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Personal Risk Management > Module 1 Principles of Insurance > Flashcards

Module 1 Principles of Insurance Flashcards

1
Q

What is IGADCIM?

A

IDENTIFY risk management goals
GATHER relevant data for risk exposure
ANALYZE the info to determine risk exposure
DEVELOP a risk management plan
COMMUNICATE the recommendations
IMPLEMENT the recommendations
MONITOR the recommendations for any needed changes

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2
Q

You’re driving and the person in front of you slams their brakes, has broken taillights and you hit them. Due to ___ the person you hit can’t collect damages from you.

A

Contributory Negligence

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3
Q

You’re driving and the person in front of you slams their brakes and you hit them. If this is the case, which law would prevent you from paying the full cost of damages?

A

Comparative Negligence.

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4
Q

With this kind of contract, you can only accept or reject.

A

Adhesion

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5
Q

With this type of contract you cannot modify the terms.

A

Adhesion

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6
Q

HOA contract and the limited degree of freedom to modify the terms would be an example of which type of contract?

A

Adhesion

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7
Q

What’s the difference between an insurance producer and an insurance company?

A

Insurance producer would be an insurance agent. Insurance company would be an insurance company. Yes I typed that.

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8
Q

Damages in court come in several forms. Which type of damages would be granted “pain and suffering”?

A

General Damages

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9
Q

What are some examples of insurance agents that represent several different companies?

A

Independent agent, broker, surplus line agent

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10
Q

What’s a big difference between an independent agent and a captive agent?

A

Independent agent represents several Different companies, while a captive agent represents either only one company or one Group of companies

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11
Q

What’s a big difference between a surplus line agent and a captive agent?

A

Surplus line agents represent several different companies while a captive agent represents either only one company or one Group of companies

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12
Q

Whats an example of an agent that represents one company or one group of companies?

A

Captive agent

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13
Q

People that are most likely to make insurance claims are the most likely to purchase forms of insurance. What’s this called?

A

Adverse Selection

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14
Q

Hazard vs Peril. Handling propane is an example of?

A

Hazard. There is no inherent danger in handling it, but things can go south quickly, and that makes it hazardous

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15
Q

Hazard vs Peril. You park your car at the top of a hill and you have a faulty handbrake. Example of?

A

Hazard. Nothing has happened, but if the handbrake fails, things will go south quickly and that makes it hazardous

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16
Q

Hazard vs Peril. A fire breaks out in the kitchen. Example of?

A

Peril. Something has happened, things are going south quickly, and that makes it perilous

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17
Q

Hazard vs Peril. I’m moving apartments and drop a piano down a long flight of stairs. Example of?

A

Peril. Something has happened, things (piano) are going south quickly, and that makes it perilous

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18
Q

The potential for a dangerous situation or condition that increases the likelihood of a loss.

Pure risk
Risk
Hazard
Peril

A

Hazard. Nothing has happened, but the chances of something bad are higher than normal.

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19
Q

The actual cause of a loss

Pure risk
Risk
Hazard
Peril

A

Peril. Something bad has happened. Things have migrated south.

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20
Q

Which section of an insurance contract contains this information: what is insured, to what amount, and under what conditions?

A

Insuring agreement

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21
Q

What information is found in the insuring agreement section of an insurance policy?

A

What is insured, to what amount, and under what conditions

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22
Q

What information is found in the exclusion section of an insurance policy?

A

What is excluded…

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23
Q

In which section would you find exclusions from the insurance policy?

A

Exclusion section

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24
Q

In Insurance contracts, what does the term unilateral mean?

A

Only one side is bound to the contract and has to perform.

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25
Q

Only one side is bound to the contract and has to perform. This would match what characteristic of an insurance policy?

A

Unilateral

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26
Q

In insurance contracts, the outcome is affected by chance and the amounts collected by parties are generally unequal. Which characteristic of an insurance policy does this exhibit?

A

Aleatory

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27
Q

In insurance contracts, what does the term aleatory mean?

A

The amounts paid to each party are generally unequal and the outcomes are affected by chance.

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28
Q

In insurance contracts, what is meant by “utmost good faith”?

A

All parties must disclose all facts honestly, or the policy may be rescinded

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29
Q

In insurance contracts, all parties must disclose all facts honestly, or the policy may be rescinded. Which characteristic is this?

A

Utmost Good Faith

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30
Q

You live in a dangerous neighborhood and decide to install an extra deadbolt on your door, which type of risk management is this? And would this be risk financing or risk control?

A

Risk reduction - you’re reducing the risk of someone being able to break in. Risk control - you’re not actively putting money into the risk itself, only into controlling the likelihood of the risk turning into a peril - robbery/theft.

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31
Q

You live in a dangerous neighborhood and decide to move to a neighborhood (or state) with less crime. Which type of risk management is this? And would this be risk financing or risk control?

A

Risk avoidance - you’re avoiding the risk entirely. Risk control - you’re not actively putting money into the risk itself, only into controlling the likelihood of the risk turning into a peril - robbery/theft.

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32
Q

You live in a dangerous neighborhood and decide to increase the coverage on your home insurance. Which type of risk management is this? And would this be risk financing or risk control?

A

Risk transfer - you’re transferring the risk to the insurance company (it’s their problem now). Risk financing - you’re paying money into the management of the risk

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33
Q

You live in a dangerous neighborhood and decide to buy a shotgun. Which type of risk management does this most closely resemble? And would this be risk financing or risk control?

