Chapter one quiz
W's cost for coverage is $5 per thousand. W applies for $100,000 of coverage. What is the total annual premium for W's coverage?
$500
J and his insurance company disagree over some ambiguous language in J's life insurance policy. If the parties end up in court, which principle would direct the court to rule in favor of J?
Adhesion In a contract of adhesion, ambiguity and questionable wording are interpreted in favor of the party who did NOT write the contract.
the _____________ has the power to issue rules and regulations to help enforce insurance laws
Commissioner, superintendent, or director
A person who wants to work in the insurance industry, but who has prior relevant felony conviction must apply for _______
Consent to work
The McCarran-Ferguson Act of 1945:
Gave states the authority to regulate insurance
The National Association of Insurance Commissioners (NAIC):
Has no legal authority over insurance regulation
A(n) _________ is the person or entity that is covered by an insurance policy.
Insured
_______ manufacture and sell insurance coverage in the form of policies or contracts of insurance.
Insurers
each participant of a Lloyds association:
Is individually liable for each risk they assume
The __________ branch is responsible for interpreting and determining the constitutionality of the statutes.
Judicial
The ______ department of an insurance company advertises and sells policies to the public
Marketing or sales
Risk reduction is a way of ______.
Minimizing the chance of loss
Members of the ___________ include state and territorial insurance commissioners or regulators.
National Association of Insurance Commissioners (NAIC)
an insured NOT authorized to do business within this state is considered what type if insurer?
Non-Admitted
If incorrect or unverifiable information is found on an applicant's Credit Report, the Fair Credit Reporting Act requires the reporting agency to:
Send the correct information to all parties who received a report within the prior 24 months
what are the two types of risk?
Speculative and Pure
it is the __________ who issues a Certificate of Authority enabling an insurer to conduct insurance business within a particular state
State insurance Commissioner or Director
_____________________ insurance allows for insurance coverage to be obtained when not available from admitted carriers
Surplus lines
How would an insurance agent most likely use a financial rating service?
To evaluate the financial stability of an insurance company
An insurance contract __________.
Transfers risk from the insured to the insurer
The reinsurance agreement that automatically accepts all new risks presented by the company seeking or requesting reinsurance from the reinsurer is known as a _________ agreement.
Treaty
if an application fails to present all material facts, or a producer fails to fully describe the terms of the contract, which principle has been violated?
Utmost Good Faith ^requires each party to disclose any information that could influence the other party's decision. It assumes no party has withheld critical information.
when two parties rely upon the statements and promises of the other and assume no attempt to conceal or deceive was made, this means the contract was entered into on the basis of:
Utmost good faith
what is the correct insurance term for a statement that is guaranteed to be true?
Warranty
An insurer issues a policy as "other than applied for," requiring an additional premium of $100. When would an agreement come into being?
When the applicant accepts delivery of the policy and pays the additional premium
which of the following would be considered legally competent to enter into a contract?
a 25-year-old self-employed person
what gives an insurer the authority to operate within this state?
a certificate of authority
which of the following is an accurate definition of pure risk?
a chance of loss or no loss, but no chance of gain
according to the Law of Agency, insurers are responsible for the actions of their producers, UNLESS:
a producer acts outside the scope of their authority
an insurer authorized to do business within this state is considered what type of insurance?
admitted
Insurance ____________ are captive or independent organizations that recruit, contract with, train, and support insurance producers.
agencies
An insurer which is formed under the laws of another country is a(n):
alien insurer
if a producer is acting as an agent, whom do they represent?
always the insurer
a company that is licensed to sell insurance in a particular state is:
an authorized company
T owns his own insurance agency and is authorized to represent 12 different insurers. T must be:
an independent agent
insurance contracts are aleatory contracts. What does "aleatory refer to?
an unequal exchange of value
the Fair Credit Reporting Act guarantees which of the following?
applicants' right to information held about them by any reporting agency
a producer must be ________ by an insurer in order to act as agent for that insurer.
appointed
the financial privacy rule requires insurers to provide consumers with a privacy notice:
at the time the consumer relationship is established and annually thereafter
all of the following are elements of a contract, EXCEPT:
authority Enforceable contracts must include: offer and acceptance, consideration (exchange of value), competent parties, and legal purpose. Authority is not considered one of the elements of a legal contract.
why is an insurance policy considered a contract of adhesion?
because one party prepares the contract with little or no input from the other party
which of the following best describes a conditional contract?
both parties must perform specified duties in order for the contract to be enforceable
a person who negotiates insurance contracts with insurers on behalf of an applicant is known as a(n):
broker
In a reinsurance transaction, the company that wishes to transfer all or a portion of the financial risk of loss is known as the _______ company.
ceding
the ________ department of an insurance company is responsible for providing service to policyholders at the time of a loss.
claims
what is the correct term for intentionally withholding facts that, if disclosed, would change the insurer's underwriting or rating decision?
concealment
when both parties perform certain duties and follow certain rules of conduct to make a contract enforceable, this is known as a(n) ___________ contract.
conditional
In a legal sense, an insurance premium is the insured's _______.
consideration
what is the correct term for a contract written by one party without input from or negotiation with the other party?
contract of Adhesion
_________ refers to the jurisdiction where an insurer was formed or incorporated
domicile
which of the following is NOT an actual marketing and distribution model?
