chapters 4&5

XYZ Insurance company gives direct authority to its producers to sell insurance through an agency contract but nothins is stated regarding the collection of premiums. which authority grants the producer the right to collect premiums? a. implied authority b. apparent authority c. express authority d. assumed authority

A, implied authority

dividends from a mutual insurance company are paid to whom? a. policy-Holders b. beneficiary's c. preferred stockholders d. stockholders

A. Policy-Holders

which of the following accurately describes a participating insurance policy? a. policy owners may be entitled to receive dividends b. policy owners pay assessments for company looses c. stock companies allow their policy-owners to share in any company earnings d. policy-owners are not entitled to vote for members of the board of directors

A. Policy-owners may be entitled to receive dividends. (Derived from the companies divisible surplus)

which group is the do not call registry designed to protect against? a. telemarketers b. charities c. political organizations d. relatives

A. Telemarketers

An agent's authority to bind an insurer to an insurance contract may be granted in the a. agents contract and the insurance companies appointment b. agents license and insurance companies certificate of authority c. buyers guide and policy summary d. state guaranty association

A. agents contract and the insurance company's appointment

Which of these do NOT indicate the presence of insurable interest in a life insurance contract? a. lifelong friendship b. marriage c. blood-related d. co-owning a business

A. lifelong Friendship

which term describes the elimination of a hazard? a. risk avoidance b. risk retention c. risk transference d. risk pooling

A. risk avoidance

Purchasing insurance is an example of risk a. transference b. avoidance c. retention d. sharing

A. transferance

An insurance company's failure to enforce a contracts provision is called an a. waiver b. warranty c. assignment d. concealment

A. waiver

Which of the following financial products creates an instant estate, no matter what the date of death? a. mutual funds b. life insurance c. certificate of deposit d. deferred annuity

B. Life Insurance.

Which of the following is a syndicate established by a group of insurers to share underwriting duties? a. reinsurer b. loyds organization c. NAIC d. Multi line insurers

B. Loyd's Organization

What type of risk involves the potential for loss with no possibility for gain? a. speculative risk b. pure risk c. adverse risk d. morale risk

B. Pure risk

what is the accounting measurement of an insurance company's future obligations to its policy-owners? a. credits b. reserves c. surplus account d. retention fund

B. Reserves

a group owned insurance company that is formed to assume and spread the liability risks of its members is known as a a. treaty insurer b. risk retention group c. risk assumption group d. captive insurer

B. Risk retention group

Dividends from a stock insurance company are normally sent to a. beneficiaries b. shareholders c. policy-owners d. insureds

B. Shareholders

what qualifies as acceptance of an insurance contract offer? a. declined policy b. an issued policy c. the application and initial premium d. the initial premium only

B. an issued policy

which of these statements regarding insurance is false? a. one way insurers deal with catastrophic loss is through reinsurance b. as the number of insureds units increases the number of losses decreases c. speculative risk cannot be insured d. pure risk can be insured

B. as the number of insured units increases the number of losses decreases

Christopher is issued an insurance policy that contains an attached agreement which alters the terms of the policy. this attached agreement is called a. extension b. endorsement c. sanction d. restriction

B. endorsement - is a written form attached to the policy changing the terms. also called a rider

An appointed producer's implied authority is derived from a. the NAIC b. express authority c. the insurers certificate of authority d. evident authority

B. express authority (producers have the implied authority to act on behalf of the principal (insurer))

Risk_______ is the process of analyzing exposures that create risk and designing programs to handle them. a. acceptance b. management c. administration d. transfer

B. management

how can an insurance company minimize exposure to loss? a. risk concealing b. reinsuring risks c. re-issuance d. risk assumption

B. reinsuring risks

which of the following can be defined as the "potential for loss"? a. hazard b. risk c. transference d. peril

B. risk

which of the following describes the act of insuring a risk against possible loss? A. risk avoidance b. risk transfer c. hazard reduction d. loss management

B. risk transfer

which situation would not require the insureds consent when a life insurance policy is issued? a. a policy is purchased by a husband for a wife b. a policy is purchased by a parent for a child c. a policy is purchased by a business partner for another partner d. a policy was purchased for an employer for an employee

B. the policy is purchased by a parent for a child

a stock insurance company is owned by its a. officers b. board of directors c. policyowners d. shareholders

D. Shareholders

An insurer has a contractual agreement which transfers a portion of its risk exposure to another insurer. What type of contractual arrangement is this? a. coinsurance contract b. mutuality agreement c. reinsurance contract d. reciprocity arrangement

C. Reinsurance contract

a hold-harmless clause is an example of risk a. avoidance b. retention c. transfer d. sharing

