CHAPTER ONE

Question 1

WHAT IS INSURANCE?

Answer 1

THE TRANSFER OF RISK.

Question 2

WHAT IS RISK ?

Answer 2

RISK IS, UNCERTAINTY

Question 3

WHAT ARE THE TWO TYPES OF RISK?

Answer 3

SPECULATIVE AND PURE

Question 4

WHAT IS SPECULATIVE RISK?

Answer 4

SPECULATIVE RISK IS LIKE GAMBLING. COULD BE LOSS OR COULD BE GAIN.

Question 5

WHAT IS PURE RISK?

Answer 5

WITH PURE RISK THERE IS ALWAYS A LOSS. FIRE, ACCIDENT ETC.

Question 6

WHAT IS LOSS?

Answer 6

LOSS IS A REDUCTION IN THE VALUE OF AN ASSET.

Question 7

WHAT IS EXPOSURE?

Answer 7

IS THE RISK ASSUMED BY THE INSURER AND THE AMOUNT THE INSURER IS RESPONSIBLE TO PAY OUT AT ANY GIVEN TIME?

Question 8

WHAT IS PERIL?

Answer 8

PERIL IS THE CAUSE OF LOSS.

Question 9

WHAT IS A HAZARD?

Answer 9

A HAZARD IS ANYTHING THAT WILL INCREASE THE CHANCE OF A LOSS.

Question 10

WHAT ARE THE THREE TYPED OD HAZARDS?

Answer 10

PHYSICAL, MORAL, MORALE.

Question 11

WHAT IS PHYSICAL HAZARDS?

Answer 11

CAN BE SEEN OR DETERMINED. I.E-WET FLOOR, HEART CONDITION.

Question 12

WHAT IS A MORAL HAZARD?

Answer 12

DISHONESTY - INTENTIONALLY CAUSING LOSS.

Question 13

WHAT IS A MORALE HAZARD?

Answer 13

CARELESSNESS I.E. - LEAVING DOOR UNLOCKED

Question 14

WHAT IS THE ACRONYM FOR HANDLING RISK?

Answer 14

S - SHARING - TWO OR MORE PEOPLE AGREE TO SHARE THE RISK.
T - TRANSFER - IS INSURANCE. A TRANSFER OF RISK.
A - AVOIDANCE - ELIMINATING A PARTICULAR RISK BY NOT ENGAGING IN IT.
R - REDUCTION - LESSENING THE CHANCE A LOSS WILL OCCUR.
R - RETENTION - SELF INSURE.

Question 15

WHAT IS THE LAW OF LARGE NUMBERS?

Answer 15

THE LAW OF LARGE NUMBERS IS THE PRINCABLE THAT MAKES INSURANCE POSSIBLE.
THE LARGER THE GROUP DATA THE MORE ACCURATE THE PREDICTION.

Question 16

WHAT ARE THE ELEMENTS OF INSURABLE RISK?
OR
WHAT IS NEEDED TO INSURE SOMEONE?

Answer 16

C - CALCULABLE - PREMIUMS CALCULATED ON PRIOR LOSS STATISTICS.
A - AFFORDABLE - PREMIUM FOR INSURANCE MUST BE AFFORDABLE.
N - NON-CATASTROPHIC- CANNOT INSURE EVENTS OF WIDESPREAD LOSS.
H - HOMOGENEOUS - INDIVIDUAL RISKS COVERED MUST ALL BE SIMULAR
A - ACCIDENTAL - IF LOSS IS CERTAIN TO OCCUR THERE IS NO RISK.
M - MEASURABLE - ESTIMATING THE POSSIBLE LOSS AS A DOLLAR AMOUNT.

Question 17

WHAT IS ADVERSE SELECTION?

Answer 17

RISKS HAVING A GREATER THAT AVERAGE CHANCE OF LOSS

Question 18

WHAT IS REINSURANCE?

Answer 18

INSURANCE FOR INSURERS.

Question 19

WHAT IS FACULTATIVE REINSURANCE?

Answer 19

THE REINSURER CONSIDERS EACH RISK BEFORE INSURING THE INSURER.

Question 20

WHAT IS TREATY REINSURANCE?

Answer 20

THE REINSURE WILL INSURE A “TYPE” OF INSURANCE AS A WHOLE.

Question 21

WHAT IS A STOCK INSURER?

Answer 21

1. ) INSURANCE COMPANY IS OWNED BY STOCKHOLDERS.
2. ) HAS BOARD OF DIRECTORS
3. ) PAYS DIVIDENDS ON PROFITS
4. ) ISSUES NON-PAR POLICIES.
5. ) SOMETIMES REFERRED TO AS “LEGAL RESERVE COMPANYS)

Question 22

WHAT IS A MUTUAL INSURER?

