General Insurance Quiz

A tornado that destroys property would be an example of which of the following?

A peril.

Which of the following is considered to be a morale hazard?

Driving recklessly.

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 policyowner to answer further questions?

Estoppel.

Which of the following are the authorities that an agent can hold?

Expressed & Implied.

Which of the following organizations has the primary responsibility forms for the standard market?

Insurance Services Office.

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

Insurance.

What is a definition of a unilateral contract?

One-sided: only one party makes an enforceable promise.

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

Principal.

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

Pure risk.

Which of the following insurers are owned by stockholders?

Stock.

For the purpose of insurance, risk is defined as

The uncertainty of chance of loss.

Which of the following is NOT a goal of risk retention?

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

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?

Aleatory.

Which of the following best describes the concept that the insured pays a small amount of premium for a large amount of risk on the part of the insurance company?

Aleatory.

What is a material misrepresentation? A] Any misstatement made by an applicant for insurance B] Any misstatement by the producer C] Concealment D] A statement by the applicant that, upon discovery, would affect the underwriting decision of the insurance company

A statement by the applicant that, upon discovery, would affect the underwriting decision of the insurance company [A material misrepresentation is a statement that, if discovered, would alter the underwriting decision of the insurance company.]

Which of the following produces evaluations of insurers' financial status often used by state departments of insurance?

AM Best.

In insurance, an offer is usually made when

An applicant submits an application to the insurer

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

Commingling.

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

Hazards.

Which statement regarding insurable risks is NOT correct?

Insured cannot be randomly selected.

The insurer may suspect that a moral hazard exists if the policy holder

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

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

Larger.

The reduction, decrease, or disappearance of value of the person or property insured in a policy by a peril insured against is known as A] Exposure. B] Hazard. C] Risk. D] Loss.

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

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

Loss.

Untrue statements on the application unintentionally made by insureds that, if discovered, would alter the underwriting decisions of the insurance company, are called

Material misrepresentations.

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

Morale.

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?

Mutual.

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

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

Insurance is the transfer of

Risk.

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

Self-insuring.

Hazard is best defined as A] Neglect to communicate a material fact. B] A deliberate attempt to deceive. C] Something that increases the risk of loss. D] The uncertainty of loss.

Something that increases the risk of loss. [Hazards are conditions or situations that increase the probability of an insured loss occurring.]

Which of the following is NOT the consideration in a policy?

The application given to a prospective insured.

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

The loss must be catastrophic. [In order to be characterized as pure risk, the loss must be due to chance, definite, measurable, and predictable, but not catastrophic.]

An individuals 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 & learns of his history one year later. What will probably happen?

The policy will not be affected.

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

Utmost good faith.

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

Warranty.

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

moral hazard.

Hazard is best defined as

something that increases the risk of loss.

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

speculative risk.

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] Consideration B] Good faith C] Representation D] Adhesion

Consideration [The binding force in any contract is consideration. Consideration on the part of the insured is the payment of premiums and the health representations made in the application. Consideration on the part of the insurer is the promise to pay in the event of loss.]

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

Exchange of unequal values [An aleatory contract is a contract in which unequal amounts or values are exchanged. The amount of premium the insured pays is much less than the potential loss assumed by the insurer.]

Who might receive dividends from a mutual insurer?

Policyholders.

All of the following are examples of risk retention EXCEPT

Premiums.

Pertaining to insurance, which of the following is an example of a producer's fiduciary responsibility?

Promptly forwarding premiums to the insurance company.

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

Rating the financial strength of insurance companies

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

The trust that a client places in the producer in regard to handling premiums. [An agent acts in a fiduciary capacity, based upon trust and confidence, when handling the financial affairs of their customers, including the handling of premiums.]