C. Transfer

A reciprocal insurer typically has an administrator who manages the premiums collected from the groups members. the administrator is called a(n) a. reciprocal administrator b. attorney general c. attorney - in-fact d. reciprocal director

C. attorney-in -fact

for insurance purposes similar objects which are exposed to the same group of perils are referred to as a. homogeneous perils b. similar exposure units c. homogeneous exposure units d. common hazards

C. homogeneous exposure units

what type of risk involves the potential for loss and the possibility for gain? a. homogeneous b. adverse c. pure d. speculative

D. Speculative

which of the following situations would an insurance agent need to guard against liability for professional errors and omissions? a. remitting premiums to an insurer b. conducting a sales meeting with other agents c. making a recommendation to a potential insured to replace existing coverage. d. setting a sales appointment with a potential client

C. making a recommendation to a potential insured to replace existing coverage

Greg applies for insurance and makes a false statement on the application that will influence whether or not the insurer will accept the risk. Greg's false statement is called a(n) a. substandard representation b. unacceptable risk c. material misrepresentation d. adverse selection

C. material misrepresentation

all of these statements correctly describe an aleatory contract except a. a legal wager is considered an aleatory contract b. potential unequal exchange of value for both parties c. only one party makes any kind of legally enforceable offer d. element of chance is involved

C. only one party makes any kind of legally enforceable offer

ABC Company is attempting to minimize the severity of potential losses within its company. The company is engaged in risk a. transference b. retention c. reduction d. avoidance

C. reduction

An insurable risk requires a. that the chance for both loss and gain exists b. the loss must be catastrophic c. that the chance of loss be calculable d. that the loss must be incalculable

C. that the chance of risk must be calculable

which of the following types of insurers limits the exposures it writes to those of its owners? a. restricted insurer b. limited insurer c. confined insurer d. captive insurer

D. Captive insurer

Which of the following outlines the authority given to the producer on behalf of the insurer? a. rebating arrangement b. commingling contract c. controlled business clause d. Producer contract

D. Producer Contract

who regulates an insurer's claim settlement practices? a. national association of claim adjusters b. state of attorney general c. national association of insurance commissioners d. state insurance departments

D. State insurance departments

voluntarily terminating an insurance policy is also known as a. discontinuation b. elimination c. estoppel d. cancellation

D. cancellation

the insurer's obligation to pay a claim depends on whether the insured or beneficiary has complied with all policy conditions. this makes a policy a(n) a. agency agreement b. aleatory agreement c. contract of good faith d. conditional contract

D. conditional contract

an agreement is reached when an insurance contract is formed. which of the following is not considered to be an element of an agreement? a. meeting of friends b. offer c. acceptance d. equity

D. equity

which of the following is NOT an example of risk retention? a. becoming aware of risk and taking no action b. self-insuring a given risk c. deciding a business deal is risky but going through with it anyways d. not doing a business deal after deciding it would be too risky

D. not doing a business deal after deciding it would be too risky

which element of a contract constitutes a definite and unqualified proposal by one party to another? A. adhesion b. consideration c. acceptance d. offer

D. offer

which of the following can be defined as a cause of loss? a. adversity b. risk c. hazard d. peril

D. peril

which one of these statements is not a characteristic of the law of large numbers? a. individual losses can be predicted based on past experience b. group losses can be predicted based on past experiences c. losses can be predicted in large groups with a higher degree of accuracy d. rates can be calculated to compensate for losses

D. rates can be calculated for to compensated for losses

What is the insurer responsible for when a producer is acting within the scope of authority granted in the agency contract? a. all actions by the producer b. not responsible for any acts by the producer c. responsible for acts that involve misrepresentation only d. responsible for acts by the producer that are authority only

D. responsible for acts by the producer that are authority only

a business becoming incorperated is an example of risk _____ a. reduction b. severance c. retention d. transfer

D. transfer

Which reinsurance contract between two insurers involves an automatic sharing of the risks assumed? a. arbitrage reinsurance b. facultative reinsurance c. excessive reinsurance d. treaty reinsurance

D. treaty reinsurance

the following are all elements of a valid contract except a. consideration b. offer and acceptance c. competent parties d. written evidence

D. written evidence

The powers directly given to a producer in an agency contract are called

Express

the unwritten authority given to a producer to carry out necessary incidental acts of the agency is called

Implied authority - is not expressly granted but which the agent is assumed to have in order to transact the business of the principal

an insurance contract may be void if a misrepresentation found on the application is determined to be

Material - the insurer can void an insurance policy if a misrepresentation is found to be material

insurable interest involves what assumption?

