GENERAL INSURANCE

Evans Furniture has set aside money to pay for the losses they may experience during the process of building household furniture for wholesale purposes. When they have a fire at their plant, they do not have an insurance company to file a claim with. This is because they have established what?

A Self-Insured Fund.

Isabelle is an agent for an insurance company that is licensed to transact insurance on a regular basis in the state in which she lives, and in which her insurance office is located. What type of insurance company does Isabelle represent?

Admitted

How is the relationship between an insurance company and the individual who sells their insurance policies defined?

Agency

Ajax Manufacturing Company bought a $1 million building property policy for a premium of $2,500. Two months after the policy went into effect, the building was destroyed by a tornado. For the consideration of a $2,500 premium, the insured will receive $1 million. Clearly, the insured is receiving a benefit that is out of proportion to the consideration it gave in its premium payment. This type of contract is considered a(n)

Aleatory Contract.

What kind of contract involves the exchange of unequal amounts?

Aleatory contract

So those unable to get coverage in the voluntary open market can get coverage.

Aleatory contracts involve an exchange of unequal amounts.

The insurance company that writes Jack's homeowners insurance policy is incorporated in the United Kingdom. What type of insurer is Jack's insurance company?

Alien

Suitability standards for making insurance policy recommendations apply to

All insurance policies

Which of the following are not characteristics of an Independent Agency System?

An Independent Agent represents 1 company and must renew policies with the 1 company they represent.

Which of the following persons would be considered legally competent to apply for an insurance policy?

An Individual who is physically disabled.

Wilson has an agreement with ACME Insurance to sell their products. During the application process, Ann tells Wilson about many claims and traffic violations she has had in the past. Wilson knows this will prevent her from being underwritten by the company, but he really needs the business, so he ignores the information Ann told him about the events of the past. Wilson has violated his Agency Agreement because of what reason?

Any knowledge of the Agent is presumed to be knowledge of the insurer.

Ralph is an agent with the Valley Insurance Agency. Bob has a homeowners policy written through the agency and calls to report a claim for water damage caused by rain. Ralph assures Bob that the loss is covered and reports the claim to the insurance company. After the claim adjuster inspects the loss, he tells Bob that there is no coverage for this water damage, and that Bob needs flood coverage. What type of authority may Ralph have exercised in telling Bob he was covered for this loss?

Apparent authority.

An insurance agent is talking with Mrs. Quinn about the purchase of auto insurance. The agent asks questions about Mrs. Quinn's financial status, her assets, and what she hopes to accomplish with the purchase of auto insurance. What is the agent hoping to accomplish by asking Mrs. Quinn these questions?

Because the agent wants to sell a suitable policy

Jack is concerned about flooding in his town, so he is surprised to learn that his homeowners policy does not cover damage by flooding. What is an immediate option he might have to protect his property from flood damage?

Buy flood insurance through the National Flood Insurance Program.

Hempstead Corp. formed an insurance company which was established for the specific purpose of covering the risks of their subsidiary corporations. The insurance company was formed because the parent corporation was unable to purchase insurance appropriate for its needs. What type of insurance company did Hempstead Corp. form?

Captive

Joyce is a sales representative of Main State Insurance Company. She sells only Main State's insurance products. Under which type of marketing system does Joyce work?

Captive agent

Alex asks your advice seeking objective information about the financial reliability of an insurance company from which he is considering the purchase of insurance. You might suggest that he

Check the company's financial rating from an established rating organization

Allied Insurance Company agrees to pay Leslie up to $75,000 to repair or replace her new sports car if it is involved in an accident. The insurance company's promise to pay is known as

Consideration

Mr. Underwood gave his agent a down payment for the purchase of a business insurance policy. The insurance company issued a policy that promises to pay Mr. Underwood under terms and conditions stated in the policy. What specific term is used to refer to Mr. Underwood's payment and the insurance company's promise to pay?

Consideration

Randy goes to Main Street Insurance Company to buy a homeowner's policy. He observes that he cannot negotiate the terms with the insurer, which presented the policy to him on a take-it-or-leave-it basis. This type of contract is considered a(n)

Contract of adhesion

When Yvette meets with you to buy a homeowners policy, she attempts to negotiate the terms of the contract. You tell her the terms are not negotiable and she must either purchase the policy and comply with its terms or decline to purchase the policy. You are explaining what type of contract to Yvette?

Contract of adhesion

Mary Beth is employed by the JKL Insurance Company to market its insurance policies through phone contacts to her at a call center. The company she is employed by is using what type of marketing system?

Direct marketing system

Reginald, an eager new insurance salesman, persuades Tom to switch his auto policy to a company Reginald represents because Tom can save several hundred dollars. However, Reginald does not tell Tom the recommended policy provides substantially less coverage. Reginald has failed to meet his duty to

Disclose all pertinent information concerning the proposed policy.

When Walt, an agent with Energy Insurance Company, is reading his agency agreement, he is learning about what type of authority the company has granted to him?

Expressed.

