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59 Cards in this Set
- Front
- Back
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Which Insurance principle states that if a policy allows for greater compensation than the financial loss incurred, the insured may only receive benefits for the amount loss? |
Indemnity |
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When doing business in this state an insurance company that is formed under the laws of another state is know as which type of insurer? |
Foreign |
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Which statement regarding insurable risks is NOT correct? A. Insurance cannot be mandatory B. The insurable risk needs to be statistically predictable C. An insurable risk must involve a loss that is definite as to cause, time, place and amount. D. Insureds cannot be randomly selected. |
D. Insureds cannot be randomly selected. |
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The causes of loss insured against in an insurance policy are know as.... |
Perils |
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An applicant knowingly fails to communicate information that would help an underwriter make a sound decision regarding coverage. This is an example of: |
Concealment |
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All of the following actions by a person could be described as risk avoidance EXCEPT... A. Never flying in an airplane. B. Taking a flu shot each year. C. Investing in the stock market. D. Refusing to scuba dive. |
C. Investing in the stock market (Investing in the stock market is not an example of risk avoidance; it creates the possibility of a loss.) |
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A situation in which a person can only lose or have no change represents.... |
Pure Risk |
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What do individuals use to transfer risk of loss to a large group? |
Insurance |
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Representations are written or oral statements made by the applicant that are.... |
Considered true to the best of the applicant's knowledge.
(Representation are statements made by an applicant that they believe to be true.) |
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An agent accepts the premium payment 35 days after it is due, telling the insured that there will not be a problem keeping the policy in force. This is an example of what type of agent authority? |
Apparent
(An agent who accepts a premium after the end of the grace period appears to the client to have the authority to prevent the policy form lapsing. In fact, the agent has no such power.) |
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Which of the following is NOT the consideration in a policy? A. The premium amount paid at the time of application. B. The promise to pay covered losses C. The application given to a prospective insured. D. Something of value exchanged between parties. |
C. The application given to a prospective insured. |
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Which of the following is a statement that is guaranteed to be true, and if untrue, may breach an insurance contract? A. Concealment B. Indemnity C. Representation D. Warranty |
D. Warranty (A warranty in insurance is a statement guaranteed to be true. When an applicant is applying for an insurance contract, the statements he or she makes are generally not warranties, but representation. Representations are statements that are true to the best of the applicant's knowledge.) |
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Which of the following is NOT a goal of risk retention? A. To increase control of claim reserving and claims settlements. B. To fund losses that cannot be insured C. To minimize the insured's level of liability in the event of loss. D. To reduce expenses and improve cash flow. |
C. To minimize the insured's level of liability in the event of loss. |
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Because an insurance policy is a legal contract, it must conform to the state laws governing contracts which require all of the following elements EXCEPT... A. Conditions. B. Consideration. C. Legal purpose. D. Offer and acceptance. |
A. Conditions |
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An insurer neglects to pay a legitimate claim that is covered under the terms of the policy. Which of the following terms best describes what the insurer has violated? A. Representation B. Adhesion C. Consideration D. Good Faith |
C. Consideration (The binding force in any contract is consideration.) |
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When transacting business in this state an insurer formed under the laws of another country is known as a/an... A. Alien insurer B. Domestic Insurer C. Foreign Insurer D. Admitted Insuer |
A. Alien Insurer
(Alien insurer is defined as an insurer formed under the laws of another country.) |
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Which of the following must an insurer obtain in order to transact insurance within a given state? A. Business Entity License B. Insurer's Certification C. Certificate of Authority D. Producer's Certificate |
C. Certificate of Authority
(All insurers (domestic, foreign, or alien) must obtain a Certificate of Authority before transacting insurance within a given state. |
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What method do insurers use to protect themselves against catastrophic losses? |
Reinsurance
(Insurers use reinsurance to protect themselves from catastrophic losses. This is a method where the reinsurer indemnifies the ceding insurer for part or all of the losses it sustains related to a policy issued previously.) |
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In forming an insurance contract, when does acceptance usually occur? |
When an insurer approves a prepaid application
(In insurance, the offer is usually made by the applicant, in the form of the application. Acceptance takes place when an insurer's underwriter approves the application and issues a policy.) |
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A tornado that destroys property would be an example of which of the following? A. A loss B. A physical hazard C. A peril D. A pure risk |
C. A Peril
(A peril is the cause of loss insured against in an insurance policy.) |
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Insurance is a contract by which one seeks to protect another from... A. Hazards B. Loss C. Exposure D. Uncertainty |
B. Loss
(Insurance will protect a person, business or entity from loss.) |
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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.
