Life & Health 1 (Chapters 1, 2, 3, & 4)

Question 1

Which statement most accurately describes a unilateral contract?

(A) Both parties to the contract are bound to the terms.
(B) Both parties adhere to the contract.
(C) Both parties exchange goods of equal value.
(D) Only one party is legally bound to the contract.

Answer 1

(D) Only one party is legally bound to the contract.

Insurance contracts are unilateral contracts. Only the insurance company has legal obligations. The insured/owner is not legally bound to pay the premiums. Of course, if the insured does not pay the premiums, the company will cancel for non-payment.

Question 2

The opposite of a unilateral contract is a:

(A) collateral contract
(B) multi-lateral contract
(C) bilateral contract
(D) omni-lateral contract

Answer 2

(C) bilateral contract

Question 3

Tendencies for attitude and state of mind which cause indifference to loss are a:

(A) moral hazard
(B) morale hazard
(C) physical hazard
(D) dukes of hazard

Answer 3

(B) morale hazard

Morale is a state of mind. Good attitudes vs. bad attitudes.

Question 4

Which statement concerning a life insurance contract is true?

(A) It is a personal contract and can be given away.
(B) It is not a personal contract and can be given away.
(C) It is a personal contract and can not be given away.
(D) It is not a personal contract and can not be given away.

Answer 4

(B) It is not a personal contract and can be given away.

An example of a personal contract would be a fire policy. The risk would change every time the policy was assigned or given away. The new owner may be a smoker, which would increase the chance of loss to the company. But life insurance is on a particular person. Even if ownership change, the risk, or the person being insured, will not increase.

Question 5

Agents hired by a P.P.G.A. are considered to be employees of the:

(A) P.P.G.A
(B) Company
(C) Both
(D) Neither

Answer 5

(A) P.P.G.A

They work for the PPGA

Question 6

The policyowner/insured of a $100,000 life insurance policy died of a heart attack four months after taking out the policy. The company then learned that the insured had been treated for a heart condition nine months prior to being insured, but the fact had been omitted from the application. Which course of action would the company likely follow?

1. The company had to pay the death benefit because the discrepancy was not uncovered prior to the insured’s death.
2. The company had to pay the death benefit because the contract is incontestable after the payment of the initial premium.
3. The company will not have to pay the death benefit, but will return the premiums.

(A) 1 only
(B) 2 only
(C) 3 only
(D) 1 & 2

Answer 6

(C) 3 only

A material fact is grounds for voiding the policy within the first two years. A material fact is a fact which, had the company known, it could have altered the underwriting decision to issue or not to have issued the policy.

Question 7

Another name for a home service company is:

(A) industrial
(B) debit
(C) door to door
(D) neighborhood

Answer 7

(B) debit

Home service, or debit companies, offer industrial insurance, for which the premiums are collected at the home of the insured on a weekly basis for small face amounts, usually $1000 - $3000.

Question 8

Rooster died as the result of an automobile accident. His alcohol level was well above the state’s limit for impairment. The accident was considered:

(A) a physical hazard
(B) a moral hazard
(C) a peril
(D) all of the above

Answer 8

(C) a peril

The peril is the event that causes the loss. Hazards make them more likely to happen. Driving drunk was a moral hazard. It increases the chance of the accident happening.

Question 9

Which of the following describes the idea that the insurance contract is created by the insurer and the client can “take it or leave it”?

(A) Adhesion
(B) Unilateral
(C) Aleatory
(D) Commutative

Answer 9

(A) Adhesion

Contracts of adhesion are created by one party, the insurer, and are not the result of negotiation between the parties.

Question 10

In terms of social & economic benefits, insurance is:

(A) a more important social benefit
(B) a more important economic benefit
(C) equally important economic and social benefit
(D) has no social or economic benefit

Answer 10

(C) equally important economic and social benefit

Question 11

An insurance contract is:

(A) not a personal contract
(B) a conditional contract
(C) a contract of adhesion
(D) all of the above

Answer 11

(D) all of the above

It is conditional because of two things. (1) The risk insured against may or may not happen and (2) the insurance company’s obligation to pay is conditioned upon the payment of the premium by the insured. The insured is under no legal obligation to pay. He might pay or he might not. Insurance is not a personal contract because the owner of the policy does not increase the risk to the company. It is the insured that brings the risk. Ex. A parent (the owner) owning a policy on a child (the insured). The child brings the risk, not the parent.

Question 12

Which of the following gave the federal government power to regulate insurance?

(A) Paul vs. Virginia
(B) U.S. vs. Southeastern Underwriters Association (SEUA)
(C) The McCarran-Ferguson Act
(D) The Financial Services Modernization Act

Answer 12

(B) U.S. vs. Southeastern Underwriters Association (SEUA)

This power was given to the federal government in 1944 but the next year congress passes the The McCarran-Ferguson Act which gave regulation back to the states.

