Insurance Exam

Which of the following best describes the concept that the insured pays a small amount of premium for a large amount risk on the part of the insurance company? A. Adhesion B. Subrogation C. Warranty D. Aleatory

D. Aleatory An insurance contract is an aleatory contract in that it requires a relatively small amount of premium for a large risk.

For the purpose of insurance, risk is defined as A. The uncertainty or chance of loss B. The certainty of loss C. The cause of loss D. An event that increases the amount of loss

A. The uncertainty or chance of loss Risk, or the chance of loss occurring, is the basic reason for buying insurance

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

B. 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.

Events or conditions that increase the chances of an insured loss occurring are referred to as A. Exposures B. Risks C. Perils D. Hazards

D. Hazards Conditions such as lifestyle and existing health, or activities such as scuba diving are hazards and may increase the chance of a loss occuring.

An insured purchased an insurance policy 5 years ago. Last year, she received a dividend check from the insurance company that was not taxable. This year, she did not receive a check from the insurer. From what type of insurer did the insured purchase the policy? A. Reciprocal B. Nonprofit service organization C. Stock D. Mutual

D. Mutual Funds are not paid out after paying claims and other operating costs are returned to the policyowners in the form of a dividend. If all funds are paid out, no dividends are paid.

Which of the following produces evaluations of insurers' financial status often used by state departments of insurance? A. SEC B. AM Best C. NAIC D. Consumer's guide

B. AM Best AM Best & Company assigns ratings to life, property and casualty insurance companies based upon the financial stability of the insurer.

Which of the following types of agent authority is also called "perceived authority" A. Fiduciary B. Apparent C. Express D. Implied

B. Apparent Apparent authority (also known as 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.

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. Binding contracts B. Contracts of adhesion C. Unilateral contracts D. Aleatory contracts

B. 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 into the contract, but simply adheres to the contract.

All of the following are marketing arrangements used by insurers EXCEPT A. Direct Response Marketing System B. Independent Agency System C. Reinsurance System D. General Agency System

C. Reinsurance System Reinsurance is a method used by insurers to protect against catastrophic losses. The rest are marketing arrangements

What is reinsurance? A. An agreement between an originating insurer and a ceding insurer B. An agreement between a domestic insurer and a foreign insurer C. An agreement between an insurer and an insured D. An agreement between a ceding insurer an assuming insurer

D. An agreement between a ceding insurer an assuming insurer The originating company that procures insurance on itself in another insurer is called the ceding insurer. The other insurer is called assuming insurer.

Which of the following would qualify as a competent party in an insurance contract? A. The applicant is a 12 year old student B. The applicant is under the influence of a mind impairing medication at the time of application C. The applicant has a prior felony conviction D. The applicant is intoxicated at the time of application

C. The applicant has a prior felony conviction When an insurer and insured enter into a contract, both parties must be of legal age and mentally competent. It is legal for a person convicted of a felony to buy an insurance contract. An intoxicated person, however, may not be mentally competent, a 12 year old student is considered to be underage in most states and a person under mind-impairing medication most likely would not be mentally competent.

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 A morale hazard is someone who has indifferent attitude towards an insurance company. He is careless or irresponsible because he knows his loss will be covered by insurance.

Which of the following types of agent authority is also called "perceived authority"? A. Implied B. Fiduciary C. Apparent D. Express

C. Apparent Apparent authority (also known as 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.

Peril is most easily defined as A. An unhealthy attitude about safety B. The chance of a loss occurring C. Something that increases the chance of loss D. The cause of loss insured against

D. The cause of loss insured against Perils are the causes of loss insured against in an insurance policy

Which services are associated with Standard & Poor's and AM Best? A. Storing medical information collected by insurance companies B. Rating the financial strength of insurance companies C. Investigating violations of The Fair Credit Reporting Act D. Providing employment histories for investigating consumer reports

B. Rating the financial strength of insurance companies Reports generated by Standard & Poor's and AM Best help prospective consumers to judge the financial security of various insurance companies

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 authority (also known as 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.

An insurance producer who by contract is bound to write insurance for only one company is classified as a/an? A. Captive agent B. Solicitor C. Broker D. Independent producer

A. Captive agent A captive/exclusive agent has agreed, by contract, to produce insurance business only for the insurer they are contracted with

Which of the following is considered to be a morale hazard? A. Driving recklessly B. Smoking C. Working as a firefighter D. Engaging in illegal activities

A. Driving recklessly Morale hazards arise from a state of mind that causes indifference to loss, such as carelessness

The risk of loss may be classified as A. High risk and low risk B. Pure risk and speculative risk. C. Certain risk and uncertain risk. D. Named risk and un-named risk.

B. Pure risk and speculative risk Pure risks involve the probability or possibility of loss with no chance for gain. Pure risk are generally insurable. Speculative risks involve uncertainty as to whether the final outcome will be gain or loss. Speculative risks are generally uninsurable.

The insurer may suspect that a moral hazard exists if the policy holder A. Is prone to depression B. Is indifferent to activities that may be dangerous C. Always drives over the speed limit D. Is not honest about his health on an application for insurance

D. Is not honest about his health on an application for insurance Moral hazards refer to those applicants that may lie of application for insurance or in the past, have submited fraudulent claims against an insurer