chapter one - general insurance

Question 1

If an insurance company wants to transfer all or part of the risk it has accepted, it would buy what type of insurance?

Answer 1

Reinsurance.

Question 2

What is an insurance company that is organized under the laws of a different state within the United States?

Answer 2

Foreign.

Question 3

What insurance company department accepts the insurance risk?

Answer 3

Underwriting.

Question 4

What type of authority does the public assume an agent has, based on the agent’s conduct?

Answer 4

Apparent.

Question 5

A federal regulation called the _______ protects customer privacy?

Answer 5

Fair Credit Reporting Act.

Question 6

A physical condition that increases the probability of loss; use, condition, or occupancy of property.

Answer 6

Physical Hazard.

Question 7

Dishonest tendencies that increase the probability of a loss; certain characteristics and behaviors of people.

Answer 7

Moral Hazard.

Question 8

An attitude that increases the probability of a loss.

Answer 8

Morale Hazard.

Question 9

What six things must be included in an insurable risk?

Answer 9

Accidental losses, excluded catastrophic perils, calculable change of loss, a large number of groups with the same perils, affordable premiums, and the loss must be measurable.

Question 10

What principal of insurance restores the insured to the same economic condition that existed before the loss?

Answer 10

Indemnity.

Question 11

The four elements of a legal contract are:

Answer 11

Agreement, legal purpose, consideration, and a competent party or someone that has the legal capacity to enter into a legal contract.

Question 12

A statement in the application that is guaranteed to be true, and if later discovered to be false, the contract may be voided.

Answer 12

Warranty.

Question 13

What is the equation that equals a company’s loss ratio?

Answer 13

(paid losses + loss reserves) / total earned premium

Question 14

When Applicant P fails to disclose all motor vehicle violations in an application for automobile insurance, P may be guilty of:

Estoppel

Concealment

Breach of warranty

Avoidance

Answer 14

Concealment.

Question 15

The failure to disclose material facts.

Answer 15

Concealment.

Question 16

When writing the application for Homeowners insurance, B’s agent asked if B had any theft losses in the past 3 years. B answered no, despite the fact that B was a theft victim 3 times in the past 3 years. B is guilty of which of the following?

Waiver

Unilateral statement

Misrepresentation

Representation

Answer 16

Misrepresentation.

Question 17

Which of the following powers describes the authority stated in an agent’s agency contract?

Express

Implied

Apparent

Assumed

Answer 17

Express.

Question 18

The agency contract, which exists between an insurer and a producer, sets forth the powers that are granted to the producer. These powers are referred to as ____ because they are directly stated in the contract.

Answer 18

Express.

Question 19

Something that increases the change of a loss

Answer 19

Hazard.

Question 20

___ prevents a party from denying a fact, if that fact was admitted to be true by previous actions.

Answer 20

Estoppel.

Question 21

All of the following are producer responsibilities, EXCEPT:

Solicit and accept applications, and forward them to the insurer

Represent the insurer

Issue policies

Provide quotes and collect premiums

Answer 21

Issue policies.

Question 22

K makes a statement on the insurance application, which becomes part of the contract, that K has an alarm system. Having the alarm system qualifies K for a premium discount. This statement is considered a:

Endorsement

Representation

Warranty

Provision

Answer 22

Warranty.

Question 23

A false statement in the application for insurance is ___________.

Misrepresentation

Concealment

Representation

Unilateral

Answer 23

Misrepresentation.

Question 24

When an insurance policy is not clear, the court will usually interpret in favor of the insured because of which characteristic?

The policy is a conditional contract

The policy is an aleatory contract

The policy is a contract of adhesion

The policy is a bilateral contrac

Answer 24

The policy is a contract of adhesion.

Question 25

A contract of ___ is a contract between two parties that is written on a take-it-or-leave-it basis.

Answer 25

Adhesion.

Question 26

An agent is best described as which of the following?

A producer who represents members of the public wishing to purchase insurance

A producer authorized by the Department of Insurance to adjust insurance claims

A producer who represents persons who have contracted with him/her to obtain insurance for them

A producer who has a contract with an insurer to represent that insurer in the sale of its products

Answer 26

A producer who has a contract with an insurer to represent that insurer in the sale of its products

Question 27

An agent has authority to do all of the following, except:

Countersign insurance contracts

Appoint a solicitor as his or her representative

Represent the insured’s interest

Solicit applications on the insurer’s behalf

Answer 27

Represent the insured’s interest.

Because the agent is primarily the representative of an insurer

Question 28

The insurer’s promise to pay a covered loss and the insured’s payment of the first premium are examples of:

Offer

Acceptance

Legal Purpose

Consideration

Answer 28

Consideration.

(This is the term used to describe the rights, money, promises, or property exchanged between the parties as part of a contract transaction).

Question 29

What is the name for an insurer authorized to write insurance policies in a particular state?

Admitted

Non-Admitted

Foreign

Domestic

Answer 29

Admitted.

(An admitted insurer is an insurer that is authorized to transact insurance in a state by that state’s insurance department, as evidenced by a certificate of authority to transact business.)

Question 30

An insurer that is authorized to do business in a particular state is said to be:

Foreign

Non-Admitted

Domestic

Admitted

Answer 30

Admitted.

Question 31

Which statement defines estoppel?

Estoppel is the intentional abandonment of a known right

Estoppel is the failure to disclose known facts

Estoppel is the intentional misrepresentation of a material fact

Estoppel prevents the denial of a fact previously established to be true

Answer 31

Estoppel prevents the denial of a fact previously established to be true.

Question 32

An individual faces the risk of economic loss in the event of property damage because of which of the following?

Limit of recovery

Indemnity

Subrogation

Insurable interest

Answer 32

Insurable Interest

Typically, if there is a risk of financial loss, there must be an insurable interest

Question 33

All of the following are types of insurers, except:

Reciprocal insurers

Proprietary insurers

Mutual insurers

Stock insurers

Answer 33

Proprietary insurers