Chapter Quiz: General Health & Accident Insurance

In insurance policies, the insured is not legally bound to any particular action in the insurance contract, but the insurer is obligated to pay losses covered by the policy. What contract element does this describe? A) conditional B) unilateral C) unidirectional D) aleatory

B) Unilateral In a unilateral contract, the insured is not legally bound to do anything; the insurer, however, must pay losses covered by the policy.

Contracts that are prepared by one party and submitted to the other party on a "take it or leave it" basis are classified as A) aleatory contracts B) binding contracts C) contracts of adhesion D) unilateral contracts

C) Contracts of adhesion Insurance policies are written by the insurer and submitted to the insured on a "take it or leave it" basis. The insured does not have any input in the contract, and simply ADHERES to it. Any ambiguities in the contract will be settled in favor of the insured.

Because an agent is using stationery with the logo of an insurance company, applicants for insurance assume that the agent is authorized to transact on behalf of that insurer. What type of agent authority does this describe? A) implied B) assumed C) apparent D) express

C) apparent Apparent (or perceived) authority is the appearance or the assumption of authority based on the actions, words, or deeds of the principal or because of circumstances the principal created.

Which of the following best describes the aleatory nature of an insurance contract? A) Only one of the parties being legally bound by the contract B) Ambiguities are interpreted in favor of the insured C) Policies are submitted to the insurer on a "take it or leave it" basis D) Exchange of unequal values

D) Exchange of unequal values An aleatory contract is one in which unequal amounts or values are exchanged. The amount of premium the insured pays is much less than the potential loss assumed by the insurer.

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 Fraternal insurers operate on the basis of a lodge or charitable organization, but they may also sell formal insurance plans for the benefit of their members. Reciprocal insurers are also associations that provide insurance for their members, but they are formed only for the purpose of providing insurance.

All of the following are examples of risk retention EXCEPT: A) copayments B) self-insurance C) premiums D) deductibles

C) premiums Retention is a planned assumption of risk, or acceptance of responsibility for the loss by an insured through the use of deductibles, copayments, or self-insurance.

Which of the following are the authorities that an agent can hold? A) Apparent and allowed B) Authorized and admitted C) Primary and secondary D) Express and implied

D) Express and implied The powers and authorities that an agent holds are express and implied. Apparent authority is the appearance of, or the assumption of, authority based on the actions, words, or deeds of the principal or because of circumstances the principal created. Contractually, only those actions that the agent is authorized to perform can bind the principal (insurer); in reality, an agent's authority is much broader. The three types of agent authority are: express, implied, and apparent.

Who might receive dividends from a mutual insurer? A) Subscribers B) Stockholders C) Agents D) Policyholders

D) Policyholders A mutual insurer has no stock, and is owned by policyholders. Since they MAY receive a dividend (not guaranteed) such policies are known as participating policies. Dividends received by policyholders of a mutual insurer are NOT TAXABLE.

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 A peril is the cause of loss insured against in an insurance policy

What do individuals use to transfer their risk of loss to a larger group? A) Indemnity B) Insurance C) Insurable Interest D) Exposure

B) Insurance Insurance is the mechanism whereby an insured is protected against loss by a specified future contingency or peril in return for the present payment of premium. Because many individuals with the same or similar risk of loss are paying premiums, funds are available to indemnify those who actually suffer the loss.

Which of the following is true regarding a risk retention group? A) It is a liability insurance company owned by its members B) It provides support for underwriters and is not an insurance company C) It is a benefit society formed to provide insurance for members of an affiliated lodge D) It is a company owned by stockholders that provides nonparticipating policies

A) It is a liability insurance company owned by its members A risk retention group (RRG) is a liability insurance company owned by its members. The members are exposed to similar liability risks by virtue of being in the same business or industry; the purpose is to assume & spread all or part of the liability of its group members. An RRG may reinsure another RRGs liability as long as the members of the second group are engaged in the same or similar business or industry.

What is the term for the entity that an agent represents regarding contractual agreements with third parties? A) principal B) client C) designee D) insured

A) Principal An agent represents the principal, acting on the entity's behalf in contractual agreements with third parties. In this relationship, it is a given that: * an agent represents the insurer, not the insured; * any knowledge of the agent is presumed to be knowledge of the insurer; * if the agent is working within the conditions of their contract, the insurer is fully responsible; and * when the insured submits payments to the agent, it is the same as submitting a payment to the insurer.

Units with the same or similar exposure to loss are referred to as: A) homogenous B) catastrophic loss exposure C) insurable risks D) law of large numbers

A) homogenous The basis of insurance is sharing risk between a large homogenous group with similar exposure to loss

When transacting business in this state an insurer formed under the laws of another country is known as a/an: A) admitted insurer B) Alien insurer C) Domestic insurer D) Foreign insurer

B) Alien insurer Alien insurer is defined as an insurer formed under the laws of another country.

An individual was involved in a head-on collision while driving home one day. His injuries were not serious and he recovered; however, he decided that--in order to never be involved in another accident--he would not drive or ride in a car ever again. Which method of risk management does this describe? A) retention B) avoidance C) reduction D) sharing

B) Avoidance Avoidance is a method of risk management by which a person tries to eliminate risk of loss by avoiding any exposure to an event that could give rise to such a loss. Risk avoidance is effective but seldom practical.