A

Risk retention - you’re deciding to let them f-around and find out. Risk financing - you will have to pay money if the risk becomes more than just a risk. New door, deadbolts, damaged property, walls with bullet holes in them..

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34
Q

Which of these are under the umbrella of risk financing?
Risk avoidance
Risk transfer
Risk retention
Risk reduction

A

Risk transfer and risk retention

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35
Q

Which of these are under the umbrella of risk control?
Risk avoidance
Risk transfer
Risk retention
Risk reduction

A

Risk avoidance and risk reduction

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36
Q

*Which of these is the most effective method of risk financing?
Risk avoidance
Risk transfer
Risk retention
Risk reduction

A

Risk transfer

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37
Q

*Which of these is the most effective method of risk control?
Risk avoidance
Risk transfer
Risk retention
Risk reduction

A

Risk Avoidance

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38
Q

Decreasing your deductibles would be an example of which type of risk management?
Risk avoidance
Risk transfer
Risk retention
Risk reduction

A

Risk transfer. By decreasing your deductible you’re increasing your premium, paying more to transfer your risk.

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39
Q

What type of company is owned by the policyholders of the company?

A

Mutual Companies

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40
Q

What type of company is owned by the shareholders?

A

Stock Companies

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41
Q

What is a PLUP?

A

Personal Liability Umbrella Policy. It acts as an extension to whatever insurance you already have. If you don’t have coverage on something, the PLUP will not cover it either. Under a PLUP, there may be “drop down” limits, where the underlying insurance type will have to be exhausted before the umbrella will “drop down” to help out. Standard amount $1 Million. Maximum $10 Million. Exclusions include work liability, professional liability, and any intentional actions.

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42
Q

What type of policy is a “drop down” policy which helps out only after the underlying policy is exhausted?

A

PLUP. Personal Liability Umbrella Policy.

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43
Q

What type of policy is typically seen as an overarching extension with massive limits that increases your overall insurance in each area you have insured?

A

PLUP. Personal Liability Umbrella Policy.

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44
Q

What is the standard amount of coverage offered under a PLUP?

A

$1,000,000

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45
Q

What is the minimum amount of coverage offered under a PLUP?

A

$1,000,000

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46
Q

*What is the maximum amount of coverage offered under a PLUP?

A

$10,000,000

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47
Q

What is the maximum amount that can be paid out when the insured loss occurs?
Coinsurance amount
Policy Limit
Actual Cash Value
Replacement Cost

A

Policy Limit

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48
Q

What is the policy limit?

A

The maximum amount that can be paid out when the insured loss occurs

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49
Q

*What is the typical percentage of coinsurance coverage?

A

80%

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50
Q

What may refer to the minimum percentage of insurance that is required to avoid being penalized for inadequate insurance when there are partial losses?

A

Coinsurance. Before getting overwhelmed by question, remember this example: 300k replacement cost for a house. 200k insurance on it. 100k in losses. 1k deductible. 100k is a PARTIAL LOSS. I’d guess the penalization would be the fact that you’d be required to pay part of the cost if your coverage is less than that 80% of the replacement cost.

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51
Q

The replacement cost of a property minus depreciation is?

A

Actual Cash Value of the property

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52
Q

How is the Actual Cash Value calculated on a property?

A

Replacement cost of the property minus depreciation

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53
Q

What refers to the determination of how an insurance policy should be priced?

A

Actuarial pricing

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54
Q

What is actuarial pricing?

A

The determination of how an insurance policy should be priced

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55
Q

What is insurance underwriting?

A

The process of evaluating risks to determine whether they’re reasonable to accept and to what degree

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56
Q

What is the process of evaluating risks to determine whether they’re reasonable to accept and to what degree?

A

Insurance underwriting

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57
Q

What is the significance of the McCarran Ferguson Act of 1945?

A

The McCarran-Ferguson Act of 1945 granted states the authority to regulate and tax the business of insurance

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58
Q

Which act gave states the authority to regulate the insurance business?

A

McCarran Ferguson Act of 1945

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59
Q

What does consideration mean in insurance contracts?

A

Refers to the exchange of something of value. Generally means Payment.

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60
Q

Which characteristic of insurance refers to the exchange of something of value?

A

Consideration

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61
Q

Which type of insurance insures personal properties that are in transit?

A

Inland Marine

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62
Q

Which type of insurance insures floater risks?

A

Inland Marine

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63
Q

What does an inland marine insurance policy cover?

A

Floater risks - Essentially valuable personal properties that are transported which are at risk of damage.

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64
Q

Your client has two homes and typically likes to spend six months at each of them. Because of this, he has valuable personal properties moved back and forth. Which type of insurance would be able to cover these migrations of property?

A

Inland Marine

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65
Q

Risk vs Hazard vs Peril. Which of these is the chance of loss?

A

Risk

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66
Q

What is a pure risk?

A

The chance of loss or no loss, no chance for gain.

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67
Q

The chance of loss or no loss, with no chance for gain is called?
Hazard
Pure risk
Fundamental Risk
Static Risk

A

Pure Risk

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68
Q

Fire, smoke, water, lightning are examples of?
Hazards
Risks
Perils

A

Perils

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69
Q

Which risks would be types of economic-centric risks?
Particular Risks
Dynamic Risks
Speculative Risks
Static Risks
Fundamental Risks
Pure Risks

A

Static Risks and Dynamic Risks. Related to the economy vs Not Related.

