Chap 3 Exam

Statements guaranteed to be true are called: A) estoppels. B) representations. C) waivers. D) warranties.

Warranties

A fiduciary responsibility is defined as: A) the responsibility of the insured to pay premiums in a timely fashion. B) a relationship of special trust and confidence when a person is entrusted with another's funds. C) the responsibility the producer has to the appointing insurer. D) the relationship between the broker and the insurer whose products are sold.

B

Which of the following is a promise in exchange for an action? A) A contract of adhesion. B) A unilateral contract. C) A condition contract. D) An aleatory contract.

B

Who are the parties to a life insurance contract? A) Agent and the applicant. B) Applicant and the beneficiary. C) Applicant and the insuring company. D) Agent, the applicant and the beneficiary.

C

A contract is voidable when it: A) lacks one of the basic elements of a legal contract. B) was never in effect. C) cannot be enforced by either party. D) is binding unless the party with the right to set it aside wishes to do so.

D

An agent in the XYZ Insurance Company, equipped with business cards, sample XYZ policies, and an XYZ rate book, informs a prospect that XYZ has given him unlimited binding authority. The prospect assumes this is true. Given the prospect's assumption, which of the following terms correctly defines the agent's authority in this case? A) Implied authority. B) Binding authority. C) Express authority. D) Apparent authority.

D Apparent authority is what a third party (such as a member of the public) assumes an agent has, on the basis of the actions or words of the principal. By supplying the agent with business cards, sample policies, and rate books, the insurance company has given the impression that it supports the words and actions of its agent. 3.3.3.

Statements made by an applicant in completing a life insurance application are considered to be: A) oaths. B) guarantees. C) warranties. D) representations.

Representations Statements made that are true and exact in every detail are warranties. Statements made by an applicant for insurance that he or she represents as being substantially true to the best of his or her knowledge and belief, but that are not warranted as exact in every detail, are representations.

Since only the insurer prepares the insurance contract, it is called a contract of: A) adhesion. B) condition. C) unilateral terms. D) estoppel.

Adhesion Insurance contracts are contracts of adhesion, meaning that they are prepared by one party, the insurer. They are not negotiated contracts. In effect, the applicant adheres to the terms of the contract when he or she accepts it.

Bob is an agent for the Assured Insurance Company. He visits Mary, a prospect, in her home. He arrives with business cards, sample policies from Assured, and an Assured rate book. He recommends Assured policies that can meet Mary's needs for insurance. Which of the following terms describes the kind of authority that Bob has in this situation? A) Express. B) Binding. C) Apparent. D) Implied.

C Apparent authority arises from the reasonable assumptions that a third party, such as an insurance prospect, makes on the basis of the actions or statements of the principal. By providing its agent with business cards, sample policies, and rate books, Assured gives a prospect the impression that it supports Bob's statements and deeds with respect to his insurance transactions.

Which of the following types of agent authority is specifically set forth in writing in the agent's contract? A) Implied. B) Personal. C) Apparent. D) Express.

Express

In legal terms, voluntary relinquishment of a known right is called: A) concealment. B) warranty. C) withdrawal. D) waiver.

Waiver A waiver is a voluntary relinquishment of a known right. If an insurer waives a legal right under an insurance policy, it cannot deny a future claim based on a violation of that right. This is known as estoppel, and the insurer is "estopped" from denying the claim.

Doreen is appointed by an insurance company to transact insurance on its behalf. She collects her clients premiums and has them sign paperwork. By what authority can she do so? A) Implied. B) Apparent. C) Fiduciary. D) Express.

A

Which provision sets forth the insurer's basic promise to pay benefits upon the insured's death? A) Consideration clause. B) Insuring clause. C) Reinstatement provision. D) Settlement options provision.

B

All of the following statements regarding a producer's authority are correct EXCEPT: A) an agent's apparent authority may be binding on an insurer under the law of agency. B) reviewing a prospective applicant's insurance program and recommending the purchase of a particular product is an example of implied authority. C) advising an applicant to answer questions in a manner that will pass underwriting is an example of apparent authority. D) soliciting and negotiating insurance contracts on the company's behalf are considered part of an agent's express authority.

C Express authority is specific authority given to an agent. Implied authority is authority that, while not specifically granted to an agent, can be assumed to have been granted as necessary to perform the agent's routine responsibilities. Apparent authority is authority that the public can logically assume an agent will possess, whether or not she has actually received such authority from the insurer.

When agents act on behalf of insurers, they are acting under which legal principle? A) Utmost good faith. B) Reasonable expectations. C) Estoppel. D) Agency.

D By legal definition, an agent is a person who works for another person or entity (known as the principal), with regard to contractual arrangements with third parties. An authorized agent has the power to bind the principal to contracts, and to the rights and responsibilities of those contracts.

Which of the following is the legal principle that allows a court to order an insurer to provide coverage not explicitly provided for in the contract? A) Conditional. B) Adhesion. C) Utmost good faith. D) Indemnity.

Adhesion An insurance contract is a contract of adhesion. The insurer writes the contract and the insured adheres to it as the contract has been written. Insureds are protected by the courts with regard to insurance contracts where ambiguities arise. In these cases, the courts will usually rule in favor of the party that did not draft the contract.

Agency law encompasses all of the following EXCEPT: A) a contract completed by the agent on behalf of the principal is a contract of the principal. B) payments made to an agent intended for the principal are payments made to the principal. C) knowledge of the principal is knowledge of the agent. D) the acts of an agent are the acts of the principal.

C Knowledge of the principal is not knowledge of the agent but Knowledge of the agent is knowledge of the principal

The fact that an insurance contract promises to pay benefits contingent on a future uncertainty (such as death or illness) makes it what type of contract? A) Estoppel. B) Adhesion. C) Conditional. D) Aleatory.

C An insurance contract is conditional in that the insurer's promise to pay benefits is dependent on the occurrence of the risk insured against. If the loss does not materialize, no benefits are paid.

Which of the following statements regarding representations is CORRECT? A) A representation is guaranteed to be true. B) Only written statements are considered representations. C) If a representation is false on a material point, the insurer may alter the contract but may not rescind it. D) A representation may not be altered after the insurance is in effect.

D

With regard to insurance, the term "consideration" means the: A) screening process all agents undergo prior to licensing. B) side-by-side policy comparison by the applicant. C) insurer's method of evaluating the applicant for coverage. D) price of the contract (the premium).

D Legally defined, "consideration" is the price requested and given in exchange for a promise or an act. In terms of insurance, it is the price of the contract, or the premium, the insured pays to keep the contract and its promised benefits in force.

A life insurance policy is all of the following EXCEPT: A) a valued contract. B) a legal contract. C) a unilateral contract. D) a reimbursement contract.

D Unlike a health insurance policy, a life insurance policy is not a reimbursement contract and does not reimburse the insured for the amount of loss. Instead, a life insurance policy is a valued contract that pays a stated amount.