Insurance: Chapter One

Which of the following correctly describes the law of large numbers?

It states that as a group's size increases, it is easier to predict the number of future losses over a specific time period.

All of the following may not be included in a consumer report, unless the consumer credit report is requested for a life insurance policy with a face amount of $150,000 or more, EXCEPT:

- Adverse information dating back more than three years

All of the following policies and contracts are typically covered by state insurance guaranty associations, EXCEPT:

A universal life insurance policy issued by a fraternal benefit society

Mathematicians who analyze statistical risk information for insurance companies are called:

Actuaries

The purpose of the Gramm-Leach-Bliley Act is to:

Allow financial entities to merge and accommodate greater competition

Defamation occurs when:

An individual or entity makes false, derogatory statements about an insurer's financial condition that are calculated to injure the insurer's business

A person who is guilty of a fraudulent act may be subject to the following penalties:

Civil fine up to $50,000 and imprisonment up to 10 years

Which type of insurer/organization is in the business of insurance to make a profit?

Commerical

Mutual companies pay dividends to which of the following in order to return overcharged premiums?

Policyholders

Which of the following is the consideration an insured pays for insurance coverage?

Premium

In life and health insurance, a person's greatest asset is:

Their earning power

Adverse selection is characterized by:

A sick person purchasing health insurance.

Which of the following types of insurance covers a debt?

Credit

Circulation of a maliciously critical statement about any insurer's financial condition to injure the insurer is called:

Defamation

Which of the following is considered an unfair claims practice?

Failing to affirm or deny coverage within a reasonable time after receiving proof of loss

Which of the following is NOT considered to be an unfair claims settlement practice?

Replacing one insurance policy with another

Which of the following correctly identifies the most important principle(s) of insurance?

Risk pooling, the law of large numbers and insurable interest

Re-Insurance is defined as:

Spreading risk from one insurer to another

It is illegal to do any of the following, EXCEPT:

To readjust premium rates, made retroactive for the policy year, for group insurance policies based on loss or expense

Which of the following best describes mutualization?

When a stock insurer becomes a mutual insurer

What is the purpose of the Fair Credit Reporting Act?

to regulate the way credit information is collected and used.

With respect to life and health insurance guaranty associations, what are agents prohibited from doing?

Using the existence of the life and health guaranty association as an inducement to selling an insurance contract

The tendency for poorer than average risks to seek out insurance is the definition of:

Adverse Selection

An example of an unfair claim settlement practice would include:

Advising a claimant of the possibility that, should the claimant reject a settlement offer, an arbitration award might be less than the offer

A local insurance company has worked closely with an area real estate firm in writing mortgage insurance as well as other insurances such as health and accident policies to newcomers in a small university town. Recently one of the town's oldest and most reliable banks has become cautious about making mortgage loans, and both the realtors and the insurance company have lost business as a result. They agree to change their own accounts to a newer bank with a more liberal lending policy and to encourage their clients to follow their course. Since it is a small town with a sizable number of newcomers who visit the real estate firm for rentals or home purchases, their combined action is likely to affect the older, more conservative lender. The practice in which they are engaging is:

Boycott

In a conversation with an older family friend, an insurance agent, Sly, inquired with what company she had a Medicare supplement policy. When she told him, the agent was silent. Concerned by his silence, the woman asked if the company was a reliable company. The producer asked, "Have you received any financial statements regarding their solvency?" This producer was:

Engaging in defamation

Judith's health insurance will pay a maximum of $3 million for all of her claims. Which of the following terms best describes this policy feature?

Limit of liability

BlueShield pays:

Medical and Surgical costs

Making a misleading statement to induce a person to lapse, surrender, or convert an insurance policy is known as:

Twisting

Insurance is:

a transfer of of uncertainty of loss from the insured to the insurance company.

The practice of using misrepresentation to induce a policyholder to replace a policy issued by the insurer the producer represents is called:

churning

The government is one of three primary types of insurers. Which of the following is an example of a government insurance program?

TRICARE, Medicaid, Social security, and Medicare

What consequences does an insurer's or producer's use of unfair marketing or unfair claims habits have for the company or agent?

