Chapters 1-3 Exam Prep

The law of large numbers enables an insurer to Predict losses Avoid adverse selection Classify rates Assure company profits

Predict losses

Which situation would not require the insured's consent when a life insurance policy is issued? A policy is purchased by a husband for his wife A policy is purchased by a parent for a minor child A policy is purchased by a business partner for another partner A policy is purchased by an employer for an employee

A policy is purchased by a parent for a minor child

An agent's authority to bind an insurer to an insurance contract may be granted in the Agent's contract and the insurance company's appointment Agent's license and the insurance company's certificate of authority Buyer's guide and policy summary State guaranty association

Agent's contract and the insurance company's appointment

Use of XYZ Insurance Company brochures, business cards, and rating guides is an example of Expresses authority Implied authority Apparent authority Fiduciary duty

Apparent authority

Which of these statements regarding insurance is false? One way insurers deal with catastrophic loss is through reinsurance As the number of insured units increases, the number of losses decreases Speculative risk cannot be insured Pure risk can be insured

As the number of insured units increases, the number of losses decreases

Insurance is NOT characterized as which of the following? Transference of risk Pooling of premium dollars Method of risk management As the number of insureds increase the number of losses decrease

As the number of insureds increase the number of losses decrease

A reciprocal insurer typically has an administrator who manages the premiums collected from the group's members. This administrator is called a(n) Reciprocal commissioner Attorney general Attorney-in-fact Reciprocal director

Attorney-in-fact

Which of theses is true regarding the exchange of consideration among parties involved in an insurance contract? Required to be in currency Must be equal Can be unequal Must be certified by the state where transaction takes place

Can be unequal

Which of the following types of insurers limits the exposures it writes to those of its owners? Restricted insurer Limited insurer Confined insurer Captive insurer

Captive insurer

The insurer's obligation to pay a claim depends on whether the insured or beneficiary has complied with all policy conditions. This makes the policy a(n) Agency agreement Aleatory agreement Contract of good faith Conditional contract

Conditional Contract

The courts will normally interpret a policy in favor of the insured when the meaning of the policy is not clear. This is because an insurance policy is a(n) Warranty contract Aleatory contract Contract of adhesion Unilateral contract

Contract of adhesion

An insurance application requires an applicant to make a full, accurate disclosure of the risk factor involved. Using this criteria, an insurance policy is considered what type of contract? Aleatory contract Estoppel contract Contract of utmost good faith Unilateral contract

Contract of utmost good faith

Christopher is issued an insurance policy that contains an attached agreement which alters the terms of the policy.This attached agreement is called a(n) Extension Endorsement Saction Restriction

Endorsement

An agreement is reached when an insurance contract is formed. Which of the following is NOT considered to be an element of an agreement? Meeting of the minds Offer Acceptance Equity

Equity

An appointed producer's implied authority is derived from The NAIC Express authority The insurer's Certificate of Authority Evident authority

Express authority

A condition that increases the possibility of financial loss is called a(n) Risk Peril Hazard Exposure

Hazard

For insurance purposes, similar objects which are exposed to the same group of perils are referred to as Homogenous perils Similar exposure units Homogeneous exposure units Common hazards

Homogeneous exposure units

XYZ Insurance Company gives direct authority to its producers to sell insurance through an agency contract, but nothing is stated regarding the collection of premiums. Which authority grants the producer the right to collect premiums? Implied authority Apparent authority Express authority Assumed authority

Implied authority

What happens when an initial offer is answered with a counteroffer? An arbitrator decides on a compromise The counteroffer is legally enforceable Initial offer is void Initial offer is automatically accepted

Initial offer is void

Which of the following products creates an instant estate, no matter when the date of death? Mutual Funds Life Insurance Certificate of Deposit Deferred annuity

Life insurance

Which of the following relationships demonstrates insurable interest in the absence of economic interest? Lifelong friends Employes Marriage partners Business associates

Marriage partners

Greg applies for insurance and makes a false statement on the application that will influence whether or not the insurer will accept the risk. Greg's false statement is called a(n) Substandard representation Unacceptable risk Material misrepresentation Adverse selection

Material misrepresentation

Which of the following is NOT an example of risk retention? Becoming aware of a risk and taking no action Self0insuring a given risk Deciding a business deal is risky but going through with it anyways Not doing a business deal after deciding it would be too risky

Not doing a business deal after deciding it would be too risky

Which of the following can be defined as a cause of a loss? Adversity Risk Hazard Peril

Peril

Dividends from a mutual insurance company are paid to whom? Policyholders Beneficiaries Preferred stockholders Stockholders

Policyholders

Which of the following accurately describes a participating insurance policy? Policyowners may be entitled to receive dividends Policyowners pay assessments for company losses Stock companies allow their policyowners to share in any company earnings Policyowners are not entitled to vote for members of the board of directors