Question 13

A _______ contract may be set aside.

(A) void
(B) voidable
(C) misrepresented
(D) bad

Answer 13

(B) voidable

Void means without legal effect.

Question 14

To be characterized as a fraternal benefit society, the organization must :

1. be non-profit.
2. have ritualistic work within a lodge system.
3. elected officers.
4. operate on a pure assessment system.

(A) 1, 2, & 3
(B) 2, 3, & 4
(C) 1, 3, & 4
(D) all of the above

Answer 14

(A) 1, 2, & 3

Question 15

A producer owes a fiduciary responsibility to:

(A) the company
(B) the client
(C) the company and the client
(D) the client and the beneficiary

Answer 15

(C) the company and the client

Question 16

What is NOT used to determine a company’s ratings?

(A) A.M. Best
(B) Moody’s
(C) Lloyd’s of London
(D) S&P

Answer 16

(C) Lloyd’s of London

A.M. Best, Moody’s & S & P all rate insurance companies as to their financial soundness. Lloyd’s of London is not an insurer, nor is it a rater. Rather, it gathers and disseminate underwriting information and helps associates settle claims and disputes.

Question 17

While New Mexico Life Insurance Company is operating in the state of Florida, it would be considered by the state of Florida to be a/an:

(A) A Foreign Company
(B) A Domestic Company
(C) An Alien Company
(D) A nonadmitted company

Answer 17

(A) A Foreign Company

Had it been Mexico Life it would have been an Alien company.

Question 18

Which of the following statements would mean that the values of the contract are unequal?

(A) unilateral
(B) adhesion
(C) aleatory
(D) bilateral

Answer 18

(C) aleatory

An aleatory contract is unequal. The value that the insurance company will pay out if the event happens exceeds that which the policyowner pays in. Ex. A $100.000 policy will eventually pay $100,000 but the premiums will never,ever reach that amount, no matter how long the insured pays. Aleatory also means there is an element of chance involved. If death did not occur no benefit would be paid out. Ex. A term policy expired.

Question 19

Which is true about the net payment cost comparison index and the surrender cost comparison index?

(A) They are found at the end of the policy
(B) They are found in the policy summary
(C) They are found in the entire contract
(D) They must be presented at policy delivery

Answer 19

(B) They are found in the policy summary

The policy summary must be given at the time the first premium is collected.

Question 20

Sonny submitted an application, with the first month’s required premium, to the insurance company for $100,000. The company issued the policy as applied for. Which statement is true?

(A) The company made the offer and Sonny accepted.
(B) Sonny made the offer and the company accepted.
(C) The agent soliciting the application made the offer on behalf of the company.
(D) It depends.

Answer 20

(B) Sonny made the offer and the company accepted.

When the applicant submits the application with the appropriate premium, an offer has been made. The company will either accept, reject, or counter offer with a higher premium or fewer benefits. If no premium was submitted at the time of application then the company would make the offer and the applicant would accept it at the time he/she paid the premium.

Question 21

A company transfers a risk,t he company assuming the risk is:

(A) The ceding company
(B) Risk Retention
(C) Risk transference
(D) The re-insurer

Answer 21

(D) The re-insurer

The company assuming the risk is called the “re-insurer” The company tranferring the risk is called the ceding company.

Question 22

Which Act gives the Chief Financial Officer the right to suspend licenses, assign fines, and prosecute insurance companies?

(A) The McCarran-Ferguson Act
(B) Advertising Code
(C) The Florida Legislature
(D) The Unfair Trade Practices Act

Answer 22

(D) The Unfair Trade Practices Act

The McCarran-Ferguson Act gave regulation back to the states in 1945 but the Unfair Trade Practices Act gives the state it’s power to issue cease and desist orders, etc.

Question 23

The principle that the large amount of exposures that are combined into a group, the more certainty there is to the amount of loss incurred in any given period is known as:

(A) loss sharing
(B) the law of large numbers
(C) pooling of risks
(D) mortality tables

Answer 23

(B) the law of large numbers

The larger the group, the more accurate the prediction. This, in fact, gives us the mortality (life) & mobidity (health) tables.

Question 24

All statements on an application are considered to be:

(A) warranties
(B) representations
(C) material facts
(D) all of the above

Answer 24

(B) representations

Statements are considered to representations. A representation is a statement that is made to the best of one’s belief. A warranty is a statement of fact. Guaranteed to be true.

Question 25

For the benefit of a lower premium, Tommy stated on his insurance application that he was five years younger than his actual age. The policy was issued as applied for and 15 months later Tommy died in an automobile accident. Which course of action would the insurance company take?

