Chapter 1 - Basic Principles

Which of these statements regarding insurance is false?

As the number of insured units increases, the number of losses decreases

Which of these statements regarding insurance is false?

As the number of insured units increases, the number of losses decreases.

Insurance is NOT characterized as which of the following?

As the number of insureds increase the number of losses decrease

A reciprocal insurer typically has an administrator who manages the premiums collected from the group's members. This administrator is called a(n)

Attorney-In-Fact

A(n) ________ is an insurance agent who represents only ONE insurance company.

Captive

Which of the following types of insurers limits the exposures it writes to those of its owners?

Captive insurer

A condition that increases the possibility of financial loss is called a(n)

Hazard

A(n) ____________ agent may represent several insurers

Independent

Which of the following financial products creates an instant estate, no matter when the date of death?

Life Insurance

Which of the following is a syndicate established by a group of insurers to share underwriting duties?

Lloyd's Organization

Which of the following is NOT an example of risk retention?

Not doing a business deal after deciding it would be too risky

Dividends from a mutual insurance company are paid to whom

Policyholders

Which of the following accurately describes a participating insurance policy?

Policyowners may be entitled to receive dividends

According to the law of large numbers, how would losses be affected if the number of similar insured units increases?

Predictability of losses will improved

Which of the following outlines the authority given to the producer on behalf of the insurer?

Producer Contract

Which of the following unincorporated association whose member provide coverage for one another?

Reciprocal

Which of the following is Not an objective of the National Association of Insurance Commissioners?

Regulate state insurance commissioners

How can an insurance company minimize exposure to loss?

Reinsuring Risk

A group-owned insurance company that is formed to assume and spread the liability risks of its members is known as a

Risk Retention Group

Which of the following describes the act of insuring a risk against possible loss?

Risk transfer

Dividends from a stock insurance company are normally sent to

Shareholders (stockholders)

What type of risk involves the potential for loss AND the possibility for gain?

Speculative

Who regulates an insurer's claim settlement practices?

State insurance departments

A stock insurance company is owned by its______________.

Stockholders

Which group is the Do Not Call Registry designed to protect against?

Telemarketers

A hold harmless clause is an example of ___________

Transfer

Which reinsurance contract between two insurers involves an automatic sharing of the risks assumed?

Treaty Insurance

An agent's authority to bind an insurer to an insurance contract may be granted in the

agent's contract and the insurance company's appointment

What is the accounting measurement of an insurance company's future obligations to its policyowners?

reserves