Answer 22

1. ) OWNED BY POLICYHOLDERS. (CUSTOMERS)
2. ) BOARD OF DIRECTORS - CHOSEN BY CUSTOMERS
3. ) PROFITS CAN BE RETURNED TO POLICYHOLDERS IN TAX-FREE DIVIDEND
4. ) ISSUES PAR-POLICIES.
5. ) SOMETIMES REFERRED TO AS “LEGAL RESERVE COMPANYS)

Question 23

WHAT ARE FRATERNAL BENEFIT SOCIETIES?

Answer 23

1. ) POLICIES ARE REFERRED TO AS CERTIFICATES.
2. ) POLICYHOLDERS (CERTIFICATE HOLDERS) MUST BE MEMBERS
3. ) CERTIFICATE HOLDERS COULD BE ASKED TO PAY MORE IF PREMIUMS DO NOT MEET THE PAYOUT FOR A CERTAIN TIME.

Question 24

WHAT IS A RECIPROCAL UNSURER?

Answer 24

1. ) UNINCORPORATED GROUP OF PEOPLE THAT AGREE TO INSURE LOSSES BY OTHERS IN THE GROUP.
2. ) RUN BY AN ATTORNEY-IN-FACT.

Question 25

WHAT IS A RISK RETENTION GROUP? (RRG)

Answer 25

A LIABILITY INSURANCE COMPANY CREATED FOR POLICYHOLDERS OF THE SAME INDUSTRY.

Question 26

WHAT IS A LLOYDS ASSOCIATION?

Answer 26

A LLOYDS ASSOCIATION IS INSURANCE PROVIDED BY INDIVIDUAL UNDERWRITERS.

Question 27

WHAT IS SELF-INSURANCE?

Answer 27

SELF INSURANCE IS A BUSINESS THAT PAYS ITS OWN CLAIMS.

Question 28

WHAT IS STATE OR FEDERAL INSURANCE?

Answer 28

STATE OR FEDERAL INSURANCE IS INSURANCE OFFERED BY A STATE OR FEDERAL GOVERMENT.

Question 29

WHAT ARE THE TYPES OF INSURANCE LOCATIONS?

Answer 29

DOMESTIC - DOES BUSINESS IN THE STATE IT WAS INCORPORATED IN. FOREIGN - DOES BUSINESS IN THE ANY STATE OR US TERRITORY OTHER THAN THE STATE IT WAS INCORPORATED IN. ALIEN - INCORPORATED IN ANY OTHER COUNTRY OTHER THAT THE US.

Question 30

WHAT IS AUTHORIZED -V- UNAUTHORIZED INSURERS?

Answer 30

1. ) SOME STATES REQUIRE A LICENSE TO SELL INSURANCE IN THEIR STATE. 2. ) THE LICENSE IS CALLED A CERTIFICATE OF AUTHORITY. 3. ) IF YOU HAVE THE COA THEN YOU ARE AUTHORIZED. 4. ) IF YOU DON'T HAVE A COA YOU ARE AN UNAUTHORIZED, NON-ADMITTED, NONAPPROVED INSURANCE COMPANY. ( BUT LEGAL IN SOME STATES TO SELL "SURPLUS" INSURANCE.

Question 31

WHAT IS A SURPLUS LINES INSURER?

Answer 31

1. ) IS A HIGH-RISK INSURER TO INSURE THE HIGH RISKS THAT NO NORMAL INSURER WILL DO. 2. ) IS USUALLY A NON-ADMITTED/UNAUTHORIZED INSURER. (MUST BE ON THE STATES LIST.) 3. ) CAN ONLY BE SOLD TO CERTAIN HIGH-RISK INSUREDS. 4. CANNOT BE SOLD FOR A CHEAPER RATE THAN THE AUTHORIZED INSURERS.

Question 32

WHAT IS FINANCIAL RATING OF INSURERS?

Answer 32

THE FINANCIAL RATING OF AN INSURER IS THE FINANCIAL STRENGTH OF THE COMPANY. (A REPORT CARD)

Question 33

WHAT ARE AN AGENCY SYSTEMS METHOD OF MARKETING?

Answer 33

1. ) INDEPENDENT INSURANCE AGENT 2. ) EXCLUSIVE OR CAPTIVE AGENT 3. ) GENERAL AGENT (GA) OR MANAGING GENERAL AGENT (MGA) 4. ) DIRECT WRITING COMPANIES.

Question 34

WHAT IS AN INDEPENDENT INSURANCE AGENT?

