INSURANCE FUNDAMENTALS

Jake is a busy all lines adjuster in Texas. His employer has kept him so busy in fact, that he realizes his license has expired and he has not completed even one hour of the required continuing education credits to renew his license. Which of the following is the amount Jake will be subject to in fines for his lack of CE compliance?

$1,200

Sheena completed a 40-hour claims certification course and has reported this to the Texas Department of Insurance to receive continuing education credit for the required 24-hours in the current reporting period. How much of the remaining 16 hours of credit can Sheena carry over to her next two-year continuing education compliance period?

0 hours because Texas does not permit any continuing education credit hours to be carried over to the next reporting period.

Adjusters in Texas are required to keep records of the continuing education courses they have taken to meet the license renewal requirement. How long are licensees required to keep these records?

4 years.

Adjusters in Texas must complete at least _____ of the continuing education required to renew their license in a classroom or classroom equivalent setting.

50% or 12 hours

The Texas Department issues emergency adjuster licenses in case of an emergency arising out of a disaster. An emergency license is valid for ______ days.

90

In order to lawfully write insurance business in a state, an insurance company must hold:

A certificate of authority.

Which of the following statements is NOT TRUE regarding the usage of a claims certification course to meet the Texas adjuster CE requirements?

A claims certification of at least 15 hours is permissible to meet the entire continuing education requirement for a single reporting period.

Which of the following phrases best describes a "hazard?"

A condition that increases the chances of a loss

Which of the following is NOT a hazard?

A fire started in a waste basket.

Any intentional misinformation provided by an applicant for an insurance policy that would have kept the insurance company from issuing the policy had that information been known is:

A material misrepresentation

All of the following are exempt from the Texas adjuster continuing education requirement, EXCEPT:

A military service member not serving in a combat theater during the continuing education reporting period.

Margaret is a co-owner of a business. She purchases an insurance policy to cover the property of the business and lists Charlie, the other co-owner, on the policy. There are others covered by the policy that are referred to as employees. For the purposes of this policy, Charlie is considered to be:

A named insured.

All of the following are exempt from holding a Texas adjuster license, EXCEPT:

A person adjusting claims as an employee of an adjustment bureau.

All of the following may work as licensed adjusters in Texas, but are exempt from taking the state licensing exam, EXCEPT:

A previously licensed Texas adjuster whose license has been expired for 15 months.

All of the following statements are TRUE regarding a proof of loss statement, EXCEPT:

A proof of loss is also known as a loss notice.

Charlene states on an application for personal automobile insurance, that she has not been involved in any "at-fault" accidents within the past five years. The next day, Charlene later remembers an accident and corrects this statement to include an accident that occurred three years ago. Charlene's original statement can be described as:

A representation

Which of the following terms describes a statement that is guaranteed to be the truth throughout the duration of the policy?

A warranty

Which of the following is NOT one of the three types of hazards?

Accidental hazards

All of the following are Texas adjusters who are not permitted by law to adjust a loss related to roofing damage on behalf of an insurance company, EXCEPT:

An adjuster that has taken roofing classes and is capable of repairing a damaged roof.

All of the following are part of the "entire contract", EXCEPT:

An agreement made between the insured and the agent stated verbally, that the agent will personally service the insured's policy, and it will not be delegated to a staff member is part of the entire contract.

When an insurer takes no action upon realizing material changes in a contract, this is called:

An implied waiver

Risk is best defined as:

An uncertainty of loss

The provision in an insurance contract that outlines the process of bringing a contract dispute before an objective third party for resolution is known as:

Arbitration

To obtain an insurance agent, producer, or adjuster license, an applicant must be:

At least 18 years of age.

Which of the following is the BEST explanation as to the reason insurance policies are called "unilateral contracts"?

Because the insurance company is the only party to the contract that can be sued if they do not meet the terms

Brittany is a licensed adjuster in Texas. She failed to renew her license at the specified time, and now her license has been expired for 60 days. Which of the following best describes the next step Brittany should take?

Brittany can still apply to renew her license, subject to an automatic fine.