(A) The claim would be denied
(B) The full benefit would be paid
(C) The higher premium would be subtracted from the benefit
(D) A reduced benefit would be paid

Answer 25

(D) A reduced benefit would be paid

The company would pay an adjusted benefit. Age is not a material fact. It would not have altered the company’s decision to issue the policy. However, the premium would have been higher. So, the death benefit in this case would be reduced. Had all this been discovered before he died the premium would have been adjusted.

Question 26

A producer represents the:

(A) buyer
(B) company
(C) buyer and the company
(D) agent

Answer 26

(B) company

An agent represents the company. The agent and the company are the same . What the agent does the company does. Liability of the agent will generally mean liability to the insurance company. Bringing a lawsuit against the agent generally means bringing a lawsuit against the company. A broker represents the consumer in a sales transaction. Florida does not recognize a broker in this state.

Question 27

Which of the following statements are true?

(A) Stock companies sell only non-participating policies
(B) Mutual (participating) companies sell only non-participating policies
(C) Stock companies sell both participating and non-participating policies
(D) Mutual (participating) companies sell both participating and non-participating policies

Answer 27

(C) Stock companies sell both participating and non-participating policies

Question 28

A/an ________ is the voluntary giving up of a legal right:

(A) Estoppel
(B) Waiver
(C) Aleatory
(D) Warranty

Answer 28

(B) Waiver

If you waive your right, you may later be stopped from getting that right back.

Question 29

An agent’s license will terminate if he or she allows how many years to pass without an appointment?

(A) 2 years
(B) 4 years
(C) 5 years
(D) 6 years

Answer 29

(B) 4 years

You will lose it if four years pass without being appointed.

Question 30

Agency law refers to the relationship between which two parties?

(A) the career agent and the general agent
(B) the career agent and the personal producing general agent
(C) the captive agent and the general agent
(D) the agent and the company

Answer 30

(D) the agent and the company

Agency law governs the principle that the agent is identical with the company.

Question 31

A stock insurance company has stockholders and policyholders. The directors & officers are responsible to which of the following?

(A) The policyholders
(B) The stockholders
(C) Stockholders & policyholders
(D) Board of directors

Answer 31

(B) The stockholders

A stock company is organized for the purpose of making a profit. Stockholders own the company. Insurance is simply the product they are selling. It is basically the same as a shoe company selling shoes. A mutual company has no stockholders, the policyholders own the company.

Question 32

All of the following are unique elements of an insurance contract except?

(A) Insurable interest
(B) Valued, Indemnity
(C) Adhesion
(D) Consideration

Answer 32

(D) Consideration

Question 33

An insurable interest must exist when:

(A) A life insurance policy is issued
(B) Death proceeds become payable
(C) Policy ownership is transferred
(D) Cash values are borrowed

Answer 33

(A) A life insurance policy is issued

Insurable interest exists when one person would suffer a financial loss in the event of the death of another. It needs to be present only at the time of inception.

Question 34

Which of the following is Not a unique character of a life insurance contract?

(A) Aleatory
(B) Adhesion
(C) Conditional
(D) Estoppel

Answer 34

(D) Estoppel

Question 35

All of the following statements about life insurance and the risk it covers are true EXCEPT:

(A) Life insurance is a mechanism
(B) As the number of separate risks of the same type increases, the amount of loss within a given group becomes more certain.
(C) The probability of an individual insured’s death increases each year until it becomes a certainty
(D) Life insurance is like a mutual fund in that a certain sum of money must be set aside each year to meet the contractual obligations of the insured.

Answer 35

(D) Life insurance is like a mutual fund in that a certain sum of money must be set aside each year to meet the contractual obligations of the insured.

Question 36

Which of the following statements is/are true?

(A) Twisting is internal replacement
(B) Churning is external replacement
(C) Twisting is replacement with misrepresentation
(D) Twisting and churning are dance numbers

Answer 36

(C) Twisting is replacement with misrepresentation

Twisting is external, churning is internal. Both require misrepresentaion or omission of facts. Replacement is not illegal or unethical as long as it is the best interrest of the insured.

Question 37

An applicant for a health policy has a heart condition of which he is unaware and therefore he answers “no” to the question pertaining to heart problems. His answer is considered to be a:

(A) Warranty
(B) Concealment
(C) Fraudulent answer
(D) Representation

Answer 37

(D) Representation

A representation is a statement believed to be true. A warranty is a guaranteed fact.

Question 38

The Florida Guarantee Association:

(A) Protects the insured if the insurer becomes insolvent
(B) Protects the insurer if the insurer becomes insolvent
(C) Protects the agent if the insurer becomes insolvent
(D) Protects the insurer if the insured becomes insolvent

Answer 38

(A) Protects the insured if the insurer becomes insolvent

This state association is funded by insurance companies through assesments. It protects the insured if the company goes belly-up.