Answer 34

1. ) SELL THE INSURANCE PRODUCTS OF SEVERAL COMPANIES. 2. ) ARE INDEPENDENT CONTRACTORS. 3. ) THEY OWN THE RENEWALS OF THE POLICIES THEY SELL.

Question 35

WHAT ARE EXCLUSIVE OR CAPTIVE AGENTS? | SOMETIMES CALLED CAREER AGENTS

Answer 35

1. ) REPRESENT ONLY ON COMPANY. 2. ) INDEPENDENT CONTRACTORS NOT EMPLOYEES. 3. ) INSURANCE COMPANY OWNS THE RENEWALS OF POLICIES SOLD ON THEIR BEHALF.

Question 36

WHAT ARE GENERAL AGENTS (GA) OR MANAGING GENERAL AGENTS (MGA)?

Answer 36

1. ) HIRE, TRAIN, AND SUPERVISE OTHER AGENTS. | 2. ) RECEIVE OVERRIDING COMMISSIONS FOR THE AGENTS THEY MANAGE.

Question 37

WHAT ARE DIRECT WRITING COMPANIES?

Answer 37

1. ) PAY SALARIES TO EMPLOYEES WHOSE JOB FUNCTION IS TO SELL INSURANCE PRODUCTS FROM AN OFFICE. 2. ) USUALLY NOT PAID COMMISSIONS. 3. ) ISSUER OWNS ALL BUSINESS PRODUCED.

Question 38

WHAT IS DIRECT RESPONSE MARKETING?

Answer 38

1. ) NO AGENT OR PRODUCER INVOLVED 2. ) SOLD DIRECTLY TO THE PUBLIC BY THE INSURER 3. ) USUALLY THROUGH MAIL, ADS, MAGAZINES, NEWSPAPERS, INTERNET.

Question 39

WHAT IS AN AGENCY?

Answer 39

A RELATIONSHIP IN WHICH ONE PERSON IS AUTHORIZED TO REPRESENT OR ACT ON THE BEHALF OF A PERSON OR CORPORATION.

Question 40

WHAT IS AN AGENT?

Answer 40

THE PERSON WHO IS AUTHORIZED TO ACT ON BEHALF OF ANOTHER PERSON OR CORPORATION.

Question 41

WHAT IS A PRINCIPAL?

Answer 41

IS THE ORGANIZATION OR PERSON THE AGENT IS ACTING ON BEHALF OF.

Question 42

WHAT IS LAW OF AGENCY?

Answer 42

WERE THE AGENT WORKS ON BEHALF OF THE PRINCIPAL UNDER A CONTRACT.

Question 43

WHAT ARE THE THREE TYPES OF AUTHORITY UNDER THE LAW OF AGENCY?

Answer 43

1. ) EXPRESS. 2. ) IMPLIED. 3. ) APPARENT.

Question 44

WHAT IS EXPRESS AUTHORITY?

Answer 44

EXPRESS AUTHORITY IS WHAT THE WRITTEN CONTRACT WITHIN THE COMPANY STATES.

Question 45

WHAT IS IMPLIED AUTHORITY?

Answer 45

IMPLIED AUTHORITY IS NOT WRITTEN BUT IS NORMAL ACTIONS AGENTS DO TO SELL INSURANCE. (PRINT INSURANCE CARDS WITH COMPANY LOGO ON THEM)

Question 46

WHAT IS APPARENT AUTHORITY?

Answer 46

ACTIONS AN AGENT DOES THAT A NORMAL PERSON WOULD ASSUME THE AGENT DOES. (IF THE SIGN SAYS STATE FARM OUTSIDE. THE ASSUMPTION OF THE CUSTOMER YOU ARE A STATE FARM AGENT)

Question 47

WHAT IS FIDUCIARY RESPONSABILITY?

Answer 47

A FIDUCIARY IS A PERSON IN A FINANCIAL TRUST. AGENT HAS AN OBLIGATION TO ACT IN THE BEST INTEREST OF THE INSURER. TO BE RESPONSIBLE WITH THE INSURES MONEY.

Question 48

WHAT IS COMMINGLING?

Answer 48

COMMINGLING IS NOT HOLDING PREMIUMS IN A TRUST. | MIXING THEM WITH PERSONAL FUNDS.

Question 49

WHAT IS SUITABILITY CONSIDERATIONS?

Answer 49

1. ) AGENT IS RESPONSIBLE TO MAKE PURCHASE RECOMMENDATIONS THAT ARE APPROPRIATE. 2. ) OBTAIN DATA FROM THE CLIENT. 3. ) KNOWLEDGE OF PRODUCTS. 4. ) USES KNOWLEDGE OF PRODUCTS AND GATHERED DATA TO RECOMMEND THE APPROPRIATE PRODUCT TO THE CLIENT.