parties agreed that a $750,000 life insurance policy would be sufficient. When Brian stated that he wanted to discuss the matter with his spouse, the producer asked him to sign a general background information form before he left. However, the document was actually an application form that the producer submitted to the insurer. If the insurer then issues a contract, it will be legally unenforceable because A)Brian is not presumed to be a competent party to the contract B)Brian did not make a valid acceptance of the contract C)Brian did not make a valid offer D)the insurer did not make a valid offer
C)Brian did not make a valid offer
The fact that an insurance contract promises to pay benefits contingent on a future uncertainty (such as death or illness) makes it what type of contract? A)Estoppel B)Aleatory C)Conditional D)Adhesion
C)Conditional
When Harry sells his car to his brother, Nate, he transfers his auto insurance policy to him as well. Harry's insurer will A)accept this process as long as Harry receives appropriate consideration from Nate B)disallow this process because auto insurance is a valued contract C)allow this process as long as Nate is insurable D)disallow the process because auto insurance is a personal contract
D)disallow the process because auto insurance is a personal cont
Which of the following statements regarding a risk retention group is TRUE? A)Policyholders may be from any type of industry. B)Risk retention groups are federally regulated. C)a risk retention group may provide any type of insurance. D)its sole purpose is to provide liability insurance to its policyholders.
D)its sole purpose is to provide liability insurance to its policyholders.
Paul is a single father with 2 young daughters. He has decided to give up his 2 favorite hobbies—skydiving and race car driving—because they are risky pursuits that could lead to his premature death. This method of dealing with risk is called A)risk transference B)risk retention C)risk sharing D)risk avoidance
D)risk avoidance
If an agent fails to perform an act required by a policy, the insurer A)is exempt from fulfilling its obligation to the policyholder B)has 60 days to notify the policyholder of the omission C)is still required to fulfill its obligation D)may release the agent and write a new contract with the policyholder
C)is still required to fulfill its obligation
The parties to an insurance contract must act in utmost good faith, which means that both the agent and the applicant A)work together to find insurance for the lowest possible price B)always arrive on time for meetings C)make no attempt to deceive each other D)agree to transact insurance business
C)make no attempt to deceive each other
All of the following are considered competent parties to enter into insurance contracts EXCEPT A)trusts B)business entities C)minors D)estates
C)minors
Floods, heart attacks, theft, and choking are all examples of A)risks B)hazards C)perils D)exposures
C)perils
Which of the following statements regarding insurance is NOT true? A)There are no physical hazards in life and health insurance. B)All types of insurance indemnify the insured against financial loss. C)All types of insurance are implemented through a contractual agreement between the insurance owner and the insurer. D)All types of insurance are based on the law of large numbers.
A)There are no physical hazards in life and health insurance.
All of the following are considered to be insurers EXCEPT A)a group of employees enrolled in an insurance plan B)an insurance company C)a fraternal organization D)an association
A)a group of employees enrolled in an insurance plan
An unincorporated group of subscribers who operate through an attorney-in-fact to provide indemnity insurance for each other is called A)a reciprocal exchange B)an unauthorized insurer C)a fraternal benefit society D)a surplus lines insurer
A)a reciprocal exchange
A contract in which one party may receive considerably more in value than the other party is A)an aleatory contract B)a contract of indemnity C)a unilateral contract D)an executory contract
A)an aleatory contract
A commercial insurer can take all of the following forms EXCEPT A)an individual benefit society B)a fraternal benefit society C)a mutual insurance company D)a stock insurance company
A)an individual benefit society
All of the following are elements of a contract EXCEPT A)competent parties B)agreement C)acknowledgment D)legal purpose
C)acknowledgment
A contract based on the principle of indemnity A)pays a stated sum, regardless of the actual loss incurred B)attempts to return the insured to his original financial position C)does not attempt to value the insured's actual financial loss D)allows the insured to sue the insurer if the full value of the contract is not paid when a claim occurs
B)attempts to return the insured to his original financial position
Nancy is an agent for Assured Life and Health Insurance Company and convinces Sook, a young newlywed, to buy a policy. Sook and her spouse have recently moved to the city and found new jobs. Nancy wants to help them get settled. She may help them in all of the following ways EXCEPT A)explaining the coverage B)depositing the initial premium in her own account C)collecting the initial premium D)delivering the policy
B)depositing the initial premium in her own account
Jill met with an insurance agent to discuss purchasing a $500,000 term life insurance policy. If Jill signs a contract 2 weeks later while intoxicated, A)the contract will be voidable at the insurer's option B)the contract will be considered valid C)she will not be presumed to be competent D)she will be presumed to be competent since she was capable of understanding the contract during the initial meeting
C)she will not be presumed to be competent
The law of large numbers states that A)the smaller the number of risks combined into 1 group, the less uncertainty there will be as to the amount of loss that will be incurred B)the larger the number of risks combined into 1 group, the smaller the loss will be to any 1 individual in that group C)the larger the number of risks combined into 1 group, the less uncertainty there will be as to the amount of loss that will be incurred D)the smaller the number of risks combined into 1 group, the larger the loss will be to any 1 individual in that group
C)the larger the number of risks combined into 1 group, the less uncertainty there will be as to the amount of loss that will be incurred