Question 39

If 100 men, age 25, desired to provide their beneficiary with $10,000, how much would each have to pay if we knew three were going to die?

(A) $30
(B) $300
(C) $3,000
(D) $309

Answer 39

(B) $300

The mortality tables told us three would die. That would create a $30,000 pool to be divided by the 100 men. $30,000 divided by the 100 equals $300.

Question 40

The Financial Services Modernization Act:

(A) Repealed the Glass-Steegal Act
(B) Prohibits banks from selling more than $50,000 of total life insurance on any one life
(C) Prohibits banks from selling life insurance
(D) Prohibits insurance companies from engaging in banking

Answer 40

(A) Repealed the Glass-Steegal Act

This Act broke the “glass” which prohibited banks from selling insurance .

Question 41

Which of the following gives the state their ability to fine, issue cease and desist orders and impose penalties?

(A) unfair trade practices act
(B) unfair claim settlement practices act
(C) the Code of Ethics of the FAIFA
(D) the McCarran-Ferguson Act

Answer 41

(A) unfair trade practices act

The McCarran-Ferguson Act gave regulation back to the states. The code of ethics is a code of ethics, it does not punish.

Question 42

An applicant has been denied insurance coverage because of information contained in a consumer report. According to the Fair Credit Reporting Act, all of the following statements are true about this situation EXCEPT:

(A) The applicant has the right to obtain a copy of the consumer report directly from the insurance company that used the report.
(B) The applicant has the right to obtain disclosure of the substance of the information in the consumer report from the reporting agency.
(C) The applicant has the right to obtain the names of all people contacted within the past 6 months.
(D) Applicants must be notified within 3 days that a report has been requested.

Answer 42

(A) The applicant has the right to obtain a copy of the consumer report directly from the insurance company that used the report.

Question 43

Statements made by an applicant for a life insurance policy which are supposed to be true are referred to as:

(A) representations
(B) facts
(C) warranties
(D) information

Answer 43

(A) representations

Question 44

Most new life insurance is purchased:

(A) by employers for employees through group insurance
(B) by individuals through insurance agents
(C) in equal amounts through group and individual policies
(D) by the federal government

Answer 44

(B) by individuals through insurance agents

Question 45

The company transferring the risk to another company is called the:

(A) The reinsurer
(B) The purchasing company
(C) The risk retention group
(D) The ceding company

Answer 45

(D) The ceding company

The reinsurance company is the company insuring the ceding company.

Question 46

When an applicant applies for insurance by completing an application and paying one month’s premium, this constitutes:

(A) Consideration and an offer to buy.
(B) An acceptance.
(C) A conditioned contract.
(D) A completed contract.

Answer 46

(A) Consideration and an offer to buy.

The company will then either accept, reject, or counter-offer.

Question 47

What is the greatest challenge the insurance industry faces today?

(A) Too few agents
(B) Too many agents
(C) Public perception
(D) Health care costs

Answer 47

(D) Health care costs

Question 48

Rules pertaining to testimonials, statistics and special offers would be found in:

(A) the policy summary
(B) the entire contract
(C) the advertising code
(D) buyers guide

Answer 48

(C) the advertising code

The advertising code addresses these rules as well as rules pertaing to certain words and phrases that are considered misleading.

Question 49

Which of the following is known for safety & peace of mind?

(A) A receipt of payment
(B) A Waiver
(C) Security
(D) A Valium

Answer 49

(C) Security

Question 50

Lloyd’s of London:

(A) insures unusual perils
(B) does not insure anything
(C) is an insurance company specializing in unusual risks

Answer 50

(B) does not insure anything

Question 51

All of the following statements describe risk avoidance, EXCEPT:

(A) Wendy keeps her money out of the stock market.
(B) Pat pays his insurance premium.
(C) John never drives a car.

Answer 51

(B) Pat pays his insurance premium.

Risk avoidance is simply avoiding as many risks as possible. Pat was practicing “Risk Transference” by transferring the potential loss to his insurance company.

Question 52

Which of the following could be considered a commercial company?

(A) a stock or mutual company
(B) a service provider
(C) an assessment company
(D) a health maintenance organization

Answer 52

(A) a stock or mutual company

Stock and mutual companies are sometimes referred as commercial companies.

Question 53

Which of the following statements best describes an element of an insurable risk?

1. The loss must be due to chance.
2. The loss must be definite and measurable.
3. The loss must not be catastrophic.
4. The loss exposures to be insured must be large.

