2-40

RISK RETENTION

•The use of deductibles in health and property insurance

Which of the following is a requirement to operate as an insurance agency in Florida? 1. obtaining a license or registration from the state 2. having transacted insurance in Florida for at least two years before applying for a license 3. appointment of at least two agents to manage the agency 4. submitting an application and appointing the Office as its agent for service of process

1. obtaining a license or registration from the state

When selling individual life insurance, Mary tells prospects that Florida law requires them to purchase a long-term care rider, even though this is not true. Which unfair trade practice has Mary committed? 1. sliding 2. churning 3. discrimination 4. rebating

1. sliding

Why are ambiguities in an insurance contract most often interpreted in favor of the insured or the policyowner? 1. The policyowner is required to make enforceable promises to the insurer. 2. The contract's terms are drafted by the insurer without input by the policyowner. 3. Insurance contracts are unilateral. 4. The policyowner is required to make ongoing premium payments.

2. The contract's terms are drafted by the insurer without input by the policyowner.

Which of the following penalties may the Office of Insurance Regulation impose if an agent intentionally represents an unauthorized insurer in Florida? 1. up to six months' imprisonment 2. a fine of up to $10,000 3. a fine of up to $5,000 4. restitution

2. a fine of up to $10,000

Statewide Insurers maintains its home office in Tampa, where it was incorporated. In Florida, Statewide Insurers is considered a: 1. alien insurer 2. domestic insurer 3. foreign insurer 4. national insurer

2. domestic insurer

The Department CANNOT suspend or revoke an agent's license for which of the following reasons? 1. intentionally violating the insurance laws 2. failing to meet projected sales goals 3. violating the Code of Ethics 4. engaging in rebating

2. failing to meet projected sales goals

Question 1 The life insurance Buyer's Guide helps prospective buyers determine all of the following EXCEPT: 1. amount of insurance to buy 2. most qualified insurer 3. most suitable policy 4. type of insurance to buy

2. most qualified insurer

A producer has a fiduciary responsibility to: 1. Neither the insurer nor the customer. 2. The customer only. 3. Both the insurer and the customer. 4. The insurer only.

3.) Both the insurer and the customer.

Which statement about the NAIC's Uniform Accident and Sickness Policy Provision Model Law is NOT correct? The model law created 12 required and 11 optional provisions and riders common to health insurance policies. The required and optional provisions vary by state. By adopting this model law, states dictated how health insurance policies delivered in their jurisdictions must be written. The required and optional provisions are uniform in all states.

The required and optional provisions are uniform in all states.

How is the term "immediately" defined under the time payment of claims provision? It means "within 45 days." It means "within 10 days." The term "immediately" is defined by individual states. It means "within 25 days."

The term "immediately" is defined by individual states

policies, covering specific conditions or providing benefits for specific health services. These types of policies include: ◦accident-only insurance ◦dental insurance ◦vision care insurance ◦prescription drug insurance ◦specified disease insurance ◦supplemental health insurance ◦travel accident insurance ◦credit disability insurance

limited benefits (or voluntary benefit)

All of the following are standard renewability provisions EXCEPT optionally cancelable conditionally renewable noncancellable guaranteed renewable

optionally cancelable

Federal laws that have a direct bearing on insurance

•Fair Credit Reporting Act (FCRA) •Employee Retirement Income Security Act (ERISA) •Consolidated Budget Reconciliation Act (COBRA) •Health Insurance Portability and Accountability Act (HIPAA) •Patient Protection and Affordable Care Act (PPACA)

Anne lives in State A and buys a health insurance policy issued by an insurer domiciled in State B. How does the conformity with state statutes provision resolve provisions in the policy that conflict with the laws of State A? State law of the state in which the insurer is domiciled-State B, in this case-will prevail. The policy will automatically be amended to meet the minimum legal requirements of State A. The policy can remain unchanged until a claim is filed, at which time the insurer will address the matter. The insurer will eventually have to change the policy to conform to the laws of State A.

