2-15 Questions

What year was the McCarran-Ferguson Act enacted?

1945

Q purchases a $500,000 life insurance policy and pays $900 in premiums over the first six months. Q dies suddenly and the beneficiary is paid $500,000. This exchange of unequal values reflects which of the following insurance contract features? A. Aleatory B. Adhesion C. Unilateral D. Consideration

A. Aleatory Insurance contacts are aleatory in that the amount the insured will pay in premiums is unequal to the amount that the insurer will pay in the event of a loss

All of the following are considered to be typical characteristics describing the nature of an insurance contract, EXCEPT: A. Bilateral B. Unilateral C. Aleatory D. Adhesion

A. Bilateral Characteristics of an insurance contract include: *Contract of Adhesion *Aleatory Contract *Unilateral Contract *Personal Contract *Conditional Contract *Valued vs. Indemnity *Utmost good faith *Warranties *Representations *Concealment *Insurable Interest *Reasonable Expectations *Stranger-Originated Life Insurance

E and F are business partners. Each takes out a $500,000 life insurance policy on the other, naming himself as primary beneficiary. E and F eventually terminate their business, and four months later E dies. Although E was married with three children at the time of death, the primary beneficiary is still F. However, an insurable interest no longer exists. Where will the proceeds from E's life insurance policy be directed to? A. F B. The dissolved partnership C. E's family D. E's estate

A. F In this situation, the proceeds from E's life insurance policy will go to F. Insurable interest only needs to exist at the time of application

When must insurable interest exist for a life insurance to be valid? A. Interception of the contract B. Throughout the entire length of the contract C. When the insured dies D. During the contestable period

A. Interception of the contract Insurable interest must only exist at the interception of the contract.,

A life insurance policy would be considered a wagering contract WITHOUT: A. insurable interest B. premium payment C. agent solicitation D. constructive delivery

A. insurable interest Without insurable interest, a life insurance policy would be considered a wagering contract

Statements made on an insurance application that are believed to be true to the best of the applicant's knowledge are called: A. representations B. consideration C. warranties D. guarantees

A. representations Statements made on an insurance application that are believed to be true to the best of the applicant's knowledge are called representations.

In regards to representations or warranties, which of these statements is TRUE? A. Warranties are statements considered to be true of the applicant's belief B. If material to the risk, false representations will void a policy C. Representations are statements guaranteed to be true in every aspect D. If material to the risk, false representations will NOT void a policy

B. If material to the risk, false representations will void a policy

Who makes the legally enforceable promises in a unilateral insurance policy? A. Beneficiary B. Insurance company C. Insured D. Applicant

B. Insurance company Under a unilateral insurance policy, the insurance company makes the legally enforceable promises.

What is the consideration given by an insurer in the Consideration Clause of a life policy? A. Promise to never cancel coverage B. Promise to pay a death benefit to a named beneficiary C. Promise to not raise premiums D. Promise to accept an insured's assignment of benefits

B. Promise to pay a death benefit to a named beneficiary

Which of these is considered a statement that is assured to be true in every respect? A. Estoppel B. Warranty C. Guarantee D. Representation

B. Warranty Warranty is a statement that is considered guaranteed to be true

When third-party ownership is involved, applicants who also happen to be the stated primary beneficiary are required to have: A. All statements be warranties B. insurable interest in the proposed insured C. the agent complete a third-party application D. all those involved be family-related

B. insurable interest in the proposed insured An applicant who is also the designated primary beneficiary must have an insurable interest in the proposed insured.

Which of the following consists of an offer, acceptance, and consideration? A. Warranty B. Estoppel C. Contract D. Representation

C. Contract

Which of these is NOT a type of agent authority? A. Express B. Implied C. Principal D. Apparent

C. Principal Agent authority is what an agent is authorized to do on behalf of his company. 3 types of authorities include EXPRESS, IMPLIED, and APPARENT

Life and Health insurance policies are: A. Multi-lateral contracts B. Bilateral contracts C. Unilateral Contracts D. Non-later contracts

C. Unilateral Contracts

The part of a life insurance policy guaranteed to be true is called a(n): A. Representation B. Exclusion C. Warranty D. Waiver

C. Warranty Warranties are statements that are considered literally true. A warranty that is not literally true in every detail, even made in error, is sufficient to render a policy void.

