Chapter 1

What must an insurance broker have in place in order to be able to receive, directly from an insured, any compensation or fees for services to be provided? A Approval from the Insurance Commissioner B A Brokers Service Contract C A life, accident & health insurance license D An established place of business in California

A Brokers Service Contract

Under the California Financial Information Privacy Act, what must consumers be advised of? A The credit rating of the company they are doing business with B A financial institution has authority to share their personal financial information C His/her credit score D How many times, if any, the company has had a data breach

A financial institution has authority to share their personal financial information

The following are all correct, except: A A moral hazard includes dishonesty B Flammable material near a furnace would be considered a physical hazard C A physical hazard includes location D A physical hazard includes an attitude of indifference to loss

A physical hazard includes an attitude of indifference to loss

Which one of the following applicants is most likely to have an insurable interest in the insured? A An applicant who is applying for coverage on a person he/she is expecting an inheritance from B An employee applying for a policy on a co-worker C An individual applying for insurance on a neighbor D A spouse applying for coverage on an applicant

A spouse applying for coverage on an applicant

Which insurance company department determines the probability of loss and sets the premium rates? A Claims B Underwriting C Sales D Actuarial

Actuarial

The idea that there are always some insureds (risks) that are less desirable than average risks, and that these insureds tend to seek or continue insurance coverage to a greater extent than better risks is termed: A Sharing B Law of Large Numbers C Estoppel D Adverse selection

Adverse Selection

An insurer authorized to transact insurance in a particular state by that state's insurance department is known as: A A nonadmitted insurer B A resident insurer C An admitted insurer D A domestic insurer

An admitted insurer

All of the following statements regarding a warranty is correct, except: A Failure to comply with a warranty breaches a contract B An implied warranty is stipulated in the contract and is considered a fact C A warranty may relate to past, present, or future D A warranty is either expressed or implied

An implied warranty is stipulated in the contract and is considered a fact

All of the following statements concerning contract law are correct, except: A Contract law pertains to the formation and enforcement of contracts B An individual committing a tort may be referred to as a tortfeasor C A tort is a civil wrong other than a crime or a breach of a contract D An insurance policy is a legal contract between 4 parties

An insurance policy is a legal contract between 4 parties

Which statement is true of the Law of Large Numbers? A If funds are insufficient to pay claims, the insured is assessed additional premium B Small certain losses are substituted for large uncertain losses C As the number of insured units increases, losses decrease D As the number of insured units increases, predictability of losses improves

As the number of insured units increases predictability of losses improves

All of the following are true of insurance, except: A Transfers risk B Means sharing of loss C Eliminates risk D Protects against uncertainty

Eliminates Risk

Elements of an insurable risk do not include: A The ability to set a measurable value on it B Large number of homogenous units C Catastrophic perils D Accidental loss

Catastrophic Perils

The neglect to communicate known information that is material is called: A Waiver B Concealment C Non-disclosure D Withholding

Concealment

Which of the following is the correct term to describe a contract prepared by one party and submitted to the other party on a take it or leave it basis, without negotiations? A Contract of Adhesion B Aleatory C Valued contract D Conditional contract

Contract of Adhesion

The insurer has the right to rescind a policy due to all of the following, except: A Concealment (intentional or unintentional) B Material misrepresentation C Failing to pay the premium in full and on time D Material breach of warranty

Failing to pay the premium in full and on time

A person or entity that buys insurance for protection from loss of life or disability is a(n): A Beneficiary B Insured C Broker D Insurer

Insured

All of the following are considered part of the consideration of an insurance contract, except: A Issuance of a policy or binder B Statements made in the application by the insured C The insurer's promise to indemnify in the event of loss D Payment of the first premium

Issuance of a policy or binder

The Commissioner, Director, or Superintendent of insurance is responsible for all of the following, except: A Admits insurance companies to do business in the state B Examines insurance companies C Make insurance laws when appropriate D Approves premium rates

Make Insurance Laws when appropriate

All of the following are recognized classes of insurance in California, except: A Marine B Burglary C Medicare Supplement D Disability

Medicare Supplement

A policy may not be voided for which of the following reasons? A.Breach of warranty B. Non-payment of premium C. Misrepresentation D. Fraud

Non-payment of premium

All of the following are types of insurers, except: A Proprietary insurers B Stock insurers C Mutual insurers D Reciprocal insurers

Proprietary Insurers

An underwriter will consider each of the following factors when considering a risk, except: A Rates B Claim history C Hazards D Nature of the risk

Rates

An oral or written statement made at the time of application or before issuance of the policy that is believed to be true to the best of the knowledge of the applicant is called a(n): A Absolute warranty B Representation C Disclosure D Implied warranty

Representation

Which term describes the probability of loss? A Risk B Negligence C Liability D Peril

Risk

Through whom do direct writing companies normally market? A Independent agents B General agents C General brokers D Salaried employees

Salaried Employees

All of the following are options for dealing with risk, except: A Transferring the risk B Subrogating the risk C Avoiding the risk D Retaining the risk

Subrogating the risk

All of the following are true of the Law of Large Numbers, except: A The prediction of individual losses is based exclusively upon past experience B There is a decreased degree of error in predicting losses of large groups C It relates to the determination of the probability of loss D The prediction of group loss is based upon past experience

The prediction of individual losses is based exclusively upon past experience

Which one of the following must be communicated in an insurance contract? A The financial rating of an insurance company B Information already known by both parties C Information that is not material to a risk D The risks insured against

The risks insured against

When an individual's risk of loss is assumed by a larger homogeneous group, it is known as risk _________. A Reduction B Avoidance C Assumption D Transfer

Transfer

Purchasing insurance is an example of: A Reduction of risk B Retention of risk C Elements of risk D Transfer of risk

Transfer of Risk

For life and health insurance, when must an insurable interest exist? A At each premium due date B When the insurance takes effect C The time of claim D Any time the insurer requires

When the Insurance takes effect