General Life Insurance Quiz

If an insurer meets the state's financial requirements and is approved to transact business in the state, it is considered to be

Authorized. -Insurers who meet the state's financial requirements and are approved to transact business in the state are considered authorized or admitted into the state as a legal insurer.

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

Consideration - 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.

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

Considered true to the best of the applicant's knowledge. -Representations are statements made by an applicant that they believe to be true.

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

Fiduciary responsibility. -Money collected with respect to an insurance transaction must be held in a position of trust by the agent or broker.

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

Ownership -Mutual companies are owned by policyholders, while stock companies are owned by stockholders.

A participating insurance policy may do which of the following?

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

Which of the following would qualify as a competent party in an insurance contract?

The applicant has a prior felony conviction. - 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 documentation grants express authority to an agent?

Agent's contract with the principal -The principal grants authority to an agent through the agent's contract.

Which of the following is the basis for a claim against an insurance policy?

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

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

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

For the purpose of insurance, risk is defined as

The uncertainty or chance of loss. -Risk, or the chance of loss occurring, is the basic reason for buying insurance.

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

Implied -Implied authority is not written in the agent's contract but is required in order for the agent to conduct business. Implied authority exists because not every single detail of an agent's authority can be written in a contract.

Which statement regarding insurable risks is NOT correct?

Insureds cannot be randomly selected -Granting insurance must not be mandatory, selecting insureds randomly will help the insurer to have a fair proportion of good risks to poor risks. All other statements are true.

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 -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.

-All of the following are examples of risk retention EXCEPT

Premiums. -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.

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? BReduction Incorrect! The insured's change in lifestyle and habits would likely reduce the chances of health problems.

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