CA LAH CH 1
The California Insurance Code defines the word "Insurance" to mean "a contract whereby one undertakes to indemnify another against loss, damage, or liability arising from:
A contingent or unknown event
The most difficult risk management techniques to manage is which of the following?
Avoidance
What is the cause of a loss?
Peril
An insurance company that is not permitted to conduct business in a state and does not have a certificate of authority to conduct business in a state is called a(n):
Unauthorized insurer
Which department of an insurance company is responsible for determining the acceptability of an applicant for insurance?
Underwriter
The most significant difference between a stock and mutual insurance company is:
Who owns the company
An agent represents their insurance company, while a broker legally represents:
themselves and their clients.
The maximum fine that could be levied against an individual who violates Federal Regulation 18 USC 1033/1034 is:
$50,000 and up to 15 years in prison
What is the maximum fine that could be levied against an individual who violates Federal Regulation 18 USC 1033/1034?
50,000 and 15 years
A surplus lines insurance company is also referred to as a(n):
Non-admitted insurer
Which is not a specification that must be identified in every life or health insurance contract issued?
The risk management technique being utilized
By simple definition, an agent represents the insurance company or principal they are appointed with, while a broker legally represents:
Themselves and their clients
A Life insurance contract is defined as the immediate __________________of an estate, upon the death of an insured.
creation
Which of the following insurance concepts means that an insured or policyowner will only receive the actual amount of loss, even though the insurance contract allows for, or could pay, an even greater amount of benefit?
The indemnity principle
Which question below is false?
-Insurance is defined as the transfer of risk -Insurance contracts are legal contracts -Insurance "pools" risk --The applicant only needs to pay a premium in exchange for coverage
According to California law, an MGA is defined as an individual who produces and underwrites gross direct written premium equal to or more than __% of the policyholder surplus as reported in the insurer's last annual statement.
5
An MGA is defined as an individual who produces and underwrites gross direct written premium equal to or more than __% of the policyholder surplus as reported in the insurer's last annual statement.
5
An agent receives their expressed power through:
A written agency contract
How are Expressed powers provided to an agent?
A written agency contract.
Which department of an insurance company is responsible for determining the rates charged for an insurance policy?
Actuarial
Someone who has a greater likelihood to file a claim, or one who aggressively looks to purchase insurance best describes a (n):
Adverse selection
Which of the following terms best describes when an applicant for insurance has a greater likelihood of injury or illness, as compared to the general population?
Adverse selection
Which statement listed below regarding California Insurance Code 150 is incorrect?
An association, trust, LLC or partnership may not become an insurer.
"Any unknown event, past or future, which may injure a person having an insurable interest, (or create a liability against) that may be insured against" best describes:
An insurable event
An insurance company that does not have a certificate of authority to conduct business in a state is called:
An unauthorized insurer
Insurable interest must be present at what time?
At time of policy application.
Which of the following risk management techniques is the most difficult to manage?
Avoidance
Life insurance provides for the immediate __________________of an estate, upon the death of an insured.
Creation
A mutual insurer that becomes a stock company is said to have gone through what process?
Demutualization
The process whereby a mutual insurer becomes a stock company is called:
Demutualization
A position of trust, particularly with regard to collected insurance premiums best describes:
Fiduciary capacity
Which of the following choices describes a position of trust, particularly with regard to collected insurance premiums?
Fiduciary capacity
The Glenwood Insurance Company is headquartered in Lake Placid, NY. They are also authorized to conduct insurance business in several states other than New York. When conducting insurance business in Ohio, this company would be considered a (n):
Foreign Company
The "Let's Make a Deal" insurance company is headquartered in Rochester, NY. They are also authorized to conduct insurance business in several states other than New York. When conducting insurance business in Ohio, this company would be considered a(n):
Foreign company
A "non-profit, social organization that often provides group life insurance to its' members" best describes a (n):
Fraternal
The description "non-profit, social organization that often provides group life insurance to its members" best describes a:
Fraternal
A non-profit social organization, that operates on a lodge system and provides group benefits to its' members' best describes a:
Fraternal Organization
Which of the following would not be covered under an Errors and Omissions policy?
Fraudulent misappropriation of collected premiums
All are covered under an Errors and Omissions policy except:
Fraudulent misappropriation of collected premiums.
Utilizing an analysis of lifetime earning potential minus taxes and other factors might describe:
Human Life Value Approach
Which of the following methods of determining life insurance death benefit "need" is based, in major part, on the income potential of the applicant over their entire lifetime?
Human life value approach
The usual and customary business practices, that may not specifically be listed in an agent contract best describes what agent authority?
Implied
An insurer asks one of its agents to meet with and obtain additional information in order to complete the underwriting of a contract of insurance. This activity is not specifically listed in the agent's contract. What authority listed below best describes this authority?