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70
Q

Which risks would be types of people-centric risks?
Particular Risks
Dynamic Risks
Speculative Risks
Static Risks
Fundamental Risks
Pure Risks

A

Fundamental Risks and Particular Risks.
Affects large groups of people vs Affects small groups/individuals

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71
Q

Which types of risks help to determine insurability?
Particular Risks
Dynamic Risks
Speculative Risks
Static Risks
Fundamental Risks
Pure Risks

A

Pure risks and speculative risks. Possibility of loss/no loss vs loss/no loss/gain

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72
Q

This type of risk is not related to the economy, and can typically be insured.

A

Static Risk. Examples: earthquakes and floods.

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73
Q

This type of risk is related to the economy, typically uninsurable.

A

Dynamic Risk.
Examples: changes in business cycle, inflation.

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74
Q

This type of risk affects large groups of people.

A

Fundamental risk. Examples: earthquakes, recessions

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75
Q

This type of risk affects individuals/small groups of people.

A

Particular risk. Examples: burglary, car accidents.

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76
Q

*You’re about to go driving, which types of risk would you be exposed to on the road?
Particular Risks
Dynamic Risks
Speculative Risks
Static Risks
Fundamental Risks
Pure Risks

A

Particular (small groups affect by car crash risk) Static (wouldn’t be related to economy) Pure risk (no chance of gain)

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77
Q

*You decide to live in California, which is on the San Andreas Fault Line. Which types of risk would you be exposed to living in an area with high rates of earthquakes?
Particular Risks
Dynamic Risks
Speculative Risks
Static Risks
Fundamental Risks
Pure Risks

A

Fundamental (large groups affected by earthquake risks) Static (not related to economy) Pure risk (no chance of gain)

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78
Q

*You decide to live in a country that continuously borrows money and prints more money to pay for those debts. Inflation inevitably occurs. Which risks would be associated with this situation?
Particular Risks
Dynamic Risks
Speculative Risks
Static Risks
Fundamental Risks
Pure Risks

A

Dynamic Risk (inflation is economic) fundamental risk (affects a large group of people)

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79
Q

What are the seven steps of the risk management process?

A

IGADCIM
Identify
Gather
Analyze
Develop
Communicate
Implement
Monitor

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80
Q

Which risk management technique is most appropriate for: High severity, High frequency?

A

Risk avoidance (avoid at all costs)

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81
Q

Which risk management technique is most appropriate for: High severity, low frequency?

A

Risk transfer (insure it)

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82
Q

Which risk management technique is most appropriate for: Low severity, high frequency?

A

Risk reduction (don’t drive behind big trucks on freeway, often get chips on windscreen)

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83
Q

Which risk management technique is most appropriate for: low severity, low frequency?

A

Risk retention (probably won’t happen, but if it does you’ll be fine, just deal with it)

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84
Q

Which risk management technique would apply to self-insurance?

A

Risk retention. You’re still retaining the risk by transferring it to yourself.

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85
Q

Why is self-insurance not a true type of insurance?

A

True insurance is a transfer of risk, not a retention of risk.

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86
Q

Elements of Insurable Risk. What’s the law of large numbers?

A

There must be a sufficiently large number of homogeneous exposure units to make the losses reasonably predictable. Have to be widely distributed geographically as well.

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87
Q

There must be a sufficiently large number of homogeneous exposure units to make losses reasonably predictable, and it has to be widely geographically distributed as well. Which element of insurable risk is this?

A

Law of Large Numbers

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88
Q

Losses produced by risk HAVE to be:
Definite/Measurable
Indefinite/Immeasurable
Fortuitous/Accidental
Intentional
Catastrophic
Not Catastrophic

A

Definite/Measurable, Fortuitous/Accidental, and Not Catastrophic

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89
Q

Limiting Insurer’s Liability. Which factor would address the fact that a loss will be suffered?
Actual Cash Value of loss
Policy Limits
Subrogation
Insurable Interest
Coinsurance
Other Insurance ( (we) will not profit)
Deductible

A

Insurable interest

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90
Q

Limiting Insurer’s Liability. Which factor concerns the replacement cost minus depreciation?
Actual Cash Value of loss
Policy Limits
Subrogation
Insurable Interest
Coinsurance
Other Insurance ( (we) will not profit)
Deductible

A

Actual Cash Value of loss

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91
Q

Limiting Insurer’s Liability. Which factor concerns the maximum amount that can be paid? Pick one.
Actual Cash Value of loss
Policy Limits
Subrogation
Insurable Interest
Coinsurance
Other Insurance ( (we) will not profit)
Deductible

A

Policy Limit

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92
Q

Limiting Insurer’s Liability. Which factor concerns the fact that the client will not profit?Actual Cash Value of Loss
Policy Limits
Subrogation
Insurable Interest
Coinsurance
Other Insurance ( (we) will not profit)
Deductible

A

If you got this wrong, go exercise, shower, go to sleep, wake up, have some breakfast, fire up the laptop, and read the question and answer choices, Slowly.

