ExamFx General Insurance

The insured will need written consent of the insurer

An insured wants to transfer his personal insurance policy to a friend. Under what conditions would this be possible?

Pure risk

A situation in which a person can only lose or have no change represents

B. Peril

A tornado that destroys property would be an example of which of the following? A. Physical hazard B. Peril C. Pure risk D. Loss

Risks with higher probability of loss seeking insurance more often than other risks.

Adverse selection is a concept best described as

The uncertainty or chance of loss

For the purpose of insurance, risk is defined as

Risk

Insurance is the transfer of

The cause of loss insured against.

Peril is most easily defined as

Utmost good faith

The insurer must be able to rely on the statements in the application, and the insured must be able to rely on the insurer to pay valid claims. In the forming of an insurance contract, this is referred to as

Warranty

Which of the following is a statement that is guaranteed to be true, and if untrue, may breach an insurance contract?

Pay dividends to the policyowner

A participating insurance policy may do which of the following?

C. Pay dividends to the policy owner

A participating insurance policy may do which of the following? A. Pay dividends to the stockholder B. Require 80% participation C. Pay dividends to the policy owner D. Provide group coverage

In favor of the insured

Courts will interpret any ambiguity in an insurance contract

D. Premiums

All of the following are examples of risk retention EXCEPT A. Deductibles B. Co-payments C. Self-insurance D. Premiums

Contracts of adhesion

Contracts that are prepared by one party and submitted to the other party on a take-it-or-leave-it basis are classified as

D. Reinsurance System

All of the following are marketing arrangements used by insurers EXCEPT A. General Agency System B. Direct Response Marketing System C. Independent Agency System D. Reinsurance System

Lloyd's association

An insurance organization that does not issue insurance policies but provides a meeting place for underwriters to conduct business is known as

Captive agent

An insurance producer who by contract is bound to write insurance for only one company or group of companies is classified as a/an

Aleatory

An insured pays a $100 premium every month for his insurance coverage, yet the insurer promises to pay $10,000 for a covered loss. What characteristic of an insurance contract does this describe?

Apparent

Because an agent is using stationery with the logo of an insurance company, applicants for insurance assume that the agent is authorized to transact on behalf of that insurer. What type of agent authority does this describe?

Pure risk & Speculative risk

The risk of loss may be classified as

Restores an insured person to the same financial state as before the loss

In case of a lose, the indemnity provision in insurance policies

D. AM Best

Which of the following produces evaluations of insurers' financial status often used by state departments of insurance? A. NAIC B. Consumer's guide C. SEC D. AM Best

D. Investing in the stock market.

All of the following actions by a person could be described as risk avoidance EXCEPT A. Refusing to scuba dive. B. Never flying in an airplane C. Not driving after being in an accident D. Investing in the stock market

A. Beneficiary's consent

An insurance contract must contain all of the following to be considered legally binding EXCEPT A. Beneficiary's consent B. Offer and acceptance C. Consideration D. Competent parties

Mutual

An insured purchased an insurance policy 5 years ago. Last year, she received a dividend check from the insurance company that was not taxable. This year, she did not receive a check from the insurer. From what type of insurer did the insured purchase the policy?

Adhesion

An insurer has made all of the decisions regarding the provisions included in the insured's policy. The insured finds an objectionable provision and wants to negotiate it with the insurer but is not allowed to do so. Her only options are to reject the policy or accept it as is. Which contract feature does this describe?

D. Consideration

An insurer neglects to pay a legitimate claim that is covered under the terms of the policy. Which of the following insurance principles has the insurer violated? A. Good faith B. Representation C. Adhesion D. Consideration

Unilateral

If only one party to an insurance contract has made a legally enforceable promise, what kind of contract is it?

Loss

Insurance is a contract by which one seeks to protect another from

Policy holders

Who might receive dividends from a mutual insurer?