Implied authority
An insurer asks one of its' agents to meet with and obtain additional information in order to complete the underwriting of a contract of insurance. This activity is not specifically listed in the agent's contract. What authority listed below best describes this authority?
Implied authority
Reinsurance can be defined as the process whereby:
Insurance risk is transferred to reinsurers, thus diversifying the risk amongst multiple companies.
Reinsurance is the process whereby:
Insurance risk is transferred to reinsurers, thus diversifying the risk amongst multiple companies.
What is the most important aspect of the law of large numbers?
It assists an insurer in create accurate insurance rates
"A potential event or circumstance that could result in a financial loss to a person or organization. The loss is caused by an identifiable peril", best describes:
Loss Exposure
Which characteristic below cannot be used to determine the risk for life or health insurance?
Marital Status
Someone who leaves his car idling while inside a convenience store would be said to be engaging in what type of hazard?
Morale
Someone who is careless or has an "I don't care" attitude would be considered a:
Morale hazard
What table below helps to determine life insurance rates?
Mortality Tables
Which choice below describes the statistics used by an insurer to help Determine life insurance premiums?
Mortality table
What factors determine the gross premium of an insurance policy?
Mortality, Interest, Expenses
The gross premium of a life insurance contract consists of:
Mortality, interest, expenses
Debbie purchased an insurance policy and for the first 4 years of the contract, receives a non-taxable dividend check. In the fifth year she did not receive a dividend check. What type of company did Debbie purchase her policy from?
Mutual Company
Rick purchases an insurance policy and for the first 7 years of the contract, receives a nontaxable dividend check. In the eighth year he does not receive a dividend check. What type of company did Rick purchase his policy from?
Mutual company
Another name for a surplus lines insurance company is:
Non-admitted insurer
What provision below allows an insurer to charge an additional fee to offset expenses associated with paying premium other than an annual mode?
Payment of Premium provision
An insurance company may be able to assess an additional fee or surcharge when a policyowner pays their premium in a mode other than annual. What provision below allows an insurer to charge this additional fee?
Payment of premium provision
Which answer below most accurately describes the cause of a loss?
Peril
An office structure that generally involves just an individual producer best describes a:
Personal Producing General Agency
Having an adequate number of good or preferred risks to offset lower or poorer risks best describes:
Profitable Distribution of Exposure
"The price of insurance per each exposure unit" best describes the:
Rate
All of the following would be considered fiduciary responsibilities of an agent, EXCEPT:
Referring clients to an insurance advisor
An MGA has all of the following duties except:
Replace the agent's responsibility in acting on behalf of his principal
Methods of managing risk would include all the following except:
Replacement of risk
All of the following are duties of an MGA except:
Replaces the agents' responsibility in acting on behalf of their principal.
All of the following statements regarding risk are TRUE except:
Risk is defined as a known event
Regarding insurance risk which question below is false?
Risk is defined as a known event
When a policyowner cancels their policy prior to the renewal period, and is willing to pay a surrender fee in order to cancel coverage, they will receive:
Short-rata refund of premium
The two most common or primary types of risk are:
Speculative and pure
A "non-participating" company is also called a:
Stock Company
This type of company is also called a "non-participating" company, because it does not provide its policyowners with dividends.
Stock company
Which statement below is incorrect with regard to reinsurance?
The company that insures a transferred portion of a risk is known as the Primary Insurer.
Which statement below is CORRECT with regard to the financial rating of an insurer?
The financial rating of an insurer is not required to be placed on an insurance policy.
Which statement below is correct with regard to the financial rating of an insurer?
The financial rating of an insurer is not required to be placed on an insurance policy.
Which of the following insurance concepts states an insured or policyowner will only receive the actual amount of loss, even though the insurance contract allows for, or could pay an even greater amount of benefit?
The indemnity principle
One of the following statements is not a characteristic of an "Ideally Insurable" risk?
The loss does not necessarily have to cause financial hardship
Which of the following statements is not a characteristic of an "ideally insurable" risk?
The loss does not necessarily have to cause financial hardship.
Mr. Steinway paid his $2,400 annual life insurance premium on June 1, 2007. Three months later he suffers a heart attack and dies. What value, if any, would his beneficiary receive?
The policy death benefit and 9 months of unearned premium
Mr. Hoffman paid his $3,400 annual life insurance premium on October 1, 2007. Three months later he suffers a heart attack and dies. What valued, if any would his beneficiary receive?
The policy death benefit and 9 months of unearned premium.
In California, there are 6 specifications that must be identified in every life or health insurance contract. Which of the following is not one of those 6 specifications?
The risk management technique being utilized
An honest mistake when discussing an insurance contract benefit may also be known as a:
Tort
When a producer engages is an honest mistake, they have committed an error or omission which is also known as a:
Tort
By definition, insurance is described as the _____ of risk.
Transfer