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93
Q

Limiting Insurer’s Liability. Which factor concerns the minimum percentage of insurance that’s required to avoid being penalized for inadequate insurance when partial losses occur?
Actual Cash Value of Loss
Policy Limits
Subrogation
Insurable Interest
Coinsurance
Other Insurance ( (we) will not profit)
Deductible

A

Coinsurance

94
Q

Limiting Insurer’s Liability. Which factor refers to a portion of insured losses that the insured is expected to pay before the insurance company pays anything?
Actual Cash Value of Loss
Policy Limits
Subrogation
Insurable Interest
Coinsurance
Other Insurance ( (we) will not profit)
Deductible

A

Deductible

95
Q

Limiting Insurer’s Liability. Which factor pertains to the right of the insurance company that has paid for a loss to recover its payments if it’s found that another party is at fault and that the other party has to pay?
Actual Cash Value of Loss
Policy Limits
Subrogation
Insurable Interest
Coinsurance
Other Insurance ( (we) will not profit)
Deductible

A

Subrogation

96
Q

What’s the acronym to remember the Seven factors for limiting liability on the insurer’s side?
IGADCIM
IAPOCDS
UAAICUP
UIADPIM

A

IAPOCDS refers to the seven factors of liability limits for the insurer. IGADCIM is the seven step process of the development of a risk management plan. UIADPIM is the seven step process of developing a personal financial plan [Principles of Financial Planning Course]
UAAICUP is the seven special legal characteristics of insurance contracts

97
Q

Which type(s) of authority do insurance agents have?
Express
Implied
Apparent
Ostensible

A

All. Ostensible and Apparent are the same.

98
Q

Which type of insurance agent authority is specifically stated?
Express
Implied
Apparent
Ostensible

A

Express. It’s “expressed”

99
Q

Which type of insurance agent authority is not stated but is obvious?
Express
Implied
Apparent
Ostensible

A

Implied

100
Q

Which type of insurance agent authority refers to the type that the client is led to believe the insurance agent has?
Express
Implied
Apparent/Ostensible

A

Apparent/Ostensible

101
Q

What acts as the judicial branch for insurance company regulation?

A

State courts.
States regulate insurance for each state and courts are judicial system.

102
Q

What acts as the legislative branch for the insurance industry regulation?

A

State legislature.

103
Q

What acts as the executive branch for the insurance industry regulation?

A

State insurance commissioners.

104
Q

Special Legal Characteristics of Insurance Contracts.
Which characteristic refers to the fact that unequal amounts are generally exchanged?
Personal
Utmost Good Faith
Indemnity
Unilateral
Aleatory
Adhesion
Conditional

A

Aleatory

105
Q

Special Legal Characteristics of Insurance contracts. Which characteristic refers to the fact that a contract can be accepted or rejected and that there’s little/no option for mods?
Personal
Utmost Good Faith
Indemnity
Unilateral
Aleatory
Adhesion
Conditional

A

Adhesion

106
Q

Special Legal Characteristics of Insurance Contracts. Which characteristic refers to the fact that payments of benefits will only happen if premiums are paid?
Personal
Utmost Good Faith
Indemnity
Unilateral
Aleatory
Adhesion
Conditional

A

Conditional. Payments are “conditional” on premiums being paid.

107
Q

Special Legal Characteristics of Insurance Contracts. Which characteristic refers to the fact that the insured would be restored to the same position as before the loss?
Personal
Utmost Good Faith
Indemnity
Unilateral
Aleatory
Adhesion
Conditional

A

Indemnity

108
Q

Special Legal Characteristics of Insurance Contracts. Which refers to the fact that insurance policies can’t be transferred to another person? (Exception Life Insurance - Divorce common)
Personal
Utmost Good Faith
Indemnity
Unilateral
Aleatory
Adhesion
Conditional

A

Personal

109
Q

Special Legal Characteristics of Insurance Contracts. Which refers to the fact that only one party has to perform?
Personal
Utmost Good Faith
Indemnity
Unilateral
Aleatory
Adhesion
Conditional

A

Unilateral

110
Q

Special Legal Characteristics of Insurance contracts. Which refers to the fact that the insurance can’t FORCE the client to pay?
Personal
Utmost Good Faith
Indemnity
Unilateral
Aleatory
Adhesion
Conditional

A

Unilateral

111
Q

Special Legal Characteristics of Insurance Contracts. Which refers to the fact that full disclosure and honesty is required?
Personal
Utmost Good Faith
Indemnity
Unilateral
Aleatory
Adhesion
Conditional

A

Utmost Good Faith.

112
Q

Special Legal Characteristics of Insurance Contracts. Under which characteristic being broken would arguments be made regarding Concealment or Misrepresentation?
Personal
Utmost Good Faith
Indemnity
Unilateral
Aleatory
Adhesion
Conditional

A

Utmost Good Faith.

113
Q

Legal Requirements for Enforceable Contracts. Which requirement says that one party states they will do something and the other agrees.
Offer and Acceptance
Consideration
Legal Object
Legal Form
Competent Parties

A

Offer and Acceptance

114
Q

Legal Requirements for Enforceable Contracts. Which requirement pertains to payment for work?
Offer and Acceptance
Consideration
Legal Object
Legal Form
Competent Parties

A

Consideration

115
Q

Legal Requirements for Enforceable Contracts. Which requirement pertains to the purpose of the contract?
Offer and Acceptance
Consideration
Legal Object
Legal Form
Competent Parties

A

Legal Object

116
Q

Legal Requirements for Enforceable Contracts. Which requirement pertains to the eligibility of the insured?
Offer and Acceptance
Consideration
Legal Object
Legal Form
Competent Parties

A

Competent Parties

117
Q

Legal Requirements for Enforceable Contracts. Which requirement pertains to how the contract must be drawn?
Offer and Acceptance
Consideration
Legal Object
Legal Form
Competent Parties

A

Legal Form. Certain contracts must be prescribed by state law - car titles for example.

