CH: 1. General Insurance

Which of the following is NOT an essential element of an insurance contract? a) Agreement b) Legal Purpose c) Counteroffer c) Consideration

Counteroffer

a life insurance policy has a legal purpose if both of which of the following elements exist? a) underwriting and reciprocity b) offer and counteroffer c) policyowners and names beneficiaries d) insurable interest and consent

d) insurable interest and consent

What documentation grants express authority to an agent? a) Agent's contract with the principal b) Agent's insurance license c) fiduciary contract d) state provisions

a) Agent's contract with the principal

Contracts that are prepared by one party and submitted to another party on a take-it-or-leave it basis are classified as? a) contracts of adhesion b) unilateral contracts c) aleatory contracts d) binding contracts

a) contracts of adhesion

Events or conditions that increase the chances of an insured loss occurring are referred to as? a) hazards b) exposures c) risks d) perils

a) hazards

An insurance contract must contain all of the following to be considered legally binding except? a) competent parties b) beneficiary's consent c) offer and acceptance d) consideration

b) beneficiary's consent

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

All of the following actions by a person could be described as risk avoidance except? a) never flying in an airplane b) not driving after being in an accident c) investing in the stock market d) refusing to scuba dive

c) investing in the stock market

an insurance company receives an application with come information missing and issues the policy anyway. what is this called? a) estoppel b) subrogation c) aleatory d) waiver

d) waiver

A tornado that destroys property would be an example of which of the following? a) a peril b) a pure risk c) a loss d) a physical hazard

a) a peril

What is reinsurance? a) an agreement between a ceding insurer and an assuming insurer b) an agreement between an originating insurer and a ceding insurer c) an agreement between a domestic insurer and a foreign insurer d) an agreement between an insurer and an insured

a) an agreement between a ceding insurer and an assuming insurer

An insurance contract requires that both the insured and the insurer meet certain conditions in order for the contract to be enforceable. When contract characteristic does this describe? a) conditional b) contingent c) aleatory d) unilateral

a) conditional

If only one party to an insurance contract has made a legally enforceable promise, what kind of contract is it? a) a legal (but ethical) contract b) unilateral c) adhesion d) conditional

b) unilateral

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) conditional b) unilateral c) unidirectional d) aleatory

b) unilateral

Which of the following is considered to be a morale hazard? a) smoking b) working as a firefighter c) engaging in illegal activities d) driving recklessly

d) driving recklessly

What is surplus lines insurance? a) additional insurance placed on itemized risks b) any insurance on items worth more than $25,000 c) insurance in excess of a standard policy's coverage d) insurance placed with an authorized insurer

d) insurance placed with an authorized insurer

which type of insurance is based on mutual agreements among subscribers? a) mutual insurance b) limited liability c) reinsurance d) reciprocal insurance

d) reciprocal insurance

Adverse selection is a concept best described as? a) underwriters slanting the odds in favor of the company b) poor choices of applicants to be covered c) Only offering coverage to good risks d) Risks with higher probability of loss seeking insurance more often than other risks

d) Risks with higher probability of loss seeking insurance more often than other risks

What is a foreign insurer? a) an insurer with a home office in another country b) an insurer with licensed agents doing business in other countries c) an insurer with licensed agents who are citizens in more than one country d) an insurer with a home office in another state

d) an insurer with a home office in another state

When doing business in this state, an insurance company that is formed under the laws of another state is known as which type of insurer? a) domestic b) alien c) non-admitted d) foreign

d) foreign

Which insurance principle states that if a policy allows for greater compensation than the financial loss incurred, the insured may only receive benefits for the amount lost? a) stop-loss b) consideration c) reasonable expectations d) indemnity

d) indemnity

For the reported losses of an insured group to become more likely to equal the statistical probability of loss for that particular class, the insured group must become? a) smaller b) older c) more active d) larger

d) larger

a person who does not lock the doors or does not repair leaks shows an indifferent attitude. This person presents what type of hazard? a) moral b) legal c) physical d) morale

d) morale

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 will explain the reason a death benefit claim is denied? a) material misrepresentation b) waiver c) utmost good faith d) estoppel

a) material misrepresentation

If a court ordered payment for a loss that was not covered in the policy even if it was clearly worded, it would be an example of which legal concept? a) reasonable expectations b) cease and desist c) nonforfeiture d) indemnity

a) reasonable expectations

Which of the following types of agent authority is also called "perceived authority? a) fiduciary b) apparent c) express d) implied

b) apparent

Which of the following entities is not an insurer but an organization formed to provide insurance benefits for members of an affiliated lodge or religious organization? a) stock company b) reciprocal association c) fraternal benefit society d) mutual company

c) fraternal benefit society

which of the following is an example of a producers fiduciary duty? a) the trust that a client places in the producer in regard to handling premiums. b) an obligation to state every known fact about the policy to the producer is selling c) a duty to base all transactions upon the principal of the Utmost Good Faith d) the obligation to tell the truth to the best best of one's knowledge

a) the trust that a client places in the producer in regard to handling premiums.

which of the following best describes the concept that the insured pays a small amount of premium for a large amount of risk on the part of the insurance company? a) subrogation b) warranty c) aleatory d) adhesion

c) aleatory

which of the following insurers owned by stockholders who have the usual rights of ownership, include the right of voting? a) reciprocal b) fraternal c) stock d) mutual

c) stock

In terms of parties to a contract, which of the following does NOT describe a competent party? a) the person must be mentally competent to understand the contract b) the person must have at least completed secondary education c) the person must not be under the influence of drugs or alcohol d) the person must be of legal age

b) the person must have at least completed secondary education

Two years ago he suffered a head injury from an accident, so he cannot remember parts of his past, but is otherwise competent. He has also been hospitalized for drug abuse, but does not remember this when applying for insurance. The insurer issues the policy and learns of his history 1 year later. What will probably happen? a) because the insured is currently not a drug user, his policy will not be affected b) the policy will not be affected c) the policy will be voided d) the insurer will sue the insured for committing fraud

b) the policy will not be affected

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 also having server chest pains. This is an example of? a) misrepresentation b) fraud c) warranty d) concealment

d) concealment

An applicant knowingly fails to communicate information that would help an underwriter make a sound decision regarding coverage. This is an example of? a) breach of warrenty b) concealment c) waiver d) fraud

b) concealment

representations are written or oral statements made by the applicant that are a) immaterial to the actual acceptability of the insurance contract b) considered true to the best of the applicants knowledge c) guaranteed to be true d) found to be false after further investigation

b) considered true to the best of the applicants knowledge