(A) 1 & 2
(B) 1, 2, & 3
(C) 2 & 3
(D) All of the above

Answer 53

(D) All of the above

Question 54

The tendency for less favorable risks to seek or continue insurance is known as:

(A) catastrophic loss
(B) adverse selection
(C) questionable moral standards
(D) questionable morale standards

Answer 54

(B) adverse selection

Question 55

What type of agent represents a number of insurance companies under separate contractual agreements?

(A) Career Agents
(B) Personal Producing General Agents
(C) Independent Agents
(D) Brokers

Answer 55

(C) Independent Agents

Career agents work for the insurance company and the General agent is his boss and they are captive. Personal Producing General Agents work for one company. They produce (sell). The Independent Agent has many different contracts with many different companies.

Question 56

The policyowner/insured of a $100,000 life insurance policy died of a heart attack four months after taking out the policy. The company then learned that the insured had been treated for a heart condition nine months prior to being insured, but the fact had been omitted from the application. Which course of action would the company likely follow?

1. The company had to pay the death benefit because the discrepancy was not uncovered prior to the insured’s death.
2. The company had to pay the death benefit because the contract is incontestable after the payment of the initial premium.
3. The company will not have to pay the death benefit, but will return the premiums.

(A) 1 only
(B) 2 only
(C) 3 only
(D) 1 & 2

Answer 56

(C) 3 only

Question 57

A company that is licensed to sell insurance in a state in which it is domiciled is called:

(A) a domestic company
(B) an alien company
(C) a nonadmitted company
(D) an authorized company

Answer 57

(A) a domestic company

Remember, Miami Mutual is in Florida. It sells in Florida and it is domestic. Baghdad Life is in Baghdad. If it sells in Florida it is alien because it is located outside the U.S., it’s territories, or possession’s.

Question 58

Which of the following cause the potential for increasing risk?

(A) Peril
(B) Hazard
(C) Speculation
(D) Over insurance

Answer 58

(B) Hazard

The hazard increases the “chance” that a peril (the thing that caused the loss” will occur.

Question 59

Assessment Mutual Insurers:

(A) Operate on the legal reserve system
(B) Charge its members nothing until the loss occurs
(C) Pay as services are rendered
(D) Are owners who monitor hospital costs

Answer 59

(B) Charge its members nothing until the loss occurs

Although not allowed in Florida these guys operate in one of two ways. (1) Pure Assessment charges its members nothing until the loss occurs. (2) Advance Premium Assessment charges in advance. If the charge exceeds what the losses are, they return the money in the form of a dividend.

Question 60

When an agent is replacing an existing policy, he is to provide what with the application?

1. Agents name & I.D. number
2. Notice to Applicant Regarding Replacement of Life Insurance? (Exhibit A)
3. A copy of all Sales Proposals used for presentation to the applicant

(A) 1 only
(B) 1 & 2
(C) 2 & 3
(D) all of the above

Answer 60

(D) all of the above

Question 61

An unlicensed salaried officer of an insurance company may sell life insurance in the state of Florida.

(A) True
(B) False

Answer 61

(A) True

Question 62

The use of testimonials, special offers, or statistics would be found under what code or act?

(A) Unfair Trade Practices Act
(B) Fair Trade Practices Act
(C) Unfair Advertising Code
(D) Advertising Code

Answer 62

(D) Advertising Code

The advertising code is an N.A.I.C. creation which not only addresses testimonials, statistics, and special offers, but also deals with full disclosure on policy renewals, cancellations, and termination provisions.

Question 63

Ima Yankee has been licensed for seven years. How many hours of continuing education does Ima need?

(A) 20 hours every two years
(B) 24 hours every two years
(C) none, he knows it all

Answer 63

(A) 20 hours every two years

If licensed for less than six years he needs 24 hours. If licensed more than six years he needs only 20 hours.

Question 64

Tendencies for attitude and state of mind which cause indifference to loss are a:

(A) moral hazard
(B) morale hazard
(C) physical hazard
(D) dukes of hazard

Answer 64

(B) morale hazard

Morale is a state of mind. Good attitudes vs. bad attitudes.

Question 65

Which of the following statements are true?

(A) Both Personal Producing agents and Career agents sell and train.
(B) Both General agents and P.P.G.A.’s sell and train.
(C) Too many questions, I can’t take it any more.
(D) Career agents are contracted to represent the particular company.

Answer 65

(D) Career agents are contracted to represent the particular company.

“A” is wrong because Career agents do not train anyone. “B” is wrong because General agents usually do not sell.

Question 66

Which of the following is an example of an RRG?

