Insurance Exam

Question 1

An insurance applicant MUST be informed of an investigation regarding his/her reputation and character according to the:

Answer 1

Fair Credit Reporting Act

Question 2

What is the name of the law that requires insurers to disclose information gathering practices and where the information was obtained?

Answer 2

Fair Credit Reporting Act

Question 3

What type of reinsurance contract involves two companies automatically sharing their risk exposure?

Answer 3

Treaty

Question 4

Which of the following requires insurers to disclose when an applicant’s consumer or credit history is being investigated:

Answer 4

1970 Fair Credit Reporting Act

Question 5

Which of these describe a participating insurance policy

Answer 5

Policyowners are entitled to receive dividends

Question 6

Dividends payable to a policyowner are

Answer 6

declared by the insurance company

Question 7

When a policy pays dividends to its policyholders, it is said to be

Answer 7

participating

Question 8

A nonprofit incorporated society that does not have capital stock and operates for the sole benefit of its members is known as:

Answer 8

a fraternal benefit society

Question 9

Who elects the governing body of a mutual insurance company?

Answer 9

Policyholders

Question 10

The stated amount of percent of liquid assets that an insurer must have on hand that will satisfy future obligations to its policyholders is called:

Answer 10

Reserves

Question 11

At what point must a life insurance applicant be informed of their rights that fall under the Fair Credit Reporting Act?

Answer 11

Upon completion of the application

Question 12

Which of the following is considered to be an event or condition that increases the probability of an insured’s loss?

Answer 12

Hazard

Question 13

An individual who removes the risk of losing money in the stock market by never purchasing stocks is said to be engaging in

Answer 13

Risk Avoidance

Question 14

People with higher loss exposure have the tendency to purchase insurance more often than those at average risk. This is called

Answer 14

Adverse selection

Question 15

All of the following are examples of pure risk EXCEPT

Answer 15

losing money at a casino

Question 16

Insurance represents the process of

Answer 16

risk transference

Question 17

How do insurers predict the increase of individual risks?

Answer 17

Law of large numbers

Question 18

The cause of a loss is referred to as a(n)

Answer 18

peril

Question 19

Insurance companies determine risk exposure by which of the following?

Answer 19

Law of large numbers and risk pooling

Question 20

What is known as the immediate specific event causing loss and giving rise to risk?

Answer 20

peril

Question 21

An example of risk sharing would be

Answer 21

Doctors pooling their money to cover malpractice exposures

Question 22

Q purchases a $500,000 life insurance policy and pays $900 in premiums over the first six months. Q dies suddenly and the beneficiary is paid $500,000. This exchange of unequal values reflects which of the following insurance contract features?

Answer 22

Aleatory

Question 23

The Consideration clause of an insurance contract includes:

Answer 23

The schedule and amount of premium payments

Question 24

The part of a life insurance policy guaranteed to be true is called a(n):

Answer 24

warranty

Question 25

What is the consideration given by an insurer in the Consideration clause of a life policy?

Answer 25

Promise to pay a death benefit to a named beneficiary

Question 26

Taking receipt of premiums and holding them for the insurance company is an example of:

Answer 26

Fiduciary responsibility

Question 27

A policy of adhesion can only be modified by whom?

Answer 27

the insurance company

Question 28

In regards to representations or warranties, which of these statements is TRUE?

Answer 28

If material to the risk, false representations will void a policy

Question 29

All of the following are considered to be typical characteristics describing the nature of an insurance contract, EXCEPT:

Answer 29

Bilateral

Question 30

Which of these is NOT a type of agent authority?

Answer 30

Principal

Question 31

Stranger Originated Life Insurance (STOLI) has been found to be in violation of which of the following contractual elements?

Answer 31

Legal Purpose (Insurable Interest)

Question 32

What must insurable interest be present in order for a life insurance policy to be valid

Answer 32

When the application is made

Question 33

Who makes the legally enforceable promises in a unilateral insurance policy?

Answer 33

Insurance Company

Question 34

Which of these arrangements allows one to bypass insurable interest laws?

Answer 34

Investor-Originated Life Insurance

Question 35

When must insurable interest exist for a life insurance contract to be valid?

Answer 35

Inception of the contract

Question 36

Statements made on an insurance application that are believed to be true to the best of the applicants knowledge are called:

Answer 36

representations

Question 37

In an insurance contract, the insurer is the only party who makes a legally enforceable promise. What kind of contract is this?

Answer 37

Unilateral

Question 38

If a contract of adhesion contains complicated language, to whom would the interpretation be in favor of?

Answer 38

Insured

Question 39

Which of the following consists of an offer, acceptance, and consideration?

Answer 39

Contract

Question 40

Insurance policies are considered aleatory contracts because

Answer 40

performance is conditioned upon a future occurrence

Question 41

E and F are business partners. Each takes out a $500,00 life insurance policy on the other naming himself as primary beneficiary. E and F eventually terminate their business, and four months later E dies. Although E was married with three children at the time of death, the primary beneficiary is still F. However, an insurable interest no longer exists. Where will the proceeds from E’s life insurance policy be directed to?

Answer 41

F

Question 42

Which of these is considered a statement that is assured to be true in every respect?

Answer 42

Warranty

Question 43

At what point does an informal agreement become a binding contract?

Answer 43

When consideration is provided by one of the parties to the contract

Question 44

When third-party ownership is involved, applicants who also happen to be the stated primary beneficiary are required to have:

Answer 44

Insurable interest in the proposed insured

Question 45

Which of the following BEST describes a warranty?

Answer 45

Statement guaranteed to be true

Question 46

Insurance policies are offered on a “take it or leave it” basis, which make them:

Answer 46

Contracts of Adhesion

Question 47

A life insurance arrangement which circumvents insurable interest statutes is called:

Answer 47

Investor-Originated Life Insurance

Question 48

Which of these require an offer, acceptance, and consideration?

Answer 48

Contract