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D. The cause of loss insured against
(Perils are the cause of loss insured against in an insurance policy.) |
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In case of a loss, the indemnity provision in insurance policies does what? |
Restores an insured person to the same financial state as before the loss. |
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Which of the following insurers are owned by stockholders who have the usual rights of ownership, including the right of voting? A. Reciprocal B. Fraternal C. Stock D. Mutual |
C. Stock
(Only stock insurance companies are owned and controlled by stockholders.) |
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Which of the following is NOT true regarding a Certificate of Authority? A. It is an equivalent of insurance license. B. It is issued by the state department of insurance. C. It is issued to group insurance participants. D. It may be necessary for transacting business in a specific state. |
C. It is issued to group insurance participants |
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Courts will interpret any ambiguity in and insurance contract... A. Through arbitration B. Based on the prudent person rule. C. In favor of the insured. D. In favor of the insurer. |
C. In favor of the insured.
(Insurance policies are contracts of adhesion. The insurer writes the contract and the insured accepts the contract as it is written. When ambiguities exist, courts generally rule in favor of the insured.) |
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Which of the following is NOT consideration on the part of an insured? A. Representations on the application B. Submitting a Statement of Good Health C. Premium Payment D. Promise to submit timely claims |
D. Promise to submit timely claims |
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What is the term for the entity that an agent represents regarding contractual agreements with third parties? A. Clients B. Designee C. Insured D. Prinicpal |
D. Principal
(An agent represents the principle, acting on the entity's behalf in contractual agreements with third parties.) |
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Events or conditions that increase the chance of an insured loss occurring are referred to as.... |
Hazards |
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Which of the following is the basis for a claim against an insurance policy? A. Loss B. Material Change C. Hazard D. Misrepresentation |
A. Loss |
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All of the following are examples of risk retention EXCEPT... A. Self-insurance B. Premiums C. Deductibles D. Copayments |
B. Premiums
(Retention is a planned assumption of risk, or acceptance of responsibility for the loss by an insured through the use of deductibles, copayments, and self-insurance.) |
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The insurer must be able to rely on the statements in the application, and the insured must be able to rely on the insurer to pay valid claims. In forming of an insurance contract, this is referred to as... A. Utmost good faith. B. Reasonable Expectations C. A Warranty. D. Implied Warranty.
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A. Utmost good faith.
(The insurer must be able to rely on the statements given by the insured in the application. The insured must be able to rely on the insurer's promise to pay covered losses.) |
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An insurer that holds a Certificate of Authority in the state in which it transacts business is considered a/an... |
Authorized insurer |
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Which of the following is NOT a characteristic of an insurable risk? A. The loss exposure must be large B. The loss must be catastrophic C. The loss must be due to chance D. The loss must be measurable |
B. The loss must be catastrophic |
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What documentation grants express authority to an agent? A. Fiduciary Contract B. State Provisions C. Agent's contract with the principal D. Agent's insurance license
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C. Agent's contract with the principal
(The principal grants authority to an agent through the agent's contract.) |
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What is Reinsurance?
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An agreement between a ceding insurer and assuming insurer.