118
Q

Legal Requirements for Enforceable Contracts. An error on which aspect could yield a voidable contract?
Offer and Acceptance
Consideration
Legal Object
Legal Form
Competent Parties

A

Competent parties. For example, if a minor signed up for insurance, they would be unbound because the contract would be un-enforceable.

119
Q

Legal Requirements for Enforceable Contracts. What does “unbound” mean in the context of a voidable contract?

A

The unbound party can cancel, while the bound party cannot.

120
Q

Legal Requirements for Enforceable Contracts. An error on which aspect could yield a void contract?
Offer and Acceptance
Consideration
Legal Object
Legal Form
Competent Parties

A

Competent party

121
Q

Legal Requirements for Enforceable Contracts. What characteristics would yield either a void or a voidable contract?
Minor party
Mentally impaired party
Under the influence party

A

All

122
Q

What is the act of relinquishing a known right?

A

Waiver. Think about “waiving” your right to remain silent. It’s known, because the cops give you miranda rights.

123
Q

What is the act of preventing a party from utilizing a known right?

A

Estoppel. Think about a cop continuing to force questions after the suspect asks for a lawyer.

124
Q

Torts are public wrongs and crimes are private wrongs. T or F

A

False

125
Q

Torts are private wrongs and crimes are public wrongs. T or F

A

True

126
Q

Some actions can result in both a Tort and a Crime. T or F

A

True

127
Q

*What does personal liability insurance protect against?
Intentional Torts
Negligent Torts
Vicarious Torts
Crimes

A

Negligent torts
*and Vicarious torts

128
Q

What are the three types of torts?

A

Vicarious, Negligent, Intentional

129
Q

Vicarious, Negligent and Intentional are the three types of what?
Contracts
Crimes
Torts
Waivers

A

Torts

130
Q

Your employee crashes your business vehicle. Under what would cause you to be liable?

A

Vicarious tort. Liability through the actions of others.

131
Q

You get mad and punch someone in the nose. Would this action be insurable and what kind of tort would this be?

A

Intentional Tort. Intentional acts are not insurable (exception professional insurance: Errors & Omissions and Malpractice)

132
Q

You are texting and suddenly you crash into a car you didn’t realize had stopped. Under which tort would you be liable?

A

Negligent Tort. You were negligent.

133
Q

How many elements of Negligence are there? (Torts, I believe)

A

There are four elements of Negligence: Duty owed, Breach of Duty, Damages or losses, Proximate Cause.

134
Q

What are the four elements of Negligence?

A

Duty owed, Breach of Duty, Damages/Loss, Proximate Cause

135
Q

All of the following are elements of an insurable risk except:
Must not be definite
Must be measurable
Must not be intentional
A sufficiently large and similar sample of people or events must be present.

A

Must not be definite.

136
Q

In settling an insured’s loss, the duties of the insured do NOT include which of the following?
Protecting Property
Accepting any settlement offered by the insurer
Providing notice of loss
Providing proof of loss

A

Accepting any settlement offered by the insurer. You don’t HAVE to accept ANY settlement offered by the insurer. The other three are the duties of the insured.

137
Q

Which of the following are examples of managing risk through risk retention. (MULTIPLE)
I Having a coinsurance provision in medical insurance
II Increasing the amount of auto insurance deductible
III Increasing the benefit period on disability income insurance.
IV Having a waiver of premium rider on life insurance.

A

I and II.
I-Having a coinsurance provision on med insurance means that you’re willing to pay (example) 20% of the med insurance in exchange for lower premiums. This would be as opposed to paying higher premiums for little to no med expenses (risk transfer).
II-Increasing the amount of auto insurance deductible. Basically you’re betting a higher amount of your money (risk retention) that you won’t be in an accident.
III and IV are not. III-Increasing the benefit period on disability income insurance expands the coverage of the policy by basically saying that benefits will be paid for a longer period of time. IV-Disability waiver of premium rider, this one simply adds coverage. Specifically what it does is it adds a rider (dlc kinda) that says “you don’t have to pay premiums if you suffer a disability”. III and IV are risk transfer methods.

138
Q

Which of the following typically are enacted by the state legislative branch to government to regulate insurers?
I Laws that a foreign company must follow to obtain a license
II Laws that govern the conduct of insurers in that state
III Laws that determine the meaning of policy terms
IV Laws that set forth the standards of solvency for insurance companies in that state

A

I II IV

III - Policy terms are defined by the insurance companies who write them. Laws don’t determine the meanings of policy terms - Judicial branch (courts) determine the meaning of the terms.

139
Q

Which of the following gave states the authority to regulate the insurance industry?
NAIC
COBRA
State Insurance commissioners
The McCarran-Ferguson Act of 1945

A

McCarran-Ferguson Act of 1945. Insurance is regulated primarily at the state level.

NAIC issues model insurance and has NO authority in any state.
COBRA requires certain employers to provide identical health insurance to employees after the occurrence of a qualifying event (divorce, termination, resignation, etc.)

140
Q

Which of the following is the role of the judicial branch in regulating the insurance industry within a state?