The policy will automatically be amended to meet the minimum legal requirements of State A.

actuaries

insurance company mathematicians

policies, covering the cost of medical care and medical services

medical expense

PERIL

the event that insurance protects against

Under the claim forms provision, how many days does the insurer have to provide claim forms to the insured after receiving a notice of claim? 15 days 60 days 30 days 10 days

15 days

What is the term for voluntarily giving up a known right? 1. waiver 2. estoppel 3. voidable 4. conditional

2. estoppel

Conrad obtained a life insurance agent's license primarily to write insurance for his family members and friends. Which unfair trade practice has Conrad engaged in? 1. rebating 2. misrepresentation 3. coercion 4. controlled business

4. controlled business

adverse selection

An important goal of the underwriting process is to avoid. (Adverse selection means to "select against)

PRIVATE INSURANCE/ COMMERICAL

STOCK, MUTUAL, AND OTHER COMPANIES

HAZARD

a condition that raises the chance of encountering a peril or increases the severity of a loss

Fraternal insurers

nonprofit organizations that operate under a special section of the insurance laws of the state in which they are approved.specialize primarily in life insurance and annuity products that are usually available only to the society's members

MORTALITY TABLE

used in determining life insurance premiums, while morbidity tables are the basis of health insurance premiums

policies, providing a benefit if the insured dies or is severely injured because of an accident;

accidental death and dismemberment (AD&D)

Which of the following statements is not true about binding receipts in the health insurance sale? 1. A binding receipt guarantees coverage from the time the applicant completes the application, but only if the applicant is found to be insurable. 2. The applicant is guaranteed coverage throughout the underwriting period. 3. A binding receipt is more common with life insurance than with health insurance. 4. A binding receipt is effectively a temporary insurance agreement.

1. A binding receipt guarantees coverage from the time the applicant completes the application, but only if the applicant is found to be insurable.

An insurer must notify its current customers of its privacy policies or practices at least once every how often? 1. 6 months 2. 12 months 3. 18 months 4. 24 months

2. 12 months

Which of the following best describes an agent's responsibilities? 1. An agent only has to act in the best interests of the insured or applicant, but not the insurer. 2. An agent has to act in the best interests of insureds, applicants, and insurers. 3. An agent has no fiduciary duty toward insurers, applicants, or insureds. 4. An agent only has to act in the best interests of the insurer he or she represents.

2. An agent has to act in the best interests of insureds, applicants, and insurers.

White Insurance Company is a domestic insurer in Florida. By what date must it file an annual statement regarding its financial condition each year? 1. January 1 2. March 1 3. February 1 4. May 1

2. March 1

All the following statements regarding reinsurance are correct EXCEPT: Claims are paid to the policyowner separately by each insurer participating in the reinsurance agreement. The insurer seeking to transfer some of its risk is known as the ceding company. Reinsurance is a risk-sharing process used by insurance companies. The insurer accepting some of the risk being transferred is known as the reinsurance company.

Claims are paid to the policyowner separately by each insurer participating in the reinsurance agreement.

Under the other insurance with other insurer provision, what must be done with any premiums Larry paid to Company A that exceed those that are needed for coverage? Company A retains them. Company A applies them to future coverage on Larry's behalf. Company A must return them to Larry. Company A and Company B retain them proportionately.

Company A must return them to Larry.

providing income replacement when the insured cannot work because of a disability

disability income

LOSS

an unplanned reduction in economic value

Which organization worked to make sure health insurance policies share similar provisions? the National Association of Insurance Commissioners (NAIC) the National Association of Insurance and Financial Advisors (NAIFA) the American Council of Life Insurance (ACLI) the Department of Commerce

the National Association of Insurance Commissioners (NAIC)

Which of the following provisions states that the insurer must provide claim forms to the insured within a certain number of days of receiving a notice of claim? the notice of claim provision the reinstatement provision the change of beneficiary provision the claim forms provision

the claim forms provision

LAW OF LARGE NUMBERS

the mathematical principle of probability that insurance is based on.

Which of the following optional provisions applies to policies that provide income payments if the insured becomes disabled? the conformity with state statutes provision the relation of earnings to insurance provision the cancellation provision the unpaid premium provision

the relation of earnings to insurance provision

RISK TRANSFER

transferring the loss to a third party—is the basis for most forms of insurance today.

