General Insurance

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?

avoidance

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

concealment

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

indemnity

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

putting the client's best interest before their own

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

reciprocal insurance

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

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

Which of the following insurance options would be considered a risk-sharing arrangement?

reciprocal

When an individual purchases insurance, what risk management technique are they practicing?

transfer

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

warranty

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

express authority

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

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

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

Lloyd's association

What is a material misrepresentation?

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

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

express and implied

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

hazards

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

What is a definition of a unilateral contract?

one-sided: only one party makes an enforceable promise

All of the following are examples of risk retention EXCEPT

premiums

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

the loss may be intentional

All of the following are marketing arrangements used by insurers:

general agency system; direct response marketing system; independent agency system

What is the major difference between government insurers and private insurers?

government programs are funded with taxes and serve national and state social purposes

In insurance transactions, fiduciary responsibility means

handling insurer funds in a trust capacity

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

is not honest about his health on an application for insurance?

What documentation grants express authority to an agent?

agent's contract with the principal

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

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?

apparent

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

apparent

Which of the following must an insurer obtain in order to transact insurance within a given state?

certificate of authority

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?

conditional

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

conditions

An insurance contract requires that both the insured and the insurer meet certain conditions in order for the contract to be enforceable. What contract characteristic does this descirbe?

conditonal

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

fiduciary responsibility

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

if it is intentional and material

Which statements regarding insurable risks is correct?

insurance cannot be mandatory; the insurable risk needs to be statistically predictable; an insurable risk must involve a loss that is definite as to cause, time, place, and amount

All of the following actions by a person could be described as risk avoidance EXCEPT

investing in the stock market

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 (law of large numbers)

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

law of large numbers

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

pure risk

All of the following are marketing arrangements used by insurers EXCEPT

reinsurance system

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

the right to determine the wording of a policy

Which of the following is an example of a producer's fiduciary duty?

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

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

principal

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

promptly forwarding premiums to the insurance company

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?

reduction

All of the following actions by a person could be described as risk avoidance:

refusing to scuba div; never flying in an airplane; not driving after being in an accident

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?

the policy will not be affected (it was not an intentional misrepresentation of material information)

All of the following are examples of risk retention:

deductibles, copayments, self-insurance

An insurance company sells an insurance policy over the phone in response to a TV ad. Which of the following best describes this act?

direct response marketing

Because an insurance policy is a legal contract, it must conform to the state laws governing contracts which require all of the following elements:

legal purpose, offer and acceptance, consideration

The reduction, decrease, or disappearance of value of the person or property insured in a policy is known as what?

loss