To create model legislation relative to the insurance industry
To interpret and apply the laws in place relative to the insurance industry
To enforce the laws in place relative to the insurance industry
To pass laws relative to the insurance industry

A

Interpret and apply the laws in place relative to the insurance industry.

NAIC creates model legislation.
Executive branch (state insurance commissioner) enforces the laws.
Legislative branch passes the laws.

141
Q

Frank is severely injured in an auto accident caused by another driver Henry. At trial, the court orders Henry to pay Frank 100,000 as compensation for the pain and suffering resulting from his injuries. Which is the type of damages?
Comparative
Punitive
Special
General

A

General. General damages compensate an injured party for INTANGIBLE losses such as pain and suffering which can’t be measured monetarily.
If you see “PAIN AND SUFFERING” think “GENERAL”

Comparative is a type of negligence that leads to an auto accident. Basically means that both parties are at fault to some degree.
Punitive is basically “Pay more bc fuck you” kind of ruling
Special, I. THINK is for measurable damages. For example, $14,000 worth of damages to a car, and the judge awarding that to the victim would be special.

142
Q

All of the following statements regarding torts are correct except:
A tort is a private wrong that occurs when one person infringes upon the rights of another
Negligence is a type of tort
An individual can only be liable for torts he personally committed
Torts can either be intentional or unintentional

A

An individual can only be liable for torts he personally committed.. Wrong, Vicarious liability exists. Example: ?YOU employ a delivery driver and he crashes a company car into another car. The company (YOU) could possibly be held liable for the actions of the delivery driver.

143
Q

Which of the following is NOT a provision frequently contained in the sections of insurance policies that address the insured’s duties relating to loss settlement?
Proof of loss
Negotiation of settlement with a third party
Protection of damaged property
Notice of loss

A

Negotiation of settlement with a third party.
The insurance company pays you the amount you’re owed, you sign over your right to the insurance company to go after the person who wronged you, and the insurance company assumes the right to go after the other party’s insurance company for the amount owed. This is called subrogation.

144
Q

What is subrogation?

Negotiation of settlement with a third party
The insurance company takes over your right to sue the party at fault for damages
Policyholders agree not to accept any compensation from the party at fault
The insurance company pays you for the damages inflicted upon you

A

The insurance company takes over your right to sue the party at fault for damages.

145
Q

Which of the following statements regarding the primary forms of insurance company ownership are CORRECT?
Mutual companies are owned by the employees of the insurance company
Stock companies are owned by stockholders who are policyowners of the insurance company

I, II, Both, Neither

A

Neither

Mutual companies are owned by the policyholders.
Stock companies are owned by stockholders BUT, they’re not necessarily policyowners.

146
Q

Which of the following is the result of physical harm, emotional harm, or financial loss?

Physical Hazard
Tort
Criminal Act
Estoppel

A

Tort

Asked GPT to tell me why not Criminal act. I couldn’t see why not as those could also be the result of a criminal act.

Estoppel is stopping someone from utilizing a known right. Imagine someone asks the interrogator for a lawyer and the cop continues to force questions.

147
Q

Which of the following statements regarding mutual companies and stock companies is correct? MULTIPLE

Mutual companies are owned by their policyholders and offer participating policies a share in the profits of the company through the payment of policy dividends.
Stock companies are owned by the stockholders and usually offer nonparticipating policies.
Stock companies are owned by policyholders, while mutual companies are owned by the stockholders.

A

I and II

Not III

148
Q

You have a meeting with Oscar, 26 and his wife Judith, 25 this afternoon to review risk management plan. They have two kids, two cars a home and a boat. Oscar is a business banker and judith is an office manager. Which of the following statements redgarding their risk management plan is correct?

I They have a limited amount of liability exposure
II They have a higher probability of becoming disabled versus experiencing premature death.
III Having liability insurance on their cars is more important than collision coverage.
IV Long term care insurance need not be an immediate priority within their risk management plan.

A

II, III, IV

I is false, they have an unlimited amount of liability exposure.

Liability insurance is more important than collision coverage because liability claims can be unlimited.

149
Q

Which of the following are important when selecting an insurance company.

I Competence
II Training
III Ratings by the ratings companies
IV History

A

III IV

Notice “Company”
Competence refers more towards “Areas of competence” that describes an individual’s skills.
Training also refers to agents.

150
Q

Which of the following is important when selecting an insurance producer?

I Length of service with the company
II Professional designations earned
III Inclination to service
IV Production awards earned

A

II, III

Professional designations, Inclination to service, along with: competence, experience, specialization, and quality of reputation.

151
Q

Which of the following are particular risks?

I Premature death
II Disability
III Unemployment
IV Earthquake

A

I II III
Particular risks only affect individuals. This is in contrast to fundamental risks which affect large groups of people.

Weakness: Unemployment. I keep getting it wrong.
Think of it this way: you get fired and suffer unemployment individually. It’s not referring to widescale unemployment. Misleading question tbh.

152
Q

Which of the following types of damages may a court award against a person who commits a tort?

I Special
II General
III Punitive

A

All

153
Q

Special vs General vs Punitive (exemplary) Damages awarded by a court.

Intended to punish an individual who acted maliciously, egregiously, or recklessly.
Intended to compensate for intangible losses, usually in tangent with “Pain and suffering”.
Intended to compensate for tangible losses that can be calculated with a degree of accuracy.

A

General - Intangible, Pain and Suffering
Special - Calculable, tangible
Punitive - To Punish

154
Q

The state insurance department, headed by the state insurance commissioner, does which of the following?

