RMI22

What are the requirements for a risk to be insurable?

Large number of similar risk units Loss must be unintential Loss must be observable Loss must be accidental

Which of the following products would NOT be sold by a company in the Life/Health insurance industry? Life insurance Liability insurance Health insurance Annuities Disability insurance

Liability insurance

Define principle of subrogation

One who has paid another's loss is entitled to recovery from any liable third parties who are responsible.

Aleatory contract

Values exchanged by contracting parties are not necessarily equal

Define independent agents

can offer products from multiple insurance companies

Which of the following statements are true with respect to the principle of insurable interest: 1.I can buy insurance on a piece of property that I do not currently own 2.I can buy life insurance on a random stranger, with whom I have no business or personal dealings with 3.I can collect insurance money on a piece of property that I own

1/3

Jim wants to buy term life insurance from an insurer that charges $2 per month for each $1000 of coverage. He is interested in a $10,000 policy which would cost him $20 per month. In this example...

2 is rate, 1000 is exposure, 20 is premium

Which of the following are true regarding independent agents: 1. Any misrepresentation can void an insurance contract 2. Only material misrepresentations can void an insurance contract 3. Any breaches of warranties can void an insurance contract

2/3

I'm shipping cargo overseas and my cargo policy has a franchise deductible of $30,000. My ship goes down and I incur $50,000 in losses. How much will the check from the insurance company be assuming I comply with all conditions of my policy and the loss was due to a covered peril?

50,000

Assume you had a health insurance policy with an 85/15 coinsurance provision and $1,000,000 limit. Further, assume that you suffered a serious illness and you incurred medical bills of $1,000,000 (you can assume that the illness and bills are covered under the insurance policy). How much can you expect to be reimbursed by the insurance company?

850000

Sue is employed by an insurance company. She reviews applications to determine whether her company should insure the applicant. If insurable, Sue assigns the applicant to a rating category based on the applicant's risk. Sue is a(n) Underwriter Actuary Loss control engineer Claims adjuster Compliance officer

A

Which of the following is NOT a component of the insurer's premium "loading"? Losses covered in the policies written by the insurer Commissions Taxes Profit for the insurer Estimated costs for cleaning the insurer's main office building once a week

A

Which of the following statements is NOT true: A. All government provided insurance requires participation (ie is involuntary) B. Both the public and private sector provide life/health insurance C. The private sector provides some insurance that is involuntary D. Both the public and the private sector provide property/liability insurance E. Some property/casualty insurance is involuntary

A

Which one of the following is NOT part of the job of a claims adjuster: Deny all claims at first Verify that a loss occurred Verify any incurred losses were insured losses Pay all legitimate claims Verify the amount of incurred and insured losses

A

Which of the following statements is true regarding insolvency risk: A. Diversification across lines of business is one way to reduce insolvency risk B. Selling insurance in one geographic area only is one way to reduce insolvency risk C. Diversification of invested assets is one way to reduce insolvency risk D. Both a) and c) are true E. All of the above are true

D

Who best describes a person who works in the interest of the insured and is typically paid on a contingency basis? Underwriter Staff adjuster Independent adjuster Public adjuster Special investigator

D

Define the parts if a insurance contract(declaration, exclusions, conditions)

DEclaration: states policy number, whos involved and the premiums Insuring agreement: states what the insurer is willing to do and specifically defines what it will insure Exclusions: describes perils it will not cover or are uncoverable due to location etc Conditions: states percentages and how much will be paid and how, as well as what would cancel these payments. will state if and when there is a cancellation period

Define principle of utmost good faith

Higher standard of honesty is imposed on parties to insurance agreement than is imposed through ordinary commercial contracts

Conditional contract

Insurer only has to perform if insured adheres to conditions

Unilateral contract

Only one party's promises are legally enforceable (insurer)

Basic elements of the insurance definition include:

Pooling of losses Fortuitous losses Risk transfer Indemnification

Many individuals buy "replacement cost" insurance. Technically, replacement cost insurance violates which of the following fundamental principles of insurance:

Principle of indemnity

Define principle of indemnity

The insured may not collect more than the actual loss in the event of damage caused by an insured peril(insured can only collect once)

Which of the following statements about subrogation is true

The insured's right to collect benefits may be forfeited if the insured interferes with the insurer's rights after a loss occurs.