The State Commissioner of Insurance can issue a cease and desist order.

Don, an insurance agent, told a member of his church who had recently experienced several personal and financial losses that he could see that she got a more favorable rate on her insurance policies than her health and general circumstances would warrant. The woman had been his kindergarten teacher and was a pillar in the community's life. He wanted to help her. Which of the following is FALSE?

The agent was engaging in twisting.

The term describing the insured's notification to the insurer requesting payment for a covered loss is:

Claim

Cost-sharing between the insurer and the insured that is often expressed as the percent for insurer and insured is known as:

Coinsurance

Risk pooling is best described by which of the following?

Combining similar losses from many people so the average loss over the entire group remains relatively constant

Judith is injured in a car accident. She incurs a covered loss of $50,000. She is required to pay $3,000 before the insurer will cover 80% of the covered loss. Which of the following terms best describes the $3,000 Judith must pay?

Deductible

All of the following, if performed frequently enough to indicate a general business practice, are unfair claims settlement practices, EXCEPT:

Failing to acknowledge with reasonable promptness communications regarding claims.

PQR only sells accident and health insurance policies, covering hospital, medical and surgical costs. PQR operates on a not-for-profit basis. Based on the information provided, PQR Insurer CANNOT be a:

Stock Insurer

When an insurer requests an investigative consumer report on an applicant, which of the following is true?

The report includes information regarding the applicant's general reputation and personal characteristics.

The Unfair Trade Practices Act is divided into which two parts?

Unfair Marketing practices and Unfair Claims practices.

With regard to an investigative consumer report, consumers must be informed that they have the right to request additional information about the report; such information must be provided to consumers within ____ day(s) if requested.

5 days

The Fair Credit Reporting Act states that generally, consumer reports cannot contain the following information, EXCEPT:

An individual's character

This product protects against the risk of living too long:

Annuities

What term means the insured's demand for payment of benefits?

Claim

Mr. Norris, an insured, submits a claim and proof of loss for medical expenses covered by his major medical policy. According to the time-of-payment-of-claims provision, how soon must the company pay the claim?

Immediately

The law of large numbers and spreading the uncertainty of loss over a large number of people is:

Insurance

Another term which means the same as insurance policy is:

Insurance Contract

In the underwriting of insurance policies, some amount of discrimination is:

Present in many cases, because of differing levels of risk

In discussing a potentially lucrative group policy with a business owner who had purchased a business and just moved into the community, an established producer jokingly remarked, "Well, would it sweeten the pot if I could assure you membership in the country club?"The producer added, "I'm on the membership committee and while we're not accepting new application right now, I'm sure something could be worked out." These remarks constituted:

Rebating ( Paying Back )

All of the following acts are considered unfair trade practices, EXCEPT:

Replacement

An agent is guilty of committing fraud. What must the person obtain in order to transact insurance?

Waiver of consent from the state insurance department

All of the following correctly describe risk pooling:

Each member of the group shares in the losses of the group and is promised a future benefit. Risk pooling allows a large number of people to be insured for a small amount of money. Risk pooling transfers risk from an individual to a group.

Leo, a producer, sat down with a prospective client to discuss a long-term care policy. He used a computer program to outline and emphasize his remarks. The visual presentation contained the principal benefits of the policy he was trying to sell. Although he mentioned that it also had, the usual, conditions, he did not include those in his visual presentation or specify what they were. The producer was engaging in:

Misrepresentation

What are the two distinct characteristics that distinguish mutual insurers from stock insurers?

Mutual insurers lack capital stock and profits are distributed among the members.

Presented with a completed claim form, an insurer wrote to the insured claimant requesting a preliminary claim report from the physician. Upon receipt of that report, the insurer required the subsequent submission of a proof-of-loss form. Was this insurer acting within its legal and ethical rights?

No, the two forms provide the same information. This is a delaying action and thus illegal.

Fraternal benefit societies are described by all of the following:

a. They provide insurance to their members. b. They can be religion-based. c. They include ethnic or charitable organizations.