Administers compliance
Sets regulations implementing legislation

I, II, Both or Neither

A

Both

The State Insurance Commissioner is the executive branch as it relates to the insurance industry. The state insurance commissioner sets up the systems allowing the passed legislation to be enforced, and then they enforce them (administer compliance).

155
Q

In property insurance, an insurable interest must exist:

At the time of the loss only
When the policy is issued only
Neither at the time of issuance nor at the time of loss
Both at the time of issuance and at the time of loss

A

Both at the time of issuance and at the time of loss.

156
Q

Characteristics that have to be present for a risk to be insurable?

I The loss must be intentional
II Must be uncertain
III Cannot be catastrophic to society
IV Must be measurable

A

III, IV

Losses cannot be intentional, must be certain and measurable, and cannot be catastrophic to society.

157
Q

The primary purpose of the conditions section of an insurance policy is to: (pick one)

Permit the inclusion of additional coverages
Add exclusions that eliminate coverage for certain periods
Define the duties and rights of both parties
Contain the statements made by the insured

A

Define the duties and rights of both parties.

158
Q

For a life insurance policy, an insurable interest must exist:

Neither when the policy is written nor when the insured dies
Only at the time of issuance
Only when the insured dies
Both when the policy is written and when the insured dies

A

Only at the time of issuance.

159
Q

The “Pair and Sets” option of loss settlement under a homeowners policy allows the insurance company to

Sell the pair or set for its salvage value
Sell the damaged property as a pair or set only
Repair or replace any part of the pair or set to its value before the loss
Pay the full replacement cost of the pair or set

A

Repair or replace any part of the pair or set to its value before the loss.

This allows the insurer to repair or replace any part of a set/pair OR pay the insured the difference between the actual cash value (ACV) of the pair/set before and after the loss.
?

160
Q

Which of the following statements regarding maximum possible loss and probability of loss is Correct?

I The Max possible health care loss or claim is unlimited
II The probability of experiencing long term care costs below age 60 is high
III The maximum loss to personal property is limited to its value

A

I and III

The probability of experiencing long term care costs below age 60 is low.

161
Q

Which of the following is an example of a moral hazard?

Car is damaged by a hailstorm
A driver slams on his brakes for no reason other than to cause the driver behind him to rear-end his car
A homeowner carelessly burns leaves on a windy day, resulting in fire damage to his house
A person falls and breaks her hip

A

A driver slams on his brakes for no reason other than to cause the driver behind him to rear end his car

A MORAL hazard occurs when DISHONESTY causes loss or causes the loss to be overstated on a claim.

The leaves burning was a stupid mistake, not a dishonest action.

162
Q

Which of the following statements regarding the roles of the NAIC in regulating insurance is correct?

I The NAIC is composed of the state insurance commissioners from all 50 states
II The NAIC makes recommendations for legislation and policy
III The NAIC has the legal authority to require states to adopt its regulations

A

I and II.

NAIC has no regulatory power whatsoever.

163
Q

What does the NAIC stand for?

A

National Association of Insurance Commissioners

164
Q

The main purposes of regulating the insurance industry include all of the following except:

To maintain competition
To minimize market failures
To minimize costs to consumers
To prevent abuse of consumers

A

Minimizing the costs to consumers is NOT a main purpose of insurance regulation.

However, costs will likely be minimized indirectly by the regulation of the insurance industry with regards to maintaining competition.

165
Q

Which of the following statements would be appropriate in explaining the underwriting process?

Underwriting is the process of selecting and classifying risk exposures
The process attempts to eliminate all risks that might result in a loss
The process involves nothing more than accepting or rejecting the application for insurance
Underwriting is a formality and is generally an unimportant part of hte insurance purchasing process

A

Underwriting is the process of selecting and classifying risk exposures

The process of underwriting attempts to match ACTUAL losses with EXPECTED losses, supported by adequate premiums. The goal is to avoid having too many bad risks.

166
Q

Which of the following types of risk is most suited to treatment by insurance?

Low Prob, High severity
Low prob, low severity
High prob, high severity
High prob, low severity

A

Low prob, high severity
Car crashes, earthquakes, flood insurance, theft insurance.

167
Q

Which of the following are important when selecting an insurance producer?

Competence
Training
Specialization
Length of service within the company

A

Competence, Training, Specialization.

Also: Experience, inclination to service, education, and a good reputation.
Length of service within a company says nothing more than the ability to keep one’s job.

168
Q

Which of the following limits an insurer’s liability for covered losses?

Misrepresentations by an agent acting within the agent’s authority
Other insurance coverage for the same loss

A

Other insurance coverage for the same loss.

Misrepresentations by the agent can skyrocket the insurance company’s liability, because they have the ability to legally bind the insurance company to cover anything that’s within their authority.

Example of the correct answer:
Regular Liability insurance and PLUP extension. Liability insurance would pay first, then PLUP would kick in. The PLUP’s liability to pay for that claim was mitigated by the fact that the insured had another policy that covered the same losses.

169
Q

Which of the following statements regarding insurance contracts are CORRECT

I An insurance policy is conditional, in that the insurer is obligated to compensate the insured only if certain conditions are met.
II A warranty is merely a promise made by the insured to the insurer that is part of the insurance contract and, as such, must be adhered to by the insured
III Representations are statements made by the proposed insured to the insurer in the application process.
IV Concealment occurs when the insured is silent about a fact that is material to the risk.