(A) HMO
(B) Dentists
(C) Association
(D) MEWA

Answer 66

(B) Dentists

An RRG is a Risk Retention Group

Question 67

Long Life, a stock insurance company, transfers ownership of the company to the policy holders. This process is called:

(A) an illegal act
(B) de-mutualization
(C) mutualization
(D) a mutual-stock combinational company

Answer 67

(C) mutualization

Some stock companies may desire to transfer ownership to the policyholders. This process is called mutualization. On the other hand, a mutual company may want to transfer ownership to stockholders, this is called de-mutualization.

Question 68

Which of the following is not a federal government insurance program?

(A) National Service Life
(B) Service members group life
(C) Veterans group life
(D) Medicaid

Answer 68

(D) Medicaid

Medicaid is a state program funded with matching federal dollars. The intent here is medicaid. A state program.

Question 69

Bill Wilson wants to obtain a life insurance policy on his employee, Kenneth Myers, and names Kenneth’s wife, Susan, as the beneficiary. Signatures of which of the following would be legally required on the application?

1. Bill
2. Kenneth Myers
3. Susan

(A) 1 only
(B) 1 and 2 only
(C) 2 and 3 only
(D) 1, 2 and 3

Answer 69

(B) 1 and 2 only

The beneficiary’s signature is not required because he/she is not a party to the contract. He/she has no contractual capabilities.

Question 70

An applicant for insurance denied having ever been diagnosed with heart problems when in fact he had recently had triple by-pass surgery. How long does the company have to uncover this fact?

(A) one year
(B) two years
(C) five years
(D) Fraud is forever contestable.

Answer 70

(B) two years

Fraud is incontestable after two years have passed since the inception of the policy.

Question 71

Which of the following statements concerning rebating is not correct?

(A) The rebate must be available to all insureds in the same actuarial class
(B) The percentage of rebate cannot discriminate
(C) Rebates should be given to insureds who purchase a policy from an insurer that prohibits rebating
(D) Rebating is legal in Florida

Answer 71

(C) Rebates should be given to insureds who purchase a policy from an insurer that prohibits rebating

Question 72

Which of the following is/are true concerning the N.A.I.C.?

(A) They are instrumental in developing guidelines and model legislation
(B) They develop standards for policy provisions
(C) They created the Unfair Trade practices act and the Advertising Code
(D) All of the above

Answer 72

(D) All of the above

Question 73

The authority of an agent to undertake certain functions for an insurance company would be found under which of the following?

(A) A contract of agency
(B) Agency law
(C) A contract of principal
(D) The general agency principal

Answer 73

(A) A contract of agency

This contract of agency spells out what authority an agent may or may not have.

Question 74

The “right of subrogation” means the insurance company may acquire the right of the insured against liable third parties, those that may have contributed to the loss, in the event a claim is paid. This could be found in which type of contract?

(A) a life insurance contract
(B) a valued contract
(C) disability contracts
(D) indemnity contracts

Answer 74

(D) indemnity contracts

This right is found inherently in indemnity contracts. Indemnity contracts pay an amount up to the amount of the loss. It attempts to make the insured whole again. A valued contract pays a stated amount, regardless of the loss. Health insurance is an indemnity contract, life insurance is a valued contract. Ex. If another driver ran into my car and had no insurance, my insurance company would pay for my damages and then “go after” the other driver for reimbursement.

Question 75

All of the following systems support the sale of insurance through agents EXCEPT:

(A) career agency system
(B) PPGA’s
(C) independent agency system
(D) direct selling

Answer 75

(D) direct selling

Direct selling deals directly with the consumer. No agent is used.

Question 76

Which of the following statements concerning void/voidable contracts is true?

(A) A voidable contract is unenforceable by law.
(B) A contract with a minor is a voidable contract.
(C) A void contract may be set aside by the party having the right to do so.
(D) A void contract is without legal effect.

Answer 76

(D) A void contract is without legal effect.

Voidable contracts “are” contracts that may be set aside. Not paying a premium would be an example. The company could set this contract aside. A void contract does not exist. It is over. A contract with a minor or a contract with no consideration are examples of “void” contracts. They can not be enforced.

Question 77

Which of the following is a distinguishing element of an insurance contract?

(A) consideration
(B) competent parties
(C) incontestability
(D) offer and acceptance

Answer 77

(C) incontestability

Most contracts are indeed contestable. However, an insurance contract has the two year incontestable period.

Question 78

Which type of authority is given to the agent specifically through a contract with an insurance company?

(A) Contractual
(B) Implied
(C) Apparent
(D) Expressed

Answer 78

(D) Expressed

Expressed authority is “written”. Apparent authority is what someone else thinks you have, and implied authority is not overtly or outwardly extended.

Question 79

It is possible to predict the approximate number of deaths or frequency of disabilities within a certain group during a specific time. This is based on which of the following principles?

