LIFE ONLY_Chapter 1- Principles of Insurance and General Insurance

What method do insurers use to protect themselves against catastrophic losses? A. Pro rata liability B. Risk management C. Reinsurance D. Indemnity

C. Reinsurance

A tornado that destroys property would be an example of which of the following? A. A pure risk B. A loss C. A physical hazard D. A peril

D. A peril

In insurance policies, the insured is not legally bound to any particular action in the insurance contract, but the insurer is legally obligated to pay losses covered by the policy. What contract element does this describe? A. Unidirectional B. Aleatory C. Conditional D. Unilateral

D. Unilateral

To legally transact insurance in this state, an insurer must obtain which of the following? A. Certificate of Authority B. Power of Attorney C. Business entity license D. Certificate of Insurance

A. Certificate of Authority

Which of the following is NOT a goal of risk retention? A. To fund losses that cannot be insured B. To minimize the insured's level of liability in the event of loss C. To reduce expenses and improve cash flow D. To increase control of claim reserving and claims settlements

B. To minimize the insured's level of liability in the event of loss

Which law is the foundation of the statistical prediction of loss upon which rates for insurance are calculated? A. Law of large numbers B. Law of masses C. Law of averages D. Law of group evaluation

A. Law of large numbers

An insured stated on her application for life insurance that she had never had a heart attack, when in fact she had a series of minor heart attacks last year for which she sought medical attention. Which of the following with explain the reason a death benefit claim is denied? A. Material misrepresentation B. Waiver C. Utmost Good Faith D. Estoppel

A. Material misrepresentation

An insurance company receives an application with some information missing and issues the policy anyway. What is this called? A. Aleatory B. Waiver C. Estoppel D. Subrogation

B. Waiver

In insurance transactions, fiduciary responsibility means A. Being liable with respect to payment of claims B. Commingling premiums with agent's personal funds C. Handling insurer funds in a trust capacity D. Maintaining a good credit record

C. Handling insurer funds in a trust capacity

Installing deadbolt locks on the doors of a home is an example of which method of handling risk? A. Avoidance B. Transfer C. Self-insurance D. Reduction

D. Reduction

An insurance company sells an insurance policy over the phone in response to a TV ad. Which of the following best describes this act? A. Direct response marketing B. Independent agency marketing C. Illegal D. Insurance telemarketing

A. Direct response marketing

Which of the following is NOT a characteristic of an insurable risk? A. The loss must be catastrophic B. The loss must be due to chance C. The loss must be measurable D. The loss exposure must be large

A. The loss must be catastrophic

In insurance, an offer is usually made when A. The agent hands the policy to the policyholder B. An agent explains a policy to a potential applicant C. An applicant submits an application to the insurer D. The insurer approves the application and receives the initial premium

C. An applicant submits an application to the insurer

Which statement regarding insurable risks is NOT correct? A. The insurable risk needs to be statistically predictable B. An insurable risk must involve a loss that is definite as to cause, time, place and amount C. Insureds cannot be randomly selected D. Insurance cannot be mandatory

C. Insureds cannot be randomly selected

What is the definition of a unilateral contract? A. One author: the company wrote the contract; the insured must accept it as written B. If one party makes a condition, the other party can counteroffer C. One-sided: only one party makes an enforceable promise D. Two or more parties go into a contract understanding there may be an unequal exchange of value

C. One-sided: only one party makes an enforceable promise

What documentation grants express authority to an agent? A. Agent's insurance license B. Fiduciary contract C. State provisions D. Agent's contract with the principal

D. Agent's contract with the principal

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 having severe chest pains. This is an example of A. Misrepresentation B. Fraud C. Warranty D. Concealment

D. Concealment

The authority granted to an agent through the agent's contract is referred to as A. Apparent authority B. Implied authority C. Absolute authority D. Express authority

D. Express authority

The requirement that agents not commingle insurance monies with their own funds is known as A. Accepted accounting principal B. Fiduciary responsibility C. Premium accountability D. Express authority

B. Fiduciary responsibility

An insurance company is domiciled in Montana and transacts insurance in Wyoming. Which term best describes the insurer's classification in Wyoming? A. Unauthorized B. Foreign C. Alien D. Domestic

B. Foreign