Life and Health Licensing

What is the definition of a fiduciary?

A person in a position of trust and confidence who handles the affairs and funds of others

Which of the following statements regarding Lloyd's associations is CORRECT?

Insurance is provided by individual underwriters. Explanation: Lloyd's associations are made up of underwriters who are individually liable and responsible for the insurance contracts they underwrite.

Which of the following is NOT encompassed by agency laws?

Knowledge of the principal is knowledge of the agent. Explanation: A fundamental rule of agency law states that information known to the agent is also known by the principal, as long as the agency relationship exists. Information known to the principal, however, is not presumed to be known by the agent.

Which of the following statements regarding fraternal benefit societies is NOT true?

Policies are called contracts Explanation: Fraternal benefit societies operate under a special state insurance code. Policies are called certificates, and members who own life insurance are called certificate holders.

Hachiro, age 45, purchased a life insurance policy from AllPro Insurers and named his 8-year-old son, Takeshi, as a beneficiary. Which of the following statements regarding this situation is CORRECT?

Takeshi is not a party to the insurance contract Explanation: A beneficiary is not a party to the insurance contract. The fact that Takeshi is a minor is irrelevant in this case. Under certain conditions, even minors can enter into insurance contracts as competent parties.

Which of the following is the definition of risk?

The uncertainty about whether a loss will occur. Explanation: A risk is the possibility that a loss that is covered by insurance will happen.

An insurance company that is owned by its policyholders, who share in the company's profits in the form of dividends, is known as...

a mutual insurance company Explanation: A mutual insurance company is owned by its policyholders, who share in the company's profits in the form of dividends.

An insurance company formed under the laws of any country other than the United States would be considered...

an alien insurance company Explanation: Insurance companies formed under the laws of any other country other than the United States are considered alien insurers.

Funds held by an insurance producer in a fiduciary capacity...

cannot be converted to an individual's or a firm's own use. Explanation: Money received by producers is generally held in a fiduciary capacity and, therefore, may not be misappropriated or converted to personal or company use.

All of the following are distribution systems EXCEPT...

claims handling Explanation: Insurance is distributed through many different channels, including direct response, direct writing, independent agencies, and exclusive agencies. Claims handling is a function of the insurance company.

Direct response marketing is...

conducted through ads in the mail, in magazines, and on the internet. Explanation: There are no agents or producers in direct response marketing. Policies are sold directly to the public, and marketing is done through the mail or by advertisements in newspapers and magazines, on the radio, on television, and on the internet.

Which of the following is NOT a characteristic of an insurable risk?

expensive Explanation: the 6 characteristics of insurable risk are that the risk must be calculable, affordable, noncatastrophic, homogenous, accidental, and measurable.

Which of the following types of agent authority is specifically set forth in writing in the agent's contract?

express explanation: express authority is the authority a principal gives to its agent; express authority is granted by means of the agent's contract, which is the principal's appointment of the agent to act on its behalf.

The insurance concept of returning consumers to the financial status they enjoyed prior to the loss is known as...

indemnification Explanation: Utmost good faith is an insurance contract characteristic, but indemnification means to returns an individual to the financial condition she had prior to a loss. This is why insurance deals in pure risk rather than speculative risk; it is about indemnification, not profit.

If an agent fails to perform an act required by a policy, the insurer...

is still required to fulfill its obligation. Explanation: The insurer is liable for its agent's acts if the agent is licensed and has a contract with the insurer.

A mutual insurer is owned by its...

policyholders Explanation: Mutual insurers are owned by its customers or policyholders.

Which of the following statements regarding representations is CORRECT?

A representation must be material for the insurer to void the contract. Explanation: A representation that is determined to be false, but not material, would not void an insurance contract.

After comparing policies for the last 3 months, Carol has finally found a health insurance policy that she would like to purchase. When Carol submits the application with the initial premium...

Carol has made an offer that the insurance company can either accept or reject. Explanation: when Carol submits an application along with the initial premium, she is making an offer to the insurance company. The insurer can accept the offer by issuing the policy as applied for, or it may be counteroffer by issuing another policy at different premium rates or with difference terms. Until the insurer accepts the offer, Carol has the right to rescind it.

Which of the following statements regarding a stock insurer is NOT true?

The policies are participating policies. Explanation: A stock insurer is owned by its stockholders, or shareholders, who chose a board of directors to oversee the operations of the organization. If the company is profitable, it distributes dividends to its stockholders. Policies are called nonparticipating policies. Participating policies are issued by mutual insurers.

All of the following are elements of an insurable risk EXCEPT...

the loss must be catastrophic Explanation: One of the criteria for an insurable risk is that it not be catastrophic. A principle of insurance holds that only a small portion of a given group will experience loss at any one time. Risks that would adversely affect large numbers of people or large amounts or property, such as wars, are not typically insurable. Similarly, insurers would not issue a policy for $1 trillion on a single life. That one death would create a catastrophic, loss to the company.

Which of the following insurance companies are organized and incorporated under state laws but have no stockholders?

mutual insurers Explanation: Mutual insurance companies are organized and incorporated under state laws but have no stockholders. Instead, the owners are the policyholders. Like mutual insurers, reciprocal insurers are also owned by their policyholders; however, the policyowners insure the risks of the other policyowners. Stock insurers are private organizations, organized and incorporated under state laws for the purpose of making a profit for their stockholders. Lloyd's of London, on the other hand, is an association of individuals and companies that individually underwrite insurance.

In order for any contract, including an insurance policy, to be legal it must contain all of the following elements EXCEPT...

representations Explanation: The 4 elements of any legal contract are competent parties, legal purpose, agreement, and consideration. Representations are statements made on an application that the applicant believes to be factual.