C. Direct response marketing

An insurance company sells an insurance policy over the phone in response to a TV ad. Which of the following best describes this act? A. Illegal B. Insurance telemarketing C. Direct response marketing D. Independent agency marketing

Express authority

The authority granted to an agent through the agent's contract is referred to as

D. The loss must be catastrophic

Which of the following is NOT a characteristic of an insurable risk? A. The loss must be due to chance B. The loss must be measurable C. The loss exposure must be large D. The loss must be catastrophic

Estoppel

ABC insurance company receives an incomplete application and issues the policy anyway. Six months later ABC realizes the missing information. What term is used that prevents ABC from forcing the policy owner to answer further questions?

Concealment

An applicant knowingly fails to communicate information that would help an underwriter make a sound decision regarding coverage. This is an example of

The policy will not be affected

An individual applies for a life policy. Two years ago he suffered a head injury from an accident, so he cannot remember parts of his past, but is otherwise competent. He has also been hospitalized for drug abuse, but does not remember this when applying for insurance. The insurer issues the policy and learns of his history one year later. What will probably happen?

Material misrepresentation

An insured stated on her application for life insurance that she had never had a heart attack, when in fact she had a series of minor heart attacks last year for which she sought medical attention. Which of the following will explain the reason a death benefit claim is denied.

B. Conditions

Because an insurance policy is a legal contract, it must conform to the state laws governing contracts which require all of the following elements EXCEPT A. Offer and acceptance B. Conditions C. Consideration D. Legal purpose

Reasonable expectations

If a court ordered payment for a loss that was not covered in the policy even if it was clearly worded, it would be an example of which legal concept?

Unilateral

In insurance policies, the insured is not legally bound to any particular action in the insurance contract, but the insurer is legally obligated to pay losses covered by the policy. What contract element does this describe?

Considered true to the best of the applicant's knowledge

Representations are written or oral statements made by the applicant that are

A statement by the applicant that, upon discovery, would affect the underwriting decision of the insurance company

What is a material misrepresentation?

Insurance placed with an unauthorized insurer

What is surplus lines insurance?

Concealment

What term best describes the act of withholding material information that would be crucial to an underwriting decision?

Concealment

When applying for an individual life insurance policy, an applicant states that he went to the doctor for nausea, but fails to mention that he was also having severe chest pains. This is an example of

If it is intentional and material

When would a misrepresentation on the insurance application be considered fraud?

Indemnity

Which insurance principle states that if a policy allows for greater compensation than the financial loss incurred, the insured may only receive benefits for the amount lost?

Perils

The causes of loss insured against in an insurance policy are known as

To minimize the insured's level of liability in the event of loss

Which of the following is NOT a goal of risk retention? A. To reduce expenses and improve cash flow B. To increase control of claim reserving and claims settlements C. To fund losses that cannot be insured D. To minimize the insured's level of liability in the event of loss

B. The trust that a client places in the producer in regard to handling premiums

Which of the following is an example of a producer's fiduciary duty? A. The obligation to tell the truth to the best of one's knowledge B. The trust that a client places in the producer in regard to handling premiums C. An obligation to state every known fact about the policy the producer is selling D. A duty to base all the transactions upon the principle of Utmost Good Faith

Captive insurer

Which of the following is owned by a corporation to serve that organization's needs at lower rates than would otherwise be available with commercial insurance?

Handling insurer funds in a trust capacity

In insurance transactions, fiduciary responsibility means

The completed application is submitted

In insurance, an offer is usually made when

Insurance

What do individuals use to transfer their risk of loss to a larger group?

B. Consideration

When an insured makes truthful statements on the application for insurance and pays the required premium, it is known as which of the following? A. Acceptance B. Consideration C. Legal purpose D. Contract of adhesion

C. The person must have at least completed secondary education

In terms of parties to a contract, which of the following does NOT describe a competent party? A. The person must be of legal age B. The person must be mentally competent to understand the contract C. The person must have at least completed secondary education D. The person must not be under the influence of drugs or alcohol

A mutual insurer

Insurance companies may be classified according to the legal form of their ownership. The type of company organized to return any surplus money to their policy holders is

Conditional

When both parties to a contract must perform certain duties and follow rules of conduct to make the contract enforceable, the contract is

Morale

A person who does not lock the doors or does not repair leaks shows an indifferent attitude. This person presents what type of hazard?