(A) Law of Large Numbers
(B) Insurance Probabilities
(C) Homogeneous Probabilities
(D) Law of Large Returns

Answer 79

(A) Law of Large Numbers

This principle is based on the science of probability and the experience of mortality (death) and morbidity (sickness) statistics. The larger and more homogeneous the group, the more certain the mortality or morbidity predictions.

Question 80

The opposite of an Aleatory contract is a:

(A) Unilateral
(B) Commutative
(C) Adhesion
(D) Bilateral

Answer 80

(B) Commutative

Question 81

Which of the following statements about representations and warranties is/are true?

1. If a warranty is untrue the company may cancel the contract
2. If a representation is untrue the company can not cancel the contract unless it is a material fact.

(A) 1 only
(B) 2 only
(C) Both 1 and 2
(D) Neither 1 nor 2

Answer 81

(C) Both 1 and 2

Question 82

Which of the following is not a characteristic of a fraternal organization?

(A) A lodge system
(B) A non-profit organization
(C) Members receive a policy
(D) Members receive a certificate

Answer 82

(C) Members receive a policy

Question 83

Which of the following is not a valued contract?

(A) a variable universal policy
(B) A disability policy
(C) an accidental death and dismemberment policy
(D) an 80/20 major medical policy

Answer 83

(D) an 80/20 major medical policy

A valued contract pays a stated amount ( no more,no less) in the event of a loss. An indemnity contract pays an amount to offest the loss. The amount paid out is dependent upon the loss. ex. If an individual had a hospitalization policy with maximum limits of $1,000,000 and incurred a loss of $50,000, the contract would pay only $50,000.

Question 84

Because an insurance contract has been prepared by an insurance company without negotiation, it is considered a/an:

(A) aleatory contract
(B) contract of adhesion
(C) personal contract
(D) unilateral contract

Answer 84

(B) contract of adhesion

Adhesion means only one party, the insurance company, has prepared the contract. The insured must adhere to the terms of the contract. Remember it this way, Adhesion (sticks)…who sticks it to whom? The insurance company sticks it to the insured. This is sometimes confused with unilateral which is defined as: only one side has promises that can be enforced by law.

Question 85

Tom completes the application, pays the initial premium, and the agent submits this to the insurance company. The insurer issues a policy with several riders and waivers not requested by Tom. Which of the following answers describes the insurer’s action?

(A) An acceptance by the company
(B) A counter offer by the insurer
(C) A voidable contract
(D) An offer and acceptance

Answer 85

(B) A counter offer by the insurer

Question 86

Which of the following is not considered an insurance company?

(A) Lloyd’s of London
(B) Risk Retention Groups
(C) Reciprocal Insurers
(D) Assessment Insurers

Answer 86

(A) Lloyd’s of London

Lloyd’s of London is not considered an insurance company but rather the arena for obtaining protection.

Question 87

Participating policy dividends are influenced by three factors which include all the following EXCEPT:

(A) Mortality cost savings
(B) Reserve Interest earnings
(C) Operating expenses (loading)
(D) The sale of company stock

Answer 87

(D) The sale of company stock

Question 88

Which of the following is not true concerning the National Association of Insurance Commissioners?

(A) It created the advertising code and the Unfair Trade Practices Act.
(B) It encourages uniformity in state insurance laws by legislative acts.
(C) It is concerned with the preservation of state regulation.
(D) It develops standards for policy provisions.

Answer 88

(B) It encourages uniformity in state insurance laws by legislative acts.

The N.A.I.C. is not part of the legislative branch. They have no ability to create laws. They have no power to prosecute or punish. They do, however, set the standards that each state will follow to one degree or another. The commissioner is a member of the board.

Question 89

Which of the following denotes an “element of chance”?

(A) Conditional
(B) Aleatory
(C) Adhesion
(D) Utmost good faith

Answer 89

(B) Aleatory

Question 90

The statement “there is no attempt to value financial loss” would be applied to which of the following?

(A) A valued contract
(B) An indemnity contract
(C) The doctrine of subrogation
(D) All of the above

Answer 90

(A) A valued contract

A valued contract pays a stated amount , regardless of the loss. A life policy would pay $50,000 if death occurs. An indemnity contract pays an amount equal to the loss. If a house is insured for $200,000 and the kitchen burns causing $50,000 of loss, the policy would pay $50,000, the amount of the loss.

Question 91

The Fraternal Order of Orion the Hunter, a fraternal benefit society, may sell insurance to:

(A) Anyone. Most fraternal societies today offer insurance to non-members as well.
(B) only members of the organization.

Answer 91

(A) Anyone. Most fraternal societies today offer insurance to non-members as well.

Their memberships are based on religious, national, or ethnic lines. They sell the same types of insurance as other insurance companies.

Question 92

There are risks that include the possibility of loss or gain. What is the definition of accepting risk & confronting it if & when it occurs?

