Basic Principles of Insurance

Question 1

Who elects the governing body of a mutual insurance company?
<> Stockholders
<> bondholders
<> chairman of the board
<> policyholders

Answer 1

<> policyholders

~ The governing body of a mutual insurance company is elected by the policyholders

Question 2

What year was the McCarran-Ferguson Act enacted?
<> 1944
<> 1947
<> 1946
<> 1945

Answer 2

<> 1945
~ The McCarran- Ferguson Act was enacted in 1945 and made it clear that continued regulation of insurance by the states was in the public’s best interest

Question 3

An insurance applicant MUST be informed of an investigation regarding his/her reputation and character according to the:
<> Fair Credit Reporting Act
<> Fair Labor Standards Board
<> National Association of Insurance Commissioners
<> State Guaranty Association

Answer 3

~ Fair Credit Reporting Act
The Fair Credit Reporting Act is a Federal law requiring an individual to be informed if that individual is being investigated by an inspection company.

Question 4

Which of the following requires insurers to disclose when Ann applicant’s consumer or credit history is being investigated:
<> 1945 - The McCarran-Ferguson Act
<> 1999 - Financial Services Modernization Act
<> 1959 - Intervention by (SEC) The Securities and Exchange Commission
<> 1970 - Fair Credit Reporting Act

Answer 4

~ 1970 - Fair Credit Reporting Act
Fair Credit Reporting Act requires fair and accurate reporting of information about consumers. Insurers must inform applicants about any investigations being made. If the report is used to deny coverage or charge higher rates, the insurer must provide the applicant the name of the credit reporting agency conducting the investigation.

Question 5

Which of these describe a participating life insurance policy?
<> Stock companies allow their policy owners to share in any company earnings
<> Policy owners are entitled to receive dividends
<> Policy owners are not entitled to vote for members of the board of directors
<> Policy owners pay assessments for company losses

Answer 5

~Policy owners are entitled to receive dividends
A participating life policy is one in which the policy owner receives dividends deriving from the company’s divisible surplus.

Question 6

What type of reinsurance contract involves two companies automatically sharing their risk exposure?
<> Arbitrage
<> Treaty
<> Facultative
<> Excess

Answer 6

~Treaty

Under treaty reinsurance, each party automatically accepts specific percentages of the insurer’s business.

Question 7

What is the name of the law that requires insurers to disclose gathering practices and where the information was obtained?
<> Fair Credit Reporting Act
<> National Association of Insurance Commissioners
<> State Guaranty Association
<> Fair Labor Standards Board

Answer 7

Fair Credit Reporting Act
~ The Fair Credit Reporting Act is a federal law requiring an individual to be informed if that individual is being investigated by an inspection company

Question 8

The stated amount or percent of liquid assets that an insurer must have on hand that will satisfy future obligations to its policyholders is called:
<> credits 
<>retention
<> reserves
<> surplus

Answer 8

~reserves
The stated amount or percent of liquid assets that an insurer must have on hand that will satisfy future obligations to its policy holders is called reserves.