GOVERMENT INSURANCE

FEDERAL AND STATE

fraternal benefit society

an organization of people who share a common ethnic, religious, or vocational affiliation

RISK

chance of loss

Which one of the following insurance sales arrangements is not affiliated with a single insurance company but instead represents multiple companies? 1. A sales office that is managed by an independent contractor, called a general agent, who employs sales representatives traditionally called agents. 2. A sales arrangement in which sales are made directly to consumers through mass media channels without the use of producers. 3. A sales office that is managed by general manager who is an employee of the ABC Insurance Co. 4. An independent sales office that is managed by a Personal Producing General Agent (PPGA).

4.) An independent sales office that is managed by a Personal Producing General Agent (PPGA).

Under the proof of loss provision, within how many days of a loss does the insured have to provide the insurer with written proof of loss? 120 days 90 days 10 days 30 days

90 days

In which of the following ways is health insurance UNLIKE life insurance? Health insurance protects against the unexpected. Health insurance protects against financial loss. Only one type of health insurance is available to insurance buyers. Health insurance protects against risks a person may face many times during his or her life.

Health insurance protects against risks a person may face many times during his or her life.

Mark has satisfied the requirements of reinstatement but receives no notice from the insurer during the 45-day period. Which of the following will happen? Mark can assume the reinstatement has not been accepted, and he can get his money back. Mark's policy is automatically reinstated. Mark must contact the insurer to determine its decision. Mark's policy automatically lapses.

Mark's policy is automatically reinstated.

policies, offering private insurance coverage that supplements Medicare coverage;

Medicare supplement

MORAL HAZARD

Moral hazards are an individual's traits or habits that increase the chance of a loss. Alcoholism, smoking, and drug addiction are examples of moral hazards. A willingness to defraud insurers is considered a moral hazard for which insurers remain alert

MORALE HAZARD

Morale hazards are also individual tendencies, but they arise from a state of mind, attitude, or indifference to loss. Driving recklessly is an example of a morale hazard. In fact, doing anything recklessly because "I have insurance for that" demonstrates a morale hazard

"regulatory associations" that work to promote uniformity among the STATE

National Association of Insurance Commissioners (NAIC), National Conference of Insurance Legislators (NCOIL)

Which of the following statements about representations and warranties is correct? 1. A statement made on the application which is true to the applicant's best knowledge is deemed a misrepresentation if it is later discovered to be inaccurate. 2. Statements made by the applicant on the application are deemed warranties. 3. Promises made by the insurer in the insurance contract are deemed representations. 4. Insurers can rescind (cancel) an insurance contract if a misrepresentation is discovered on the application during the contestability period.

1. A statement made on the application which is true to the applicant's best knowledge is deemed a misrepresentation if it is later discovered to be inaccurate.

Which of the following statements about utmost good faith in insurance contracts is correct? 1. Both the insured and insurer must act in utmost good faith. 2. Only the insured and the beneficiary must act in utmost good faith. 3. Only the insurer must act in utmost good faith. 4. Only the insured must act in utmost good faith.

1. Both the insured and insurer must act in utmost good faith.

If a person submits an insurance application without the first premium, which of the following statements is correct? 1. The insurer must make an offer to the applicant. 2. The insurer must make a counteroffer. 3. The applicant has made a counteroffer. 4. The applicant has made an offer to the insurer.

1. The insurer must make an offer to the applicant.

Agent Holly routinely charges her clients an extra amount in addition to the premium stated in the life insurance policy to cover her own personal administrative expenses. What is true about Holly's actions? 1. They are unlawful. 2. They are lawful. 3. They are lawful in most cases. 4. They are lawful if the client agrees in writing.

1. They are unlawful.

ABC Insurance Company wants to become licensed in Florida to sell insurance products. Which of the following must it receive in order to transact insurance? 1. certificate of authority 2. certificate of appointment 3. certificate of licensure 4. articles of incorporation

1. certificate of authority

All of the following are duties of an agent or producer with respect to the issuance of a health insurance policy EXCEPT: 1. determining the premium rate to be charged for a policy 2. accepting premium payments 3. issuing receipts 4. accepting and submitting applications

1. determining the premium rate to be charged for a policy

What are statements that are guaranteed to be true called? 1. warranties 2. petitions 3. declarations 4. representations