The principle of subrogation states that the insurer is entitled to recover from a negligent third party any loss payments made to the insured. The reason for this principle is:

To reinforce the principle of indemnity To keep insurance premiums down To prevent fraud and double recovery

Which of the following is true regarding policyholders of a mutual insurance company: If total losses exceed premiums collected, the policyholders can be required to pay additional premium Policyholders have no ownership interest in the company If total losses are less than premiums collected, the policyholders will automatically receive a refund Policyholders have to pay a tax on dividends they receive The policyholders of a mutual are also the managers of the company

a

What is the difference between a broker and a agent

a agent is bound to one specific insurance company whereas the broker is the agent of the insuree

Which of the following are true regarding independent agents: A. Independent agents do not "own" the renewal rights of the insurance policy B. Can bind life insurance coverage C. Offer products from multiple insurance companies D. Also known as exclusive agents E. Are the same as brokers

c

Which of the following is true regarding mutual insurance companies: Mutuals can raise additional capital by selling shares of their company Mutual insurance "companies" are not really companies, since they are not incorporated but run by an attorney-in-fact Mutuals primarily raise additional capital by increasing the premiums charged Both b) and c) are correct All of the above are correct

c

Which of the following is true regarding stock insurance companies: Stock insurers cannot raise additional capital by increasing the premiums charged Stock insurers can make assessment against their policyholders Stock insurers can raise additional capital by selling shares of their company Stock insurers usually pay dividends to all of their policyholders Stock insurers in the UK are often referred to as Lloyd's Associations

c

Which of the following information is NOT on the declarations page of an insurance policy?

cancellation period

Brad's homeowners insurance excludes losses if there is a "material increase in hazard". After buying the policy, Brad started to make fireworks in the basement. A spark from a wood stove ignited some gunpowder, and the home burned to the ground. Which legal characteristic of insurance contracts may prevent Brad from collecting under his policy?

conditional contract

The insured's duties after a loss are spelled out in what section of an insurance contract

conditions

Which of the following is NOT considered to be a distribution cost of insurance companies: Cost of paying claims Marketing costs Agents' commissions Agents' salaries

cost of paying claims

Which of the following statements are true regarding insurance capital A. Capital is defined as the total assets an insurance company has B. Having more capital reduces the probability that an insurance company will go bankrupt C. All things constant (no increase in premiums!) policyholders of an insurance company prefer more capital to less D. Both b) and c) are true E. All of the above are true

d

The part of a property and liability insurance contract that contains information about the property to be insured is called the

declarations

A waiting period in a disability insurance policy helps an insurance company to achieve the same business goals as the following policy provision(s) in a property liability insurance policy:

deductible

The exclusion of flood in a homeowners policy is an example of an

excluded peril

All property-liability insurance is offered exclusively through private insurers without any government involvement. t/f

false

Everything else equal, a franchise deductible is more effective at reducing moral hazard than a straight deductible. t/f

false

In the ERM example in class, managing risks jointly instead of separately creates savings for the firm. These savings are larger:

higher the disired safety level

Define principle of insurable interest

insured must demonstrate personal loss or else be unable to collect amounts due when loss caused by insured peril occurs.

With which of the of the following ownership structures do the owners traditionally have unlimited liability: Stock Mutual Reciprocal Exchanges Lloyd's of London

lyolds of london

When Ellen completed her life insurance application, she answered "No" to the question, "Have you ever had hepatitis?" She had hepatitis two years ago. If Ellen dies shortly after the policy is issued, the insurer may be able to deny the claim because of the doctrine of:

misrepresentation concealment would be simply not saying it, not lying

The principle of insurable interest says that the insured must demonstrate a personal loss or else be unable to collect amounts due when a loss caused by an insured peril occurs. Without the principle of insurable interest, people could take out insurance on other people's property. This would create the following problem:

moral hazard

Named vs open perils

named are specifaclly stated whereas open perils are what the insurer will cover if something happens except those listed in the exclusions

Which of the following is a characteristic of a mutual insurance company:

pay dividends non profit owned by policy holders not a board

What is the difference between private and public (gov) insurance?

private is written by a private company and public is regulated by the government. both can be either voluntary or involuntary(required) One may just be better or one more affordable

What are the different functions performed by insurers

selling the insurance

Who is responsible for creating the rates charged by the insurance company?

the actuary

Exclusions are used in insurance policies for all of the following reasons except:

to waive policy conditions

Everything else equal, a disappearing deductible offers more coverage than a straight deductible. t/f

true

Personal coverages address the possibility that some peril may interrupt the individual's income. Examples include premature death, unemployment, accidents, sickness and old age. t/f

true

The insurer can be legally obligated to perform in the case of a covered loss, but the insured cannot be forced to pay premiums. This fact allows us to describe an insurance contract as a(n)___________.

unilateral

Why might certain perils be excluded from a policy

uninsurable, can be covered elsewhere, covered under endorsement