Exposure

Which of the following is a unit of measurement an underwriter uses when determining the premium rates for insurance? A. Loss B. Hazard C. Risk D. Exposure

C. Loss

Which of the following is the basis for a claim against an insurance policy? A. Hazard B. Misrepresentation C. Loss D. Material Change

Conditional

The proposed insured makes the premium payment on a new insurance policy. If the insured should die, the insurer will pay the death benefit to the beneficiary if the policy is approved. This is an example of what kind of contract?

An agreement between a ceding insurer and an assuming insurer

What is Reinsurance?

One-sided: only one party makes an enforceable promise

What is a definition of a unilateral contract?

An insurer with a home office in another state

What is a foreign insurer?

Transfer

When an individual purchases insurance, what risk management technique is he or she practicing?

Alien insurer

When transacting business in this state an insurer formed under the laws of another country is known as a/an

Implied

Which authority is NOT stated in an agent's contract but is required for the agent to conduct business?

Law of large numbers

Which law is the foundation of the statistical prediction of loss upon which rates for insurance are calculated?

C. Counteroffer

Which of the following is NOT an essential element of an insurance contract? A. Agreement B. Legal purpose C. Counteroffer D. Consideration

Is not honest about his health on an application for insurance.

The insurer may suspect that a moral hazard exists if the policyholder

A. Exchange of unequal values

Which of the following best describes the aleatory nature of an insurance contract? A. Exchange of unequal values B. Only one of the parties being legally bound by the contract C. Ambiguities are interpreted in favor of the insured D. Policies are submitted to the insurer on a take-it-or-leave-it basis

D. The application given to a prospective insured

Which of the following is NOT the consideration in a policy? A. Something of value exchanged between parties B. The premium amount paid at the time of application C. The promise to pay covered losses D. The application given to a prospective insured

The chief administrator of the insurer is called an "attorney-in-fact"

Which of the following is a characteristic of a Reciprocal Insurance Exchange?

Commingling

A producer who fails to segregate premium monies from his own personal funds is guilty of

Surplus lines insurer

A nonadmitted insurer who provides insurance coverages that are not available from an admitted insurer is called

Foreign

An insurance company is domiciled in Montana and transacts insurance in Wyoming. Which term best describes the insurer's classification in Wyoming?

Guides describing company financial integrity

Which insurance concept is associated with the names Weiss and Fitch?

A. Express and implied

Which of the following are the authorities that an agent can hold? A. Express and implied B. Apparent and allowed C. Authorized and admitted D. Primary and secondary

C. The policy may be voided if it can be proven that the applicant was not capable of making a buying decision at the time of application

An agent tries to sell insurance over the phone to an applicant who appears to be confused, but is eventually able to give enough information for the application to be completed. After the policy was issued, the agent talked to the insured's family and they explained that the insured was recovering from a surgery and might have been under the influence of medication at the time of application. Which of the following is true? A. The policy is legal since the applicant was able to give all required information B. The policy is not legal; agents cannot sell insurance over the phone C. The policy may be voided if it can be proven that the applicant was not capable of making a buying decision at the time of application D. the policy will remain in force as long as there are no material misrepresentations on the application

Reduction

Following a career change, an insured is no longer required to perform many physical activities, so he has implemented a program where he walks and jogs for 45 minutes each morning. The insured has also eliminated most fatty foods from his diet. Which method of dealing with risk does this scenario describe?

C. Private insurers may be authorized to transact insurance by state insurance departments

Which of the following statements is an accurate comparison between private and government insurers? A. Private insurers offer fewer lines of insurance than government insurers B. Private insurers provide insurance in areas where the government will not C. Private insurers may be authorized to transact insurance by state insurance departments D. Insurance provided by the government is called federal insurance

Something that increases the risk of loss

Hazard is best defined as

Reduction

Installing deadbolt locks on the doors of a home is an example of which method of handling risk?