When must insurable interest be present in order for a life insurance policy to be valid? A. When the insured dies B. Within the incontestability period C. When the application is made D. Before the insured dies

C. When the application is made

Which of these is NOT considered to be an element of an insurance contract? A. the offer B. acceptance C. negotiating D. consideration

C. negotiating Elements of an insurance contract include: 1. Consideration 2. Legal Purpose 3. Offer and Acceptance 4. Competent Parties

Insurance policies are considered aleatory contracts because: A. they are "take it or leave it" contracts B. both parties consent to the contract C. performance is conditioned upon future occurrence D. the contract is voidable upon proof of fraud

C. performance is conditioned upon future occurrence there is an element of chance and potential for unequal exchange of value or consideration for both parties an aleatory contract is conditioned upon the occurrence of an event

Insurance contracts are known as ____ because certain future conditions or acts must occur before any claims can be paid. A. Consideration B. Unilateral C. Aleatory D. Conditional

D. Conditional

Insurance policies are offered on a "take it or leave it" basis, which make them: A. Conditional Contracts B. Aleatory Contracts C. Unilateral Contracts D. Contracts of Adhesion

D. Contracts of Adhesion Because insurance policies are offered on a "take it or leave it" basis, they are referred to a Contracts of Adhesion.

Taking receipt of premiums and holding them for the insurance company is an example of: A. Commingling B. Misappropriation C. Theft D. Fiduciary responsibility

D. Fiduciary responsibility

If a contract of adhesion contains complicated language, to whom the interpretation be in favor of ? A. Insurer B. Beneficiary C. Reinsurer D. Insured

D. Insured In a contract of adhesion, any confusing language would be interpreted in the favor of the insured.

Which of these arrangements allows one to bypass insurable interest laws? A. Concealment B. Indemnity Contract C. Contract of Adhesion D. Investor-Originated life insurance

D. Investor-Originated life insurance

Stanger Originated Life Insurance (STOLI) has been found in violation of which of the following contractual elements? A. Consideration B. Competent Parties C. Offer/Acceptance D. Legal Purpose (Insurable interest)

D. Legal Purpose (Insurable interest)

Which of the following BEST describes a warranty ? A. Guarantees that an insurance company will pay a benefit B. Statement believed to be true to the best of one's knowledge C. Cannot be used to void the contract D. Statement guaranteed to be true

D. Statement guaranteed to be true

A policy of adhesion can only be modified by whom? A. The agent B. The applicant C. The primary beneficiary D. The insurance company

D. The insurance company A policy of adhesion is best described as a policy which only the insurance company can modify.

In an insurance contract, the insurer is the only party who makes a legally enforceable promise. What kind of contract is this? A. Subrogation B. Unenforceable C. Adhesion D. Unilateral

D. Unilateral UNI = One LATERAL = Side This means that only one party (the insurer) makes any kind of enforceable promise

A contract where one party either accepts or rejects the terms of a contract written by another party is called a contract of: A. adherence B. assimilation C. aleatory D. adhesion

D. adhesion a contract of adhesion is a contract offered intact to one party by another under circumstances requiring the second party to accept or reject the contract in total without having the opportunity to bargain over the wording. Insurance policies are contracts of adhesion and, as such, are construed strictly against the party writing them (i.e. the insurer)

The Consideration clause of an insurance contract includes: A. the buyer's guide B. a summary of the coverage provided C. the named beneficiaries D. the schedule and amount of premium payments

D. the schedule and amount of premium payments The Consideration Clause of a Life or Health policy includes the schedule and amount of premium payments

An insurance applicant MUST be informed of an investigation regarding his/her reputation and character according to the:

Fair Credit Reporting Act

What is the name of the law that requires insurers to disclose information gathering practices and where the information was obtained?

Fair Credit Reporting Act

A nonprofit incorporated society that does not have capital stock and operates for the sole benefit of its members is known as:

Fraternal Benefit Society

A life insurance arrangement which circumvents insurable interest statutes is called:

Investor-Originated Life Insurance IOLI is used to circumvent state insurable interest statutes. This is done when an investor (or stranger) persuades an individual to take out life insurance specifically for the purpose of selling the policy to the investor. The investor compensates the insured and make the premiums, then collects the death benefit when the insured dies.

When a policy pays dividends to its policyholders, it is said to be:

Participating

Who elects the governing body of a mutual insurance company?

Policyholders

The stated amount or percent of liquid assets that an insurer must have on hand that will satisfy future obligations to its policyholders is called:

Reserves

A group-owned insurance company that is formed to assume and spread the liability risks of its members is known as a:

Risk retention group

What type of reinsurance contract involves two companies automatically sharing their risk exposure?

Treaty

At what point must a life insurance applicant be informed of their rights that fall under the Fair Credit Reporting Act?

Upon completion of the application

At what point does an informal contract become binding?

When one party makes an offer and the other party accepts that offer.

Which of these describe a participating insurance policy? a. Policyowners are entitled to receive dividends b. Policyowners pay assessments for company losses c. Stock companies allow their policyowners to share in any company earnings d. Policyowners are not entitled to vote for members of the board of directors

a. Policyowners are entitled to receive dividends

Dividends payable to a policyowner are:

declared by the insurance company (Mutual companies participating or Stock companies nonparticipating)