General Insurance

Which of the following types of agent authority is also called "perceived authority"? AImplied BFiduciary CApparent DExpress

c Apparent authority (also known as perceived authority) is the appearance or the assumption of authority based on the actions, words, or deeds of the principal or because of circumstances the principal created.

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

a Loss is the reduction, decrease, or disappearance of value of the person or property insured in a policy by a peril insured against.

Contracts that are prepared by one party and submitted to the other party on a take-it-or-leave-it basis are classified as ABinding contracts. BContracts of adhesion. CUnilateral contracts. DAleatory contracts.

b Insurance policies are written by the insurer and submitted to the insured on a take- it-or-leave-it basis. The insured does not have any input into the contract, but simply adheres to the contract.

Pertaining to insurance, what is the definition of a fiduciary responsibility? AOffering additional coverage to clients BPromptly forwarding premiums to the insurance company CHelping insureds to file claims DPerforming reviews of insured's coverage

b Fiduciary refers to a position of trust. When an agent is handling the premiums that belong to an insurance company, they are acting in a fiduciary capacity.

In what way can an agent demonstrate a high standard of ethics? ASetting and meeting monthly production goals BRecommending qualified retirement plans to each client CPutting the client's best interests before their own DMaking enough commissions to cover personal expenses

c The needs of the client(s) are the priority to a highly ethical agent.

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? ANonprofit service organization BStock CMutual DReciprocal

c Funds not paid out after paying claims and other operating costs are returned to the policyowners in the form of a dividend. If all funds are paid out, no dividends are paid.

Who might receive dividends from a mutual insurer? ASubscribers BStockholders CAgents DPolicyholders

d A mutual insurer has no stock, and is owned by the policyholders. Since they may receive a dividend (not guaranteed), such policies are known as participating policies. Dividends received by policyholders of a mutual insurer are not taxable.

A participating insurance policy may do which of the following? ARequire 80% participation BPay dividends to the policyowner CProvide group coverage DPay dividends to the stockholder

participating insurance policy will pay dividends to the owner based upon actual mortality cost, interest earned and costs.

All of the following are examples of risk retention EXCEPT APremiums. BDeductibles. CCopayments. DSelf-insurance.

a Retention is a planned assumption of risk, or acceptance of responsibility for the loss by an insured through the use of deductibles, copayments, or self-insurance.

The risk management technique that is used to prevent a specific loss by not exposing oneself to that activity is called AAvoidance. BTransfer. CReduction. DSharing.

a Risk avoidance is elimination of risk of loss by avoiding any exposure to an event that could give rise to such loss.

Representations are written or oral statements made by the applicant that are AImmaterial to the actual acceptability of the insurance contract. BConsidered true to the best of the applicant's knowledge. CGuaranteed to be true. DFound to be false after further investigation.

b Representations are statements made by an applicant that they believe to be true.

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? AReduction BTransfer CAvoidance DRetention

a The insured's change in lifestyle and habits would likely reduce the chances of health problems.

Which of the following is NOT the consideration in a policy? AThe promise to pay covered losses BThe application given to a prospective insured CSomething of value exchanged between parties DThe premium amount paid at the time of application

b Consideration is something of value that is transferred between the two parties to form a legal contract.

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

c When an insurer and insured enter into a contract, both parties must be of legal age and mentally competent. It is legal for a person convicted of a felony to buy an insurance contract. An intoxicated person, however, may not be mentally competent, a 12-year-old student is considered to be underage in most states and a person under mind-impairing medication most likely would not be mentally competent.

What is the major difference between a stock company and a mutual company? ATypes of whole life policies BOwnership CAmount of death benefit DNumber of producers

b Mutual companies are owned by policyholders, while stock companies are owned by stockholders.

Which of the following insurance options would be considered a risk-sharing arrangement? AReciprocal BStock CMutual DSurplus lines

a When insurance is obtained through a reciprocal insurer, the insureds are sharing the risk of loss with other subscribers of that reciprocal.

On a participating insurance policy issued by a mutual insurance company, dividends paid to policyholders are ANot taxable since the IRS treats them as a return of a portion of the premium paid. BPaid at a fixed rate every year. CTaxable as ordinary income. DGuaranteed.

a With participating policies, policyowners are entitled to dividends, which, in the case of mutual companies, are nontaxable because they are considered a return of excess premiums.

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 AMore active. BLarger. CSmaller. DOlder.

b According to the law of large numbers, the larger a group becomes, the easier it is to predict losses. Insurers use this law in order to predict certain types of losses and set appropriate premiums.

What documentation grants express authority to an agent? AAgent's contract with the principal BAgent's insurance license CFiduciary contract DState provisions

a The principal grants authority to an agent through the agent's contract.

Contracts that are prepared by one party and submitted to the other party on a take-it-or-leave-it basis are classified as AContracts of adhesion. BUnilateral contracts. CAleatory contracts. DBinding contracts.

a Insurance policies are written by the insurer and submitted to the insured on a take- it-or-leave-it basis. The insured does not have any input into the contract, but simply adheres to the contract.

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 AMisrepresentation. BFraud. CWarranty. DConcealment.

d Concealment occurs when a person withholds a material fact that is crucial to making a decision. In insurance, this involves withholding information that would be crucial to underwriting decisions.

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

a A participating insurance policy will pay dividends to the owner based upon actual mortality cost, interest earned and costs.

Which of the following is NOT a goal of risk retention? ATo increase control of claim reserving and claims settlements BTo fund losses that cannot be insured CTo minimize the insured's level of liability in the event of loss DTo reduce expenses and improve cash flow

c Retention usually results from three basic desires of the insured: to reduce expenses and improve cash flow, to increase control of claim reserving and claims settlements, and to fund losses that cannot be insured.

The risk of loss may be classified as ANamed risk and un-named risk. BHigh risk and low risk. CPure risk and speculative risk. DCertain risk and uncertain risk.

c Pure risks involve the probability or possibility of loss with no chance for gain. Pure risks are generally insurable. Speculative risks involve uncertainty as to whether the final outcome will be gain or loss. Speculative risks are generally uninsurable.

Which of the following is the basis for a claim against an insurance policy? ALoss BMaterial change CHazard DMisrepresentation

a Claims result from losses by a peril insured against in an insurance policy.

When an insured makes truthful statements on the application for insurance and pays the required premium, it is known as which of the following? AConsideration BLegal purpose CContract of adhesion DAcceptance

a Consideration is something of value that each party gives to the other. The consideration on the part of the insured is the payment of premium and the representations made in the application.

A situation in which a person can only lose or have no change represents ASpeculative risk. BAdverse selection. CHazard. DPure risk.

d Pure risk refers to situations that can only result in a loss or no change. Pure risk is the only type insurance companies are willing to accept.

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

d The contract is formed on the basis that certain conditions are met.

In insurance, an offer is usually made when AThe agent hands the policy to the policyholder. BAn agent explains a policy to a potential applicant. CAn applicant submits an application to the insurer. DThe insurer approves the application and receives the initial premium.

c In insurance, the offer is usually made by the applicant in the form of the application. Acceptance takes place when an insurer's underwriter approves the application and issues a policy.

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? AGood health BAdhesion CConditional DAleatory

d In an aleatory contract, unequal amounts are exchanged between payments and benefits. In this instance, the insured receives a large benefit for a small price.