Apparent

Which of the following types of agent authority is also called "perceived authority"?

Moral hazard

An individual's tendency to be dishonest would be indicative of a

Agent's contract with the principal

What documentation grants authority to an agent?

Loss

The reduction, decrease, or disappearance of value of the person or property insured in a policy by a peril insured against is known as

Fiduciary responsibility

The requirement that agents not commingle insurance monies with their own funds is known as

Avoidance

The risk management technique that is used to prevent a specific loss by not exposing oneself to that activity is called

Larger

For the reported losses of an insured group to become more likely to equal the statistical probability of loss for that particular class, the insured group must become

Avoidance

An individual was involved in a head-on collision while driving home one day. His injuries were not serious, and he recovered. However, he decided that in order to never be involved in another accident, he would not drive or ride in a car ever again. Which method of risk management does this describe?

Speculative risk

Events in which a person has both the chance of winning or losing are classified as

Hazards

Events or conditions that increase the chances of an insured loss occurring are referred to as

When an insurer's underwriter approves coverage

In forming an insurance contract, when does acceptance usually occur?

The right to determine the wording of a policy

In insurance policies, contract ambiguities are automatically ruled in the favor of the insured. What privilege does the insurer have in order to balance this?

Putting the client's best interests before their own

In what way can an agent demonstrate a high standard of ethics?

C. The loss may be intentional

Not all losses are insurable, and there are certain requirements that must be met before a risk is a proper subject for insurance. These requirements include all of the following EXCEPT A. There must be a sufficient number of homogeneous exposure units to make losses reasonable predictable B. The loss produced by the risk must be definite C. The loss may be intentional D. The loss must not be catastrophic

Not taxable since the IRS treats them as a return of a portion of the premium paid.

On a participating insurance policy issued by a mutual insurance company, dividends paid to policyholders are

Promptly forwarding premiums to the insurance company

Pertaining to insurance, what is the definition of a fiduciary responsibility?

Ownership

What is the major difference between a stock company and a mutual company?

Principal

What is the term for the entity that an agent represents regarding contractual agreements with third parties?

Self-insuring

What is the term which best describes when a person develops formal program identifying, evaluating, and funding its losses?

Reinsurance

What method do insurers use to protect themselves against catastrophic losses?

Certificate of authority

What must an insurer obtain in order to transact insurance within a given state?

Rating the financial strength of insurance companies

What services are associated with Standard & Poor's and AM Best?

domestic

Which of the following best describes an insurance company that has been formed under the laws of this state?

Reciprocal

Which of the following insurance options would be considered a risk-sharing arrangement? A. Mutual B. Surplus lines C. Reciprocal D. Stock

D. Stock

Which of the following insurers are owned by stockholders who have the usual rights of ownership, including the right of voting? A. Mutual B. Reciprocal C. Fraternal D. Stock

B. Driving recklessly

Which of the following is considered to be a morale hazard? A. Engaging in illegal activities B. Driving recklessly C. Smoking D. Working as a firefighter

C. Purchase insurance

Which of the following is the most common way to transfer risk? A. Lessen the possibility of loss B. Name a beneficiary C. Purchase insurance D. Increase control of claims

A. The applicant has a prior felony conviction

Which of the following would qualify as a competent party in an insurance contract? A. The applicant has a prior felony conviction B. The applicant is intoxicated at the time of application C. The applicant is a 12-year-old student D. The applicant is under the influence of a mind-impairing medication at the time of application

A. Insureds cannot be randomly selected

Which statement regarding insurable risks is NOT correct? A. Insureds cannot be randomly selected B. Insurance cannot be mandatory C. The insurable risk needs to be statistically predictable D. An insurable risk must involve a loss that is definite as to cause, time, place and amount

Reciprocal insurance

Which type of insurance is based on mutual agreements among subscribers?