Policyowners may be entitled to receive dividends

According to the law of large numbers, how would losses be affected if the number of similar insured units increases? The higher the exposure, the hight the cost of each loss No effect on predicting losses Predictability of losses will be improved Ability to predict losses decreases

Predictability of losses will be improved

Which of the following outlines the authority given to the producer on behalf of the insurer? Rebating arrangment Commingling contract Controlled business clause Producer contract

Producer contract

What type if risk involves the potential for loss with no possibility for gain? Speculative risk Pure risk Adverse risk Morale risk

Pure risk

Which of these statements is NOT a characteristic of the law of large numbers Individual losses can be predicted based on past experience Group losses an be predicted based on past experience Losses can be predicted in large groups with a higher degree of accuracy Rates can be calculated to compensate for losses

Rates can be calculated to compensate for losses

ABC Company is attempting to minimize the severity of potential losses within its company. The company is engaged in risk Transference Retention Reduction Avoidance

Reduction

An insurer has a contractual agreement which transfers a portion of its risk exposure to another insurer. What type of contractual arrangement is this? Coinsurance contract Mutuality agreement Reinsurance contract Reciprocity arrangement

Reinsurance contract

How can an insurance company minimize exposure to loss? Risk concealing Reinsuring risks Reinsurance Risk assumption

Reinsuring risks

What is the accounting measurement of an insurance company's future obligations to the policyowners? Credits Reserves Surplus account Retention fund

Reserves

What is the insurer responsible for when a producer is acting within the scope of authority granted in the agency contract? All actions by the producer Not responsible for acts by the producer Responsible for acts that involve misrepresentation only Responsible for act by the producer that are authority only

Responsible for acts by the producer that are authority only

Which of the following can be defines as "the potential for loss?" Hazard Risk Transference Peril

Risk

A group-owned insurance company that is formed to assume and spread the liability risks of its members is known as a Treaty insurer Risk retention group Risk assumption group Captive insurer

Risk Retention Group

Which of the following describes the act of insuring a risk against possible loss? Risk transfer Hazard reduction Loss management Risk avoidance

Risk transfer

A stock insurance company is owned by its Officers Board of directors Policyowners Shareholders

Shareholders

Dividends from a stock insurance company are normally sent to.... Beneficiaries Shareholders Policyowners Insureds

Shareholders

Which of the following would NOT have a restricted ability to enter into a contract? Mentally ill person Minor Person under the influence of alcohol Small employer

Small employer

What type of risk involves the potential for loss AND the possibility for gain? Homogeneous Adverse Pure Spectulative

Speculative

Which one of these is NOT considered to be an element of an insurable risk? Speculative risk Pure risk Loss cannot be catastrophic Loss must be due to chance

Speculative risk

Who regulates an insurer's claim settlement practices? National Association of Claim Adjusters State attorney general National Association of Insurance Commissioners State insurance departments

State insurance departments

Which group is the Do Not Call Registry designed to protect against? Telemarketers Charities Political organization Relatives

Telemarkers

An insurable risk requires that the chance for both a loss or gain exists The loss must be catastrophic That the chance of loss be calculable That the loss must be incalculable

That the chance for loss be calculable

When a producer acts within the scope of his/her contractual authority, which of the follow is legally responsible for these actions? The producer The broker The insurer The insured

The insurer

An arrangement where an individual is authorized to act on behalf of another person or company is established through Estoppel The law of agency The law of adhesion An aleatory contract

The law of agency

A business becoming incorporated is an example of risk ____. Reduction Severance Retention Transfer

Transfer

A hold-harmless clause is an example of risk Avoidance Retention Transfer Sharing

Transfer

Purchasing insurance is an example of risk Transference Avoidance Retention Sharing

Transference

Which reinsurance contact between two insurers involves an automatic sharing of the risks assumed? Arbitrage reinsurance Facultative reinsurance Excess reinsurance Treaty reinsurance

Treaty reinsurance

An insurance company's failure to enforce a contract's provision is called a(n) Waiver Warranty Assignment Concealment

Waiver

Giving up a known right on a voluntary basis is called a(n) Disclaimer Estoppel Waiver Surrender

Waiver

During the application process, a statement made by an applicant that becomes part of the contract is considered to be a(n) Warranty Representation Waiver Exclusion

Warranty

A contract is considered void in all the following situations EXCEPT When one party is a minor When consideration is unequal When consideration is incomplete When agreement cannot be reached between parties

When Consideration is unequal

An insurance company can be liable for a producer's unauthorized acts Only when a felony is involved When the agency contract is unclear concerning the authority given At anytime Only if the agency is unilateral

When the agency contract is unclear concerning the authority given

The following are all elements of a valid contract EXCEPT Consideration Offer and acceptance Competent parties Written evidence

Written evidence