(The originating company that procures insurance on itself in another insurer is called the "Ceding insurer." The other insurer is called the "Assuming insurer." |
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Which of the following is the closest term to an "authorized" insurer? A. Legal B. Admitted C. Certified D. Licensed |
B. Admitted
(Insurers who meet the state's financial requirements and are approved to transact business in the state are considered authorized or admitted into the state as a legal insurer.) |
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In insurance transactions, fiduciary responsibility means. A. Handling insurer funds in a trust capacity B. Maintaining a good credit record. C. Being liable with respect to payment of claims. D Commingling premiums with agent's personal funds. |
A. Handling insurer funds in a trust capacity. |
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Insurance companies may be classified according to the legal form of their ownership. The type of company organized to return any surplus money to their policyholders is.... |
A mutual insurer |
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Which of the following is an example of apparent authority of an agent appointed by an insurer? A. The agent has business cards and stationery printed. B. The agent puts up a sign with the insurer's logo without express permission. C. The agent accepts a premium payment after the end of the grace period. D. The agent accepts a premium payment during the grace period. |
C. The agent accepts a premium payment after the end of the grace period. |
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The risk of loss may be classified as.. A. Named risk and un-named risk. B. High risk and low risk. C. Pure risk and speculative risk. D. Certain risk and uncertain risk. |
C. Pure risk and speculative risk |
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The requirement that agents not commingle insurance monies with their own funds is know as.... |
Fiduciary Responsibility |
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Which of the following insurance providers would be considered a risk sharing arrangement? A. Reciprocal B. Stock C. Mutual D. Surplus Lines |
A. Reciprocal
(When insurance is obtained through a reciprocal insurer, the insureds are sharing the risk of loss with other subscribers of that reciprocal.) |
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If a court ordered payment for a loss that was not covered in the policy even if it was clearly worded, it would be an example of which legal concept? A. Indemnity B. Reasonable Expectation C. Cease and desist D. Nonforfeiture |
B. Reasonable Expectaion |
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Adverse selection is a concept best described as... |
Risks with higher probability of loss seeking insurance more often than other risks. |
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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? |
Mutual |
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Which of the following is NOT an essential element of an insurance contract? A. Legal Purpose B. Counteroffer C. Consideration D. Agreement |
B. Counteroffer |
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In what way can an agent demonstrate a high standard of ethics? |
By putting the client's best interest before their own. |
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When would a misrepresentation on the insurance application be considered fraud? |
If it is intentional and material |
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In insurance policies, contract ambiguities are automatically ruled in the favor of the insured. What privilege does the insured have in order to balance this order? |
The right to determine the wording of a policy |
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A person who does not lock the doors or does not repair leaks shown an indifferent attitude. This person presents what type of hazard? |
Morale |
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A participating insurance policy may do which of the following? A. Require 80% participation B. Pay dividends to the policy owner C. Provide group coverage D. Pay dividends to the stock holder |
B. Pay dividends to the policy owner |
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An individual's tendency to be dishonest would be indicative of a.... |
Moral Hazard |
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Which authority is NOT stated in an agent's contract but is required for the agent to conduct business? A. Implied B. Apparent C. Assumed D. Express |
A. Implied |
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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 |
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What is the major difference between a Stock Company and a Mutual Company? A. Ownership B. Amount of death benefit C. Number of producers D. Types of whole life policies |
A. Ownership
(Mutual companies are owned by policyholders, while stock companies are owner by stockholders.) |
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What is a material misrepresentation |
A statement by the applicant that, upon discovery, would affect the underwriting decision of the insurance company |
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Which of the following is NOT a goal of risk retention? A. To minimize the insured's level of liability in the event of loss. B. To reduce expenses and improve cash flow C. To increase control of claim reserving the claims settlements. D. To fund losses that cannot be insured. |
A. To minimize the insured's level of liability in the event of loss. |
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Which of the following is an example of an agent's fiduciary responsibilities? A. Helping clients to file claims B. Performing a review of the agent's client's coverage. C. Offering additional coverage to his client D. Promptly forwarding premiums to the insurance company. |
D. Promptly forwarding premiums to the insurance company |