An insurance contract must comply with the "Principle of Indemnity". Jarron's friend Nick, accidentally destroys Jarron's laptop computer. Nick pays Jarron for the damage, but Jarron also submits a claim to his insurance company for the laptop. The claim will be:

Denied because Jarron has already been paid for the damage

The Conditions section of an insurance policy sets forth the:

Duties of the insured and the insurance company

Willie's Widgets has been earning a large portion of their market share for 10 years. During Willie's 11th year in business, Wynonna's Widgets opens and her superior marketing practices leaves Willie unable to continue in business. Which of the following types of risk caused Willie's loss?

Dynamic risk

A written modification of an insurance policy is known as a(n):

Endorsement form

Which of the following is used to bring a standardized insurance form into compliance with state laws?

Endorsements

Three hours of the required continuing education courses in Texas for adjusters must cover the topics of:

Ethics or consumer protection.

Insurance law recognizes two types of waivers. They are:

Express / Implied

Texas adjusters who have been "continuously licensed" for a long period of time in Texas are exempt from meeting the continuing education requirements. "Continuously licensed" means that the licensee has held a Texas adjuster license:

For the entire period of time without any lapses in excess of 90 days.

"Ambiguous language" in an insurance policy means language that is all of the following, EXCEPT:

Fortuitous to the insured.

Before an insured can bring a lawsuit against their insurer to provide coverage under their policy, the insured must:

Fulfill all of their required duties as outlined in the policy

Which of the following claims certification courses is not likely to be approved by the Texas Department for continuing education credit?

Income Streams for Adjusters as Independent Contractors.

Rick has three insurance policies covering his small commercial building for $700,000. Insurer 1: Carries $400,000 of the coverage. Insurer 2: Carries $200,000 of the coverage. Insurer 3: Carries $100,000 of the coverage. According to the provisions of the policies, the loss will be settled using the contribution by equal shares method. When Rick's building suffers a $500,000 covered loss, which of the following statements is correct on the amount each insurer will pay?

Insurers 1 and 2 will each pay $200,000 and Insurer 3 will pay $100,000. With the contribution by equal shares method, all insurers pay an equal amount until the loss is paid or one of the policy limits is exhausted. Because Insurer 3 has the lowest policy limit of $100,000, all three insurers will each pay equal shares of $100,000. This takes care of $300,000 of the $500,000 loss and exhausts the policy limit of Insurer 3. This leaves Insurers 1 & 2 left to pay $200,000. If they each pay an equal share of the $200,000, they will each pay $100,000 on the remainder of the loss. This means Insurers 1 and 2 pay a total of $200,000 each and Insurer 3 paying $100,000 for a total of $500,000.

All license application and state licensing exam fees in Texas are deposited:

Into the Texas Department of Insurance operating account.

The doctrine of utmost good faith:

Is a legal obligation that requires both parties to the insurance contract act with honesty and integrity

Which of the following best describes the purpose of the "insuring agreement(s)" contained in an insurance policy?

It contains the insurer's promise to pay in case of a loss.

John's Texas adjuster license has been expired for 16 months. Which of the following describes the procedure John will need to follow to reinstate his license?

John will need to take the state licensing exam again and submit an application for a new license.

Which of the following people are required to be licensed as an adjuster in Texas?

Justin, who has been working for 2 years as a claims adjuster for an insurance company.

Which of the following describes a "peril"?

Lightning that strikes a house and destroys electronic equipment inside

For a misrepresentation to void an insurance policy, it must be:

Material

A Texas adjuster has adjusted a claim under a policy type for which he is not licensed. This is considered a:

Misdemeanor and is punishable by a fine of not more than $500, confinement in the county jail for not more than six months, or both.

Which of the following is NOT a common risk management technique?

Multiply the risk by engaging in hazardous activities

When a person purchases several insurance policies to provide more coverage on a risk than the value of the possible loss, it is known as:

Overinsurance

All of the following are included in the term "adjuster" as referenced in the Texas insurance code, EXCEPT:

Public adjuster.

Horatio is a business owner who is part of a business owners group that are buying old commercial buildings in their small city and refurbishing them. Horatio has bought a beautiful historical building made mostly of wood. He installs a sprinkler system right away to prevent a fire. What risk management strategy is Horatio using?

Risk reduction

Meg has been in very good health in the past 3 years. She has been exercising, her blood pressure is at a perfect level and her cholesterol is the envy of all her friends. Because Meg is feeling so healthy, she decides to cancel her health insurance policy. This is an example of which of the following risk management methods?

Risk retention

Which of the following is NOT a responsibility of the Insurance Commissioner in any given state?

