Ch. 1 (General Insurance)

Question 1

What two elements are necessary for a life insurance contract to have a legal purpose?

Answer 1

Insurable interest and consent.

Question 2

What is a warranty in an insurance contract?

Answer 2

An absolutely true statement upon which the validity of the insurance contact is based.

Question 3

Wagering on a sports event is known as what type of risk?

Answer 3

Speculative.

Question 4

When agents act within the scope of their contract, their actions will be assumed to be the acts of whom?

Answer 4

Insurer.

Question 5

What are the three types of agent authority?

Answer 5

Express, implied, and apparent.

Question 6

An applicant conceals relevant health information on an application. The applicant presents what type of hazard?

Answer 6

Moral.

Question 7

If an agent fails to obtain the applicant’s signature on the insurance application, what must the insurer do?

Answer 7

Send the application back to the applicant for signature.

Question 8

What type of report provides information about the applicant’s hobbies, habits, and financial status?

Answer 8

Inspection report.

Question 9

What type of insurer is formed under the laws of a different country?

Answer 9

Alien insurer.

Question 10

When risks of higher probability of loss are seeking insurance more often than other risks, this is known as what?

Answer 10

Adverse selection.

Question 11

For the purpose of insurance, what is risk?

Answer 11

Uncertainty of loss.

Question 12

What are the three types of hazards?

Answer 12

Physical, moral, and morale.

Question 13

In the agent/insurer relationship, who is considered the principal?

Answer 13

The insurer.

Question 14

If an insurer meets the state’s financial requirements and is approved to transact business in the state, it is considered what type of insurer?

Answer 14

Authorized or admitted.

Question 15

The requirement that agents must account for and promptly remit all insurance funds collected is known as what type of agent responsibility?

Answer 15

Fiduciary.

Question 16

What is the term for the causes of loss insured against in an insurance policy?

Answer 16

Peril.

Question 17

Whom does an insurance agent represent?

Answer 17

The insurer / insurance company.

Question 18

Conditions that increase the risk of a loss are known as what?

Answer 18

Hazards.

Question 19

The insurer organized to return a profit to the stockholders is what type of insurer?

Answer 19

Stock company.

Question 20

What document is required for an insurance company to transact insurance?

Answer 20

Certificate of Authority.

Question 21

What type of risk is insurable?

Answer 21

Pure.

Question 22

The type of insurance company organized to return any surplus money to its policyholders is known as what?

Answer 22

Mutual company.

Question 23

When a change need to be made on the application for insurance, which is the best method for correcting the information?

Answer 23

Complete a new application or ask the applicant to initial the correction on the original application.

Question 24

In forming an insurance contract, when does an acceptance usually occur?

Answer 24

When the insurer approves a prepaid application.

Question 25

What are the strategies used by underwriters to prevent adverse selection?

Answer 25

Restriction of coverage, refusal to accept a risk, and accepting a risk at a higher rate.

Question 26

In insurance, when is the offer usually made on a contract?

Answer 26

When the insurance application is submitted.

Question 27

Insurers are usually classified according to their domicile. What are the three types of insurers?

Answer 27

Domestic, foreign, and alien.

Question 28

Insurance is a contract that protects the insured from what?

Answer 28

Loss.

Question 29

An Insurance company is domiciled in California and transacts insurance in Nevada. What is this insurer’s classification in Nevada?

Answer 29

Foreign.

Question 30

An insurance company paid a nontaxable dividend to the insured one year, and nothing the next. From what type of insurer did the insured purchase the policy?

Answer 30

Mutual.

Question 31

A situation in which a person can only experience a loss and no gain presents what type of risk?

Answer 31

Pure risk.

Question 32

When would a misrepresentation on an insurance application be considered a fraud?

Answer 32

When it is intentional and material.

Question 33

What do individuals use to transfer their risk of loss to a larger group?

Answer 33

Insurance.

Question 34

The reduction, decrease, or disappearance of value of the person or property insured in a policy is known as what?

Answer 34

Loss.

Question 35

According to the Law of Agency, a principal is represented by whom?

Answer 35

The agent/producer.

Question 36

Whose responsibility is it to determine that all the questions on an insurance application are answered?

Answer 36

The agent’s.

Question 37

What are the five characteristics of an ideally insurable risk?

Answer 37

Loss must be 1) due to chance, 2) definite and measurable, 3) statistically predictable, 4) not catastrophic, and 5) coverage cannot be mandatory.

Question 38

What entities make up the medical information bureau?

Answer 38

Insurers.

Question 39

If an applicant does not receive his or her insurance policy, who would be held responsible?

Answer 39

The agent.

Question 40

What are the four elements of an insurance contract?

Answer 40

1) Agreement (offer and acceptance), 2) consideration, 3) competent parties, and 4) legal purpose.

Question 41

Who owns stock companies?

Answer 41

Stockholders.

Question 42

What is the best way to handle incomplete insurance applications?

Answer 42

Return the application to the applicant for completion.

Question 43

When does an insurance policy go into effect?

Answer 43

When the policy is delivered, and the premium is paid.

Question 44

A person who does not lock the doors shows an indifferent attitude. This person presents what type of hazard?

Answer 44

Morale.

Question 45

An insurance company that is formed under the laws of another state known as what type of insurer?

Answer 45

Foreign.