A

All four.

Yes even II. No I didn’t type it wrong, trust me I checked. I believe it’s along the lines of this logic: if you buy a car with a warranty, you’re promising that you won’t go in and fuck with the engine, because if you do, your warranty will be voided because you broke that promise.

170
Q

Once you have developed a risk management plan for the client, what is the next step in the risk management process?

Identify Risk Management Goals
Communicate The Recommendations
Gather Pertinent Data to Determine Risk Exposure
Monitor The Plan For Any Changes/Updates

A

IGADCIM
C comes after D
Communicate the recommendations to the client.

Here are all the steps:
1. Identify risk management goals
2. Gather pertinent data to determine risk exposures
3. Analyze information to identify risk exposures
4. Develop risk management plan
5. Communicate that plan to the client
6. Implement the recommendations
7. Monitor the recommendations

171
Q

All of the following are rating services that rate the financial strength of insurance companies except:

Standard and Poors
Moodys
NAIC
AM Best

A

NAIC

172
Q

Which of the following are insurance PRODUCERS who have the authority to hire agents to work for them?

Captive agents
Brokers
Producing general agents
Career agents

A

Producing general agents.

173
Q

What is one main difference between producing agents and captive agents?

A

Producing general agents can hire people to work for them.

174
Q

For life insurance to be underwritten, and insurable interest must exist:

I When the policy is issued
II When the insured dies

A

Only when the policy is issued. The insurable interest (the life) doesn’t exist after death, making it no longer an insurable interest. I guess.

This is in contrast to property insurance. With property insurance, the insurable interest (the property) must exist at the time of policy issuance, and at the time of the loss/theft.

175
Q

What is adverse selection?

Choosing an insurance company is in poor financial shape
The concept that people who expect to have claims will want insurance more than people who expect to have few or no claims
Choosing an insurance agent who does not properly service her clients
The concept that a broker represents insureds while agents represent the insurance companies

A

The concept that people who expect to have claims will want more insurance than people who expect to have few or no claims.

Basically this:
“I drive perfectly, I don’t need insurance” from safe drivers. “I drive like shit, I’ll get insurance” from unsafe drivers. Only the unsafe drivers will get the insurance and the insurance company will simply have to pay out all the time.

176
Q

Ken owns a hardware store that fills customers’ propane tanks. You are ken’s insurance agent and are explaining terms to Ken. Which of the following statements are correct?
I Fire is a peril
II Leaving oily rags in a hardware store’s repair shop area is a hazard
III The handling of propane is a hazard
IV A pure risk is one that involves the chance of loss or no loss, with no chance of gain.

A

All Four

177
Q

What did the McCarran Ferguson Act of 1945 do?

A

It established the fact that regulation of the insurance industry would be left up to the states.

178
Q

Which established that insurance industry regulation would be left up to the states?

HIPPA
ERISA
Department of Labor
McCarran Ferguson Act

A

McCarran Ferguson Act of 1945

179
Q

Which of the following cannot bind coverage for insurance on behalf of an applicant?

Captive agent
Insurance broker
Career agent
Independent agent

A

Broker - they represent the insured and therefore cannot bind an insurance company for insurance coverage.

180
Q

Which of the following statements best describes pure risk?

Possibility of loss that involves only two outcomes: loss and no loss
The ability to continue employer - provided or employer-sponsored benefits after termination of employment
One requirement for proving negligence
The price charge for a period of coverage provided by an insurance policy and found by multiplying the periodic rate per unit by the number of units of coverage

A

Possibility of loss that involves only two outcomes: loss or no loss

There is no chance of gains.

The ability to continue employer provided/sponsored after termination of employment refers to Consolidated Omnibus Budget Reconciliation Act (COBRA). Fees are up to 102% of original plan price (your previous price plus 100% of the price that your employer paid plus 2% of screw you charges)

181
Q

Alec is an insurance agent and meets with Tina to arrange for her to purchase a homeowners insurance policy. They agree to the terms, and Tina writes a check for the initial premium,, but no paperwork is completed. For which of the following reasons would this verbal agreement to insure a home make it a void contract.

There was no offer and acceptance
There was no legal object
There was no consideration
There was no legal form

A

There was no legal form.

Legal form refers to the contract paper.

Legal object refers to the house itself.

Consideration refers to the payment.

Offer and acceptance refers to, well think about it.

182
Q

Which of the following types of risk are associated with damage caused by an earthquake?

Particular
Dynamic
Static
Fundamental

A

Static Fundamental

Static - Related to changes other than economy
Dynamic - Economic related
Fundamental - lots of people
Particular - few people.

183
Q

Which of the following refers to the process of evaluating and classifying the risk level of applicants for insurance?

Underwriting
Group insurance
Adverse selection
Liability review

A

Underwriting

184
Q

Which of the following statements regarding risk management are CORRECT?

Misrepresentation is carelessness or indifference on the part of an individual as to whether a loss occurs and/or the size of a loos if one does occur.

A Moral hazard is a false and material statement made by an applicant for insurance, providing a basis for the insurer to make the contract voidable.

A

Neither

It’s actually the opposite, swap Misrepresentations and Moral Hazard and you have the correct definition.

185
Q

Once you have identified the risk management goals for the client, what is the next step in the risk management process?

Gather pertinent data to determine risk exposure
Analyze and evaluate