Setting insurance rates.

Regulation of the insurance industry in the United States is primarily left to:

State governments.

Surplus lines insurers must pay a premium tax. ________________ sets the amount of the premium tax.

State law

The "liberalization clause" of an insurance policy:

States that if an insurer decides to broaden its standard policy coverages, then all outstanding policies issued prior to that decision will automatically receive those new coverages at no additional premium.

A 100-year flood is an example of which of the following types of risk?

Static risk

A condition found in many insurance policies is known as "Transfer of Rights of Recovery Against Others to Us" actually refers to:

Subrogation

The doctrine that states an insured's policy should provide the coverage that an average prudent person would expect is:

The "Reasonable Expectation" doctrine

Which of the following is the PRIMARY source of information used by insurance companies during the underwriting process?

The application for insurance

Talia is a licensed adjuster in Texas. She has been so busy adjusting claims over the past two years, that she realizes a month before her license is scheduled to expire that she hasn't taken any continuing education courses. She applies to the Texas Department for an extension to obtain her CE credits citing her busy work schedule. Which of the following statements best describes how the Texas Department will likely answer Talia's request?

The extension will likely be denied because the Texas Department does not grant extensions to obtain CE credit based on business reasons.

The first party to an insurance contract is:

The insured

All of the following are characteristics of an insurable risk, EXCEPT:

The loss must be catastrophic in nature.

The Declarations page of an insurance policy contains:

The name and address of the insured

The time period after the policy inception and before the policy expiration is known as:

The policy period

What is the purpose of an Insurance Guaranty Association?

To pay covered claims of admitted insolvent insurers.

All of the following statements are true regarding Public Law 15 (The McCarren-Ferguson Act), EXCEPT:

Under the law, the federal government retains the right to approve insurance forms

Libby completed an application for a new residential policy to cover her home, stating that she does not use the dwelling for business purposes. However, Libby has been conducting business operations from the home and has hired several employees who work out of the home. She also has several clients per day coming to the home for business purposes. When Libby's insurer finds out about the additional business exposures, they decide to take action. Which of the following actions is Libby's insurer most likely going to take?

Void her policy to inception.

Which of the following most accurately describes reinsurance?

When an insurance company buys insurance for some of the risks for which it has issued coverage

When can an insured assign his or her insurance policy over to another party?

When the insurer provides written consent.

Candace lives in Louisiana and holds an independent adjuster license there. She also holds a non-resident Texas independent adjuster license. Which of the following statements best describes Candace's continuing education requirements to renew her Texas license?

Candace must complete her continuing education credits for the state of Louisiana. She will then report those hours to Texas to renew her license.

Chris is insured through Binders Keepers Insurance Company and his policy period ends in 12 months. However, Chris has decided that he wants to cancel his policy in order to purchase another one from a company that advertises with cute commercials on television. Chris calls his agent to cancel the policy and is informed that the unearned premium (UEP) on the cancelled policy will be returned to him by mail in a couple of weeks. When Chris receives the check, he is surprised to find that it's made out for less than the amount of unearned premium he should have received. What is the most likely reason for this?

Chris' policy had a provision stating that UEP must be returned on a short-rate basis.

If the "other insurance" clause in a policy specifies that more than one policy will share equally in the loss until the lowest policy limit is exhausted and continue in that fashion until all policy limits are exhausted. This is known as:

Contribution by equal shares.

Ted holds a property & casualty adjuster's license as well as a workers' compensation adjuster's license in Texas. Which of the following statements best describes how the mandatory continuing education requirements will apply to Ted?

Ted will be required to complete a total of 24 hours of continuing education to meet the requirement for BOTH licenses.

In which part of an insurance contract would you expect to find the duties of the insured following a loss?

The Conditions section

Which of the following sections of an insurance policy contains language to assist an insurance company in managing moral and morale hazards?

The Exclusions

The most widely used property and casualty insurance forms used in the United States today are published by:

The Insurance Services Office, Inc. (ISO).

Which of the following organizations creates and maintains model laws that establish standards for how insurance is offered and delivered in the United States?

The NAIC. The National Association of Insurance Commissioners (NAIC) creates and maintains model laws that establish standards for how insurance is offered and delivered in the United States.

Which of the following is most likely to be uninsurable?

The purchaser of a new home wants to protect herself from a possible drop in housing prices