George, an agent, sold a Homeowners policy to Sara and told her there was a small deductible for the policy even though he knew the deductible was very large. How would you describe George's actions in selling this Homeowners policy?

He misrepresented the policy and failed to meet his duties to the prospective insured.

Walt, an agent with Energy Insurance Company, is reading his agency agreement and can clearly see what his contract authorized him to do while selling insurance. He knows he must make phone calls and collect premium too, but he cannot find this written in the contract. Why?

Implied Authority is derived from Express authority and it is not written in the contract.

Which of the following is not a rating organization that reviews an insurance company's capital and liquidity?

Insurance Services Office

Calvert Enterprises submits an application for insurance to Indemnity Mutual Insurance Company, with property insurance limits of $10 million. Indemnity Mutual tells Calvert that it can insure it only for $5 million. How would you describe Indemnity Mutual's actions?

It rejected the offer and made a counteroffer.

Jack sells insurance for Market Place Indemnity Company. Identify each of their positions in this relationship.

Jack is the agent, Market Place is the principal.

Magnificent Insurance Company is incorporated in Indiana but does business in Kansas. How would you categorize this company with respect to each state?

Magnificent is a domestic company in Indiana, but a foreign company in Kansas.

Which of the following is not the action of an agent considering the best interests of an applicant or insured?

Making a misrepresentation of the terms of a proposed policy

The Allen agency has its home office in Baltimore, Maryland, but has a large branch office in Dover, Delaware. In which state is the agency domiciled?

Maryland

An agent sold a homeowners policy to Mrs. Tannenbaum, who suffers from Alzheimer's disease. When Mrs. Tannenbaum's son learned of the insurance sale, he claimed the policy was not a legal contract, requested cancellation of the policy, and obtained a full refund for which of the following reasons?

Mrs. Tannenbaum was not a competent party

Agent Todd sells Bobby, age 15, a life insurance policy, and Bobby pays the first installment of the premium. The legal age in the state is 18. Is this a legal contract?

No, Bobby is not of legal age in this state and, therefore, is not considered to be legally competent.

Ed, a prospect for property insurance, completes the insurance application with the help of Michael, an agent. Ed gives Michael a check for the first six months premium. The application and premium payment are sent to the insurance company, which deposits the premium. Has a legal contract been formed?

No, as the policy is still subject to underwriting before the insurer accepts Ed's offer.

Mr. Pelletier is upset with his agent because his policy doesn't provide the coverage he asked for and that his agent promised he'd have. Which of the following statements BEST describes the responsibilities Mr. Pelletier's agent owed him when he sold the policy?

One of an agent's primary duties is to obtain insurance as agreed upon

Ed cannot transfer his property and casualty policy to Jim without his insurer's consent because a property and casualty policy is a(n)

Personal contract

Consideration is one of the required elements of a valid contract. What is the consideration in a typical insurance contract?

Promise to cover valid losses in exchange for a premium payment

Seth, an agent, decides he must protect himself from potential claims from policyholders, both legitimate and illegitimate. What are some methods by which he can protect himself in the event of such a claim?

Provide the agreed-on policies and to place them with solvent insurers while acting in the best interest of the applicant.

Agents or producers have an obligation to act in the best interests of applicants or insureds. Which of the following is not a duty an agent owes to an applicant or insured?

Retain legal counsel to advise the insured or applicant who buys complex coverage.

Sam purchased a fire insurance policy on an old building with the intention of setting fire to the building and collecting the insurance. If the insurance company learned of his intent, for what reason could the insurance company decline to pay Sam's claim, citing the policy was not a legal contract?

Sam entered into the contract for an illegal purpose

Abstract Chemical Corp. cannot find an insurer in its home state that will provide certain liability insurance that it needs. What is the best option for Abstract Chemical?

Seek coverage through a non-admitted insurer that can provide excess and surplus lines insurance.

Which of the following is not an element of a legal contract?

Signature

Why does the residual market exist?

So those unable to get coverage in the voluntary open market can get coverage.

Norma advises an insurance applicant that Policy A would be in his best interests, but Norma has no basis for making this recommendation. Policy A may or may not be suitable for the applicant. An agent is required to do all of the following EXCEPT:

Submit a signed affidavit to the Department of Insurance that the proposed policy is the most suitable

In the Insurer and Producer relationship, the agent or producer will always be deemed to represent which party?

The Insurer.

Jesse buys a large number of expensive watches from a street vendor. He suspects the watches have been stolen and therefore plans to sell them out-of-state. Jesse buys insurance for the shipment of watches and asks you if the insurance policy will pay for a loss to the watches during shipment. You tell him

The contract is not enforceable because its purpose is not legal.

What do a Managerial System and an Exclusive Agency System have in common?

They both only represent one insurer.

When asked about his main duties as an insurance agent, Arnie replies that he has a duty to provide the agreed-upon policy. Which of the following is not one of Arnie's other major duties?

To arrange for financing of the policy if the applicant is unable to do so

Helen submitted an insurance application and first premium to TLS Insurance Company. The insurance company reviewed the application and accepted it. By doing so, TLS has accepted Helen's

offer