(A) Pure risk
(B) Speculative risk
(C) Retention
(D) Funding

Answer 92

(C) Retention

The first sentence really is a statement and has nothing to do with the question. Be careful. Retention is “keeping” the risk. Like driving with-out auto insurance. Page 10..BTW…RTFQ…Read The Friggin Question

Question 93

Assessment insurers:

(A) are stock companies
(B) operates on a loss sharing by group members
(C) are becoming popular in Florida
(D) have unlimited assessments

Answer 93

(B) operates on a loss sharing by group members

They are mutual companies who assess each individual member after a loss. There are limits to what each member can lose. They are not allowed in Florida. With that in mind, it will probably be on the exam sometime soon.

Question 94

Selling insurance through a vending machine would be:

(A) mass marketing
(B) direct selling
(C) a yank and pull
(D) a prohibited practice

Answer 94

(B) direct selling

Direct selling requires no agent.

Question 95

What type of authority is not overtly extended but must be used to enable the agent to transact business of the principle?

(A) express
(B) implied
(C) apparent
(D) fiduciary

Answer 95

(B) implied

Question 96

A group of pharmacists or dentists might be covered under:

(A) a reinsurance group
(B) a risk retention group
(C) a reciprocal group
(D) a fraternal group

Answer 96

(B) a risk retention group

Question 97

For a risk to be insurable it must contain all of the following characteristics EXCEPT:

(A) The loss must be definite and measurable.
(B) The loss exposures to be insured must be large.
(C) The loss must not be due to chance.
(D) The loss must be predictable.

Answer 97

(C) The loss must not be due to chance.

Question 98

The N.A.I.C. developed:

(A) The Advertising Code
(B) The Unfair Trade Practices Act
(C) Both
(D) Neither

Answer 98

(C) Both

Question 99

Andy the agent was fired by the general agent three months ago for conduct “unbecoming”. Andy’s general agent later was known to accept business that Andy had written after having been fired. One of these policy holders died before the policy was issued but had paid the required premium. Assuming the applicant had been insurable at standard rates, the company would pay because of:

(A) apparent authority
(B) implied authority
(C) expressed authority
(D) agency law

Answer 99

(A) apparent authority

Question 100

If an insured did not pay his premium the company may or may not exercise their right to cancel the policy. This would apply to which of the following contracts?

(A) A void contract
(B) A voidable contract
(C) An implied contract
(D) A verbal Contract

Answer 100

(B) A voidable contract

A void contract never existed.

Question 101

A person covered under a service provider is called:

(A) the insured
(B) the member
(C) the client
(D) the subscriber

Answer 101

(D) the subscriber

A sevice provider is providing a “service”, in this case medical care. Like a warranty on a car, if the car breaks down they fix it, because it is covered under the warranty. Same with a service provider. The subscriber is buying a warranty.

Question 102

In a sales transaction, the producer will represent the:

(A) the company
(B) the policyowner/insured
(C) both

Answer 102

(A) the company

Agents represent the company, brokers represent the insured/policyowner. This is good for the client because this makes the agent and the company as one and the same. A lawsuit against the agent would, in most cases, be a lawsuit against the company.

Question 103

The following statements about INSURABLE INTEREST are true EXCEPT:

(A) Brothers and sisters have an insurable interest in each other.
(B) A creditor can have an insurable interest in a debtor limited to the amount of indebtedness.
(C) An insurable interest must exist between the policy owner and the insured at the time of the claim.
(D) People are considered to have an insurable interest in themselves.

Answer 103

(C) An insurable interest must exist between the policy owner and the insured at the time of the claim.

Question 104

All of the following are not considered competent parties to the contract except:

(A) Minors
(B) The mentally infirm
(C) Physically disabled
(D) Those under the influence of alcohol or narcotics

Answer 104

(C) Physically disabled

Question 105

Which of the following statements concerning pure & speculative risks is/are true?

1. Pure risks have only the chance for loss.
2. Speculative risks have only the chance for gain.
3. Only pure risks are insurable.
4. Both pure and speculative risks are insurable.

(A) 1, 3, 4
(B) 1 & 3
(C) 1, 2, & 3
(D) 2, 3, & 4

Answer 105

(B) 1 & 3

Question 106

Regarding warranties and representations, which of the statements below are true?

(A) If a warranty is untrue, the insurer has the right to cancel the contract
(B) If a representation is untrue, the insurer has the right to cancel the contract only if the representation was not material
(C) If a representation is untrue, the insurer has the right to cancel the contract
(D) If a warranty is untrue, the insurer has the right to cancel the contract only if the representation was material

Answer 106

(A) If a warranty is untrue, the insurer has the right to cancel the contract