exclusive writing system -The Captive Agency System, General Agency System, Independent Agency System, Direct Writers, and Direct Mail/Response are the marketing and distribution systems used by insurers.
the State's ____________ branch enforces the existing statutes that have been in place.
executive
which type of producer authority is specifically stated in the producer's contract?
express
a ____________ agreement is a reinsurance agreement that allows the reinsurance company an opportunity to reject coverage for individual risks, or price them higher to their substandard (higher risk) nature
facultative
Insurers that are incorporated in another state, but doing business in this state, are considered:
foreign
______ are primarily social organizations that engage in charitable and benevolent activities consisting of members of a given faith, lodge, or order, and are usually organized as non-profits.
fraternal benefit societies
deliberate deception with intent to gain is the definition of:
fraud
under the Fair Credit Reporting Act, which of the following statements is correct?
if an individual is denied coverage, they can request a copy of the report
which type of producer authority is not spelled out in the contract, but is necessary for carrying out the producer's duties?
implied
a United States insurance company is considered to be domiciled?
in the state whose laws the company is incorporated under
what is the correct insurance term for the concept of being restored to the same economic condition that existed prior to a loss?
indemnification
which of the following is NOT one of the essential elements of any legal contract?
indemnity
the ability of an individual to meet an insurance company's underwriting requirements is known as:
insurability
which of the following manufactures and issues insurance policies and contracts?
insurance companies
which of the following is the definition of fraud?
intentional deceit with the intent to gain
If a court is presented with a contract of adhesion that contains unclear or ambiguous language, the court will:
interpret the contract in favor of the party that did not write it
generally speaking, all of the following are true of insurance, EXCEPT:
it eliminates risk
the difference between a misrepresentation and a material misrepresentation is:
material misrepresentations are issues that affect policy issuance
insurance coverage that cannot be obtained from any authorized insurers in a state:
may be purchased from an unauthorized insurer as surplus lines
an applicant inaccurately representing information on the application is guilty of:
misrepresentation
which type of company is owned by its policyholders?
mutual insurance
a company owned by stockholders that does NOT pay dividends to policyholders is considered:
nonparticipating
All of the following are responsibilities the producer owes to the applicant, EXCEPT:
only offering policies with the lowest possible premium
a(n) __________ is responsible for paying the policy's premium and has various rights as specified in the contract.
owner
all of the following are Anti-Money Laundering 'red flags', except:
paying annual policy premiums
the three types of hazards are:
physical, moral, morale
which of the following is a sound legal method of minimizing adverse selection?
quality underwriting practices
which of the following statements is not correct regarding rates and premiums?
rates may only be excessive if the insurer is making up for lost reserves
which of the following is not true about a Reciprocal Insurance Company?
reciprocal companies may only transact liability insurance
When an insurer cedes part of an insured's coverage to another insurance company, retaining only part of the risk for itself, the insurer is engaging in:
reinsurance
the transfer of some or all of the financial risk of loss from one insurer to another insurer or insurers is best described as:
reinsurance
when an insurance company sells part of their risk to another insurance company, this is called:
reinsurance
To make insurance more affordable and protect the insurance company from paying out too much in claims, insurers will:
reinsurance the risk
all of the following are essential elements of a legal contract, EXCEPT:
representation - the four essential elements include consideration, competent parties, legal purpose, and offer and acceptance
statements made by the applicant on a life insurance application are considered to be:
representations
which of the following statements is TRUE?
representations are not guaranteed to be true
The ____________ market is a private source of coverage of last resort for individuals or businesses that have been rejected by voluntary market insurers.
residual
which of the following terms refers to the risk management technique of assuming the responsibility for a loss?
retention
a producer or agent is authorized to do all of the following, EXCEPT:
rewrite policy provisions
the process of analyzing risk exposures and designing programs to handle them is known as:
risk management
This organization is licensed in one state and may insure members in other states consisting of a large number of similar units with similar risk exposures such as theme parks, go-cart tracks, or water slides is known as a(n) _________.
risk retention group
the underwriting department of an insurer is charged with the responsibility of:
risk selection
____________ is generally an option only for large corporations who may want to limit their risk up to a certain dollar amount, then buy insurance above and beyond that amount
self-insurance
gambling, such as placing a bet or playing a casino game, involves which type of risk?
speculative risk
dividends issued by stock insurers are paid to:
stockholders
which of the following parties does not sign an application for life insurance?
the beneficiary
apparent authority is:
the demonstrated general appearance that authority exist
For the most part, the highest authority for insurance regulation is:
the individual states
the relationship of a person who acts on behalf of a company whereby the person's actions can bind the company is known as:
the law of agency
which of the following is NOT an essential element of an insurable risk?
the loss must be intentional
which of the following is NOT part of the definition of "insurable risk"?
the loss must be preventable
determining acceptable risks is the primary responsibility of the:
underwriter
a policyowner has the right to cancel the policy at any time, and for any reason, because insurance contracts are _________.
unilateral
which term refers to a contract in which only one party is legally bound to contractual obligations after the premium is paid?
unilateral contract
when it comes to life insurance, insurable interest on one's own life is:
unlimited
if an insurer accepts an overdue premium payment and continues the policy uninterrupted, this is an example of:
waiver
An applicant completes the application and submits it to the insurer along with a premium check. When is the applicant's offer considered accepted?
when the insurer issues the policy
you can purchase a life insurance policy on all of the following persons, EXCEPT:
your neighbor