1. warranties

Which of the following does NOT provide independent ratings of insurance companies' financial strength and claims-paying abilities? 1. Securities and Exchange Commission 2. Moody's 3. Duff and Phelps 4. A.M. Best

1.) Securities and Exchange Commission

What did the NAIC's Uniform Accident and Sickness Policy Provision Model Law create in the early 1950s? 10 standard provisions that were to be adopted for use in all individual policies 12 optional provisions for all life and health insurance policies licensing requirements for insurance agents marketing health insurance 12 mandatory provisions that must be included in all policies, as well as 11 optional provisions

12 mandatory provisions that must be included in all policies, as well as 11 optional provisions

Which type of insurer is incorporated, owned by its policyholders, but does not have capital stock? 1. stock insurer 2. authorized insurer 3. domestic insurer 4. mutual insurer

4. mutual insurer

Under the legal actions provision, when can an insured take legal action against an insurer? The insured cannot take legal action against the insurer until at least 60 days after the insured provides proof of loss to the insurer. The insured can only take legal action against the insurer 120 days after the insured provides proof of loss. The insured can never take legal action against the insurer. The insured can take legal action against the insurer at any time.

The insured cannot take legal action against the insurer until at least 60 days after the insured provides proof of loss to the insurer.

INDUSTRIAL LIFE / ORDINARY LIFE INSURANCE

Traditionally offered as "burial insurance," industrial life insurance offers individual coverage in small face amounts, usually less than $10,000 (and frequently between $1,000 and $2,500). These policies generally require no medical exam to qualify

Jason wishes to make a minor change to his new health insurance contract. Which of the following can make the change? Jason and the agent an executive officer of the company Jason the state insurance commissioner, director, or superintendent

an executive officer of the company

reciprocal insurance exchange

an unincorporated group of individuals (called subscribers), working together through an attorney-in-fact, who each agree to pay a pro rata share of any loss suffered by any other member

National Conference of Insurance Legislators (NCOIL)

comprised of state legislators from every state. The NCOIL works to help state legislators make informed decisions on insurance issues that affect their constituents

home service insurance company

insurance company that sells its products to the general public and which specializes in life insurance policies designed for burial and last expense purposes, generally with face amounts of $10,000 or less, for which she oftentimes collects premiums weekly

UNDERWRITING PROCESS

insurance company underwriters determine if the risk proposed for insurance should be accepted or rejected

Which of the following provisions states the insurer's promise to pay a specified amount of benefit if a certain event occurs? right to examine (free-look) provision probationary period consideration clause insuring clause

insuring clause

covering the cost of sustained, long-term care provided in a nursing home, at home, or through extended health care agencies or facilities

long-term care policies

Mutual insurance companies

owned by their policyowners; they have no stockholders. Similar to stock insurers, mutual insurance companies have minimum capital requirements and are governed by a board of directors. But a mutual company's board of directors is elected by the policyowners

National Association of Insurance Commissioners (NAIC),

represents the insurance department of every state, the District of Columbia, and several U.S. territories. The NAIC meets regularly to review developing insurance issues and to promote uniformity by developing model insurance regulations

Which of the following best characterizes the ownership of health insurance coverage? 1. Most people who have health insurance coverage have it through a state or municipal plan. 2. Most people who have health insurance coverage have it through a group plan. 3. Most people do not have health insurance coverage. 4. Most people who have health insurance coverage have it through individually owned plans.

2. Most people who have health insurance coverage have it through a group plan.

As required by the Patient Protection and Affordable Care Act, which of the following best describes the manner in which pre-existing medical conditions are handled with new insureds under a group medical plan? 1. Pre-existing condition exclusions may be imposed upon certain individuals with chronic illnesses. 2. Pre-existing condition exclusions are prohibited for all insureds in all group medical plans for plan years beginning on or after January 1, 2014. 3. Pre-existing condition exclusions have been prohibited for all insureds in all group medical plans since the Act went into effect on March 23, 2010. 4. Pre-existing condition exclusions may be imposed upon certain elderly adults but never upon children.

2. Pre-existing condition exclusions are prohibited for all insureds in all group medical plans for plan years beginning on or after January 1, 2014.

Which of the following is NOT one of an agent's responsibilities to an applicant? 1 disclosing all important information about a proposed policy 2. helping write an applicant's insurance policy 3. avoiding replacing an insurance policy unless doing so will clearly benefit the applicant 4. recommending insurance products that are suitable for the customer's needs

2. helping write an applicant's insurance policy

Each application for health insurance requires the signature of which party? 1. the producer only 2. the proposed insured, the producer, and all adults to be covered by the policy 3. the proposed insured only 4. only adults to be covered by the policy

2. the proposed insured, the producer, and all adults to be covered by the policy

All the following are characteristics of a stock insurance company EXCEPT 1. they may issue dividends. 2. they are owned by policyowners. 3. they are governed by a board of directors. 4. they have minimum capital requirements that must be met before they can conduct business.

2.) they are owned by policyowners.

Under the notice of claim provision, how many days does the insured have to notify the insurer after having a covered loss? 15 days 1 day 10 days 20 days

20 days

All of the following statements about the delivery of health insurance policies are correct, EXCEPT 1.If a policy is rated or denied, the producer must explain to the applicant the reason for the decision. 2. When delivering the policy, the producer should review the policy to ensure that its terms and conditions match those the client applied for. 3. If an applicant applies for a policy without paying the first premium, the producer must collect the first premium along with a surcharge when delivering the policy. 4. The producer is typically responsible for delivering the policy to the insured.

3. If an applicant applies for a policy without paying the first premium, the producer must collect the first premium along with a surcharge when delivering the policy.

Sandra and David orally agree that Sandra will pay David $25,000 to set fire to her ex-husband's house and the house burns to the ground. Which of the following statements is correct? 1. The contract is unenforceable because the consideration will be paid after the act is performed. 2. David can void the contract if he changes his mind about setting fire to the house. 3. The contract cannot be enforced because its purpose is illegal. 4. The contract is unenforceable because it is not in writing.

3. The contract cannot be enforced because its purpose is illegal.

What will result if an insured decides to stop paying premiums for his or her insurance policy? 1. The insurance company must return all premiums that have been paid if no claims have been made under the policy. 2. The insured has breached the terms of the contract. 3. The insurance company is released from its promise to pay benefits and the contract expires. 4. The insurance company can require the insured to continue paying the premiums.

3. The insurance company is released from its promise to pay benefits and the contract expires.

Genevieve wants to renew her Florida insurance agent's license. Which of the following is not a condition for renewal? 1. fulfillment of continuing education 2. payment of the renewal fee 3. report of insurance sales made in the last two years 4. submission of a renewal form

3. report of insurance sales made in the last two years

Why would a large manufacturer choose to self-insure rather than buy an insurance policy from an insurance company? 1. To avoid having to comply with individual state laws 2. For tax abatement purposes 3. To save insurance premiums by paying relatively minor losses. 4. To cover severe losses.

3.) To save insurance premiums by paying relatively minor losses.

All the following statements regarding life insurance cost indexes are correct EXCEPT 1. The factors of premiums, cash value, and policy dividends (in the case of participating policies) are used in computing a cost index 2. Cost indexes are used to compare the cost of two or more life insurance policies. 3. There are two common cost indexes in use today. 4. All cost indexes are based on the assumption that no cash value is withdrawn from the policy until the policy matures.

4. All cost indexes are based on the assumption that no cash value is withdrawn from the policy until the policy matures.

Health insurance policies and plans that provide medical expense coverage can cover a single person under a single plan. However, where is a person with a family most likely to obtain medical expense coverage? 1.People with families can obtain medical expense coverage through the federal government. 2. People with families can only obtain health insurance from group coverage provided by the primary income-earner's employer. 3. People with families can obtain medical expense coverage by buying an individual health insurance policy. 4. People with families can obtain medical expense coverage through individual or group health insurance policies providing such coverage.

4. People with families can obtain medical expense coverage through individual or group health insurance policies providing such coverage.

Questions that are commonly asked on a health insurance application include all of the following EXCEPT: 1. What past medical histories are to be covered? 2. What are the names and sex of the persons to be covered by the policy? 3. How are premiums to be paid? 4. What is the applicant's opinion regarding the possibility of disability or illness occurring?