One person benefits from another person's continued life

a payment of the first premium, the promise to pay covered loss, and the agreement to abide by a policy are all examples of a. consideration b. legal purpose c. representation d. acceptance

a. consideration

When must insurable interest exist for a life insurance contract to be valid? a. inception of the contract b. throughout the entire length of the contract c. when the insured dies d. during the contestable period

a. inception of the contract

The law of large numbers enables the insurer to a. predict losses d. avoid adverse selection c. classify rates d. assure company profits

a. predict losses

statements made by an insured on an accident and health insurance application are considered to be a. representations b. warranties c. conditional d. aleatory

a. representations

which one of these is not considered to be an element of insurable risk? a. speculative risk b. pure risk c. loss cannot be catastrophic d. loss must be due to chance

a. speculative risk

during the application process a statement made by an applicant that becomes part of the contract is considered to be an a. warranty b. representation c. waiver d. exclusion

a. warranty

a producer working for an insurance company may be personally liable for a. acts preformed which are expressed in the agency contract b. acts preformed which are prohibited in the agency contract c. all actions taken on behalf of the insurer d. nothing

b. acts preformed which are prohibited in the agency contract

In what way are insurance policies said to be aleatory? a. only one party makes any kind of enforceable promise b. involves the potential for the unequal exchange of value c. contract is prepared by only one party d. vagueness in a contracts wording is resoled in favor of the policyowner

b. involves the potential for the unequal exchange of value

Ambiguities in insurance contracts are typically interpreted in favor of the insured. This rule is referred to as a. subrogation b. reasonable expectations c. insurable interest d. adhesion

b. reasonable expectations

Under the law of agency, the principal is considered to be a. the producer b. the insurer c. the plan administrator d. the insured

b. the insurer

an arrangement where an individual is authorized to act on behalf of another person or company is establised through a. estoppel b. law of agency c. law of adhesion d. an aleatory contract

b. the law of agency

a contract is considered void in all the following situations except a. when the party is a minor b. when consideration is unequal c. when consideration is incomplete d. when agreement cannot be reached between parties

b. when consideration is unequal

an insurance company can be liable for a producers unauthorized acts a. only when a felony is involved b. when the agency contract is unclear concerning the authority given c. at anytime d. only if the agency contract is unilateral

b. when the agency contract is unclear concerning the authority given

Use of XYZ Insurance Company brochures, business cards, and rating guides is an example of a, express authority b. implied authority c. apparent authority d. fiduciary duty

c. apparent authority- is what a third party(such as member to the public) assumes an agent has based on the actions or words of the principal. using business cards, rating guides, etc. the insurance company has given the impression that it supports the words and actions of its agents.

which of these is true regarding the exchange of consideration among parties involved in an insurance contract a. required to be in currency b. must be equal c. can be unequal d. must be certified by the state where transaction takes place

c. can be unequal. insurance contracts are aleatory. this means there is an element of chance an potential for unequal exchange of value for both parties

The courts will normally interpret a policy in favor of the insured when the meaning of the policy is not clear. This is because an insurance policy is a(n) a. warranty contract b. aleatory contract c. contract of adhesion d. unilateral contract

c. contract of adhesion

an insurance application requires an applicant to make a full accurate disclosure of the risk factor involved. using this criteria an insurance policy is considered what type of contract? a. aleatory contract b. estoppel contract c. contract of utmost good faith d.unilateral contract

c. contract of utmost good faith

which of the following relationships demonstrated insurable interest in the absence of economic interest a. lifelong friends b. employees c. marriage partners d. business associated

c. marriage partners

an agent whose actions exceed the authority granted by contract is a. acting under apparent authority b. acting under implied authority c. not backed by insurer d. backed by insurer

c. not backed by the insurer

According to the law of large numbers how would the losses be affected if the number of similar insured units increases? a. the higher the exposure the higher the cost of each loss b. no effect on predicting losses c. predictability of losses will improve d. ability to predict losses decreases

c. predictability of losses will be improved

An insured is entitled to coverage under a policy that a prudent person would expect it to provide. This principle is called a. adhesion b. reasonable sensibility c. reasonable expectations d. insurable interest

c. reasonable expectations

what happens when an initial offer is answered with a counteroffer? a. a arbitrator decides on a compromise b. the counteroffer is legally enforceable c. the initial offer is void d. initial offer is automatically accepted

c. the initial offer is void

The giving up of a known right is called a. disclaimer b. estoppel c. waiver d. surrender

c. waiver is defined as giving up a known right

which of the following would not have a restricted ability to enter into a contract? a. mentally ill person b. minor c. person under the influence of alcohol d. small employer

d. small employer