Basic Concepts - Section 1

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

5%

A hazard is best defined as?

A Hazard is anything that increases the chance of loss or severity of loss due to a peril.

When can a representation be altered or withdrawn?

A representation can be altered or withdrawn only before the insurance is issued.

A representation in an insurance contract qualifies as?

A representation cannot qualify an express provision in a contract of insurance but it may qualify as an implied warranty.

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.

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

Which of the following is correct concerning warranties?

A warranty may be expressed A warranty may be implied Violation of a material warranty allows the other party to rescind the contract

Insurance is a contract whereby one undertakes to indemnify another against?

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.

What is meant by the term adverse selection?

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.

An insurance contract promises to pay benefits based upon a future uncertainty such as death, or illness describes which feature of an insurance contract?

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.

A representation in an insurance contract qualifies as?

An implied warranty

Which of the following statements is incorrect concerning warranties?

An implied warranty is must be included in the contract or some document signed by the insured and made part of the contract.

Which of the following is not correct concerning warranties?

An implied warranty must be included in a document signed by the insured and made part of the contract.

For an insurance contract to be enforceable, which of the following parties must be considered competent?

Applicant

Insurance is a contract whereby one undertakes to indemnify another against?

Damage

Balancing poor risk with preferred risk, with the average or standard risk being in the middle is known as what?

Distribution of exposures

Which of the following describes the situation when one party intentionally gives false information in order to benefit from unlawful gain?

Fraud. Fraud occurs when one party intentionally gives false information in order to benefit from unlawful gain.

All of the following describe an MGA ?

Has the power to appoint, supervise, and terminate the appointment of local agents in that territory Collects premium moneys from producing broker-agents and remits those moneys to those insurers pursuant Has the power to accept or decline risks.

A condition that leads to a loss is known as a?

Hazard. Hazards are conditions that increase or lead to possibility or severity of a loss.

The following information does NOT need to be communicated in a contract EXCEPT:

Information the other party deems confidential

The following information does need to be communicated in a contract:

Information the other party waives. Information that should be known Known information.

Insurable interest is best described as?

Insurable interest requires that the policyowner 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.

Regarding the materiality of representations and concealment which is true?

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.

The function of insurance is best described as?

It spreads financial risk over a large group so as to minimize the loss to any one individual.

The principle used as the basis for establishing probability of losses occurring in the insurance industry is:

Law of large number

Which of the following is false?

Materiality of concealment is judged different than materiality of a misrepresentation.

A hazard that deals with attitudes, behavior, and habits is an example of?

Moral hazard

Alcoholism is an example of a?

Moral hazards concern the persons ethics and habits. Alcoholism and drug addiction are considered to be moral hazards.

When large numbers of similar risks are combined in a group future claims become more

Profitable distribution of exposures

The price of insurance for each exposure is referred to as?

Rate is the price of insurance for each exposure unit.

Which of the following statements in regards to representations is false?

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.

What is rescission?

Rescission is the revocation of a contract.

In regards to insurance, risk can be defined as?

Risk is the possibility, uncertainty, or chance of loss. Insurance replaces this uncertainty with guarantees.

Underwriting is a process of?

Selecting, classifying, rating and determining coverages.

Which of the following are the main types of risks?

Speculative and pure. There are two main types of risk: pure risk and speculative risk.

What are the four major elements of a contract?

The four major elements of a contract are: agreement, competent parties, legal purpose, and consideration.

All of the following describe an MGA EXCEPT?

The legal entity which acts on behalf of, or in place of, it's principal.

Insurable interest is best described as?

The policyowner must expect to suffer a loss when the insured dies or becomes disabled.

What is meant by the term adverse selection?

The tendency of people with greater than average exposure to loss to purchase insurance.

Which of the following is NOT part of a contract that is enforced by the law?

Tort law

In regards to insurance, risk can be defined as?

Uncertainty regarding loss

A relinquishment of a known right is considered to be?

Waiver. Relinquishment or abandonment of a known right is considered a waiver.

All of the following statements are correct concerning warranties?

Warranties can be either implied or expressed A risk excluded by a warranty and is not otherwise material does not need to be communicated. Violation of a warranty on the party of either party entitles the other party to rescind

Which of the following becomes part of the contract, is guaranteed to be true, and if untrue, may be grounds for rescinding the policy?

Warranty Warranties are statements guaranteed to be true in all respects.

For an insurance contract, utmost good faith means?

ach party relies upon the truthfulness of the other.

he law of large numbers is a principal that basically says:

he larger the amount of information gathered, the more reliable that information will be.

A peril is?

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.

For insurable interest to exist?

the insured must establish that they actually own something to be insured.

Ideally Insurable Risk means?

the risk is financially within reason and is reasonable to insure.

Risk is?

the uncertainty or chance of a loss occurring.