4. What is the applicant's opinion regarding the possibility of disability or illness occurring?

Steven is filling out an application for life insurance. The application asked whether he had ever had heart problems. Steven intentionally skips this question even though he had heart surgery three years ago because he is afraid his application will be denied. What is the term for Steven's failure to give his entire medical history? 1. estoppel 2. waiver 3. breach of contract 4. concealment

4. concealment

Producers must act in the best interests of applicants and insureds, which requires that they do which one of the following in all cases? 1. tell applicants about the features and benefits of other insurers' policies so that they can make an informed decision about which policy to buy 2. avoid replacing insurance policies that applicants already own 3. help applicants get rebates for buying policies 4. give all important information about a proposed policy

4. give all important information about a proposed policy

An agent's license can be suspended or revoked for all of the following reasons EXCEPT: 1. selling unregistered securities 2. violating the Florida Code of Ethics 3. demonstrating untrustworthiness when transacting insurance 4. paying commissions to a licensed agency

4. paying commissions to a licensed agency

Producers may be held legally liable to both their insureds and their insurers for making any of the following errors and omissions, EXCEPT 1. professional negligence. 2. placing insurance with insurers who are not authorized to conduct business in the state. 3. failing to perform due diligence. 4. placing insurance with insurers who are licensed in the state and in other states.

4. placing insurance with insurers who are licensed in the state and in other states.

Which of the following does NOT constitute the transaction of insurance? 1. negotiating an insurance contract 2. mailing an insurance contract 3. making an insurance contract 4. soliciting insurance

4. soliciting insurance

When comparing her insurance company's policies to those of Zenith Insurance, Melanie makes a misleading statement to convince an insurance prospect to terminate a policy with Zenith and buy one from Melanie's company. What has Melanie engaged in? 1. unfair discrimination 2. defamation 3. rebating 4. twisting

4. twisting

Which of the following is an example of an unauthorized insurance company in Illinois? 1. Company A, an Illinois company that holds a certificate of authority. 2. Company C, a non-admitted Florida company whose products are approved by the Illinois insurance department. 3. Company D, a Canadian company that holds a certificate of authority in Illinois. 4. Company B, an Illinois company that does not hold a certificate of authority and sells products that are not approved by the Illinois insurance department.

4.) Company B, an Illinois company that does not hold a certificate of authority and sells products that are not approved by the Illinois insurance department.

The federal Risk Retention Act of 1986 contains guidelines for which of the following entities? 1. risk retention groups 2. reinsurance companies 3. risk purchasing groups 4. surplus lines insurance companies

4.) surplus lines insurance companies

Sue names Bill as the irrevocable beneficiary of her policy. Can Sue use the change of beneficiary provision to name another beneficiary within three years of the issue date? Yes, she can make the change but only during the second policy year. No. She cannot make the change because an irrevocable beneficiary designation cannot be changed. Yes, she can make the change at any time. Yes, she can make the change but only during the first policy year

No. She cannot make the change because an irrevocable beneficiary designation cannot be changed

All the following statements regarding the career agency distribution system are correct EXCEPT: The general agency system is a form of career agency system. The managerial form of career agency system uses company employees as the agency managers. It uses producers who primarily if not exclusively represent one insurer. Personal producing general agents (PPGAs) are commonly hired to manage career agencies.

Personal producing general agents (PPGAs) are commonly hired to manage career agencies.

PHYSICAL HAZARD

Physical hazards are individual physical characteristics that increase the chance of loss. They exist due to a person's physical condition as opposed to arising from his or her character. High cholesterol is an example of a physical hazard. As a means of identifying physical hazards, an insurer may require that a life insurance applicant submit to basic medical laboratory tests as part of the application process.

Stock insurance companies

owned by stockholders, just like many other major public companies. The stock of these companies may be publicly traded on stock exchanges or privately held by small groups of investors or even families. These companies pay stock dividends, when declared, to their stockholders

participating policies

pay policy dividends to their policyowners. Policy dividends, which cannot be guaranteed, are typically not taxable since they are viewed as a return of excess premiums. ISSUES BY MUTUAL COMPANIES

Financial Industry Regulatory Authority (FINRA),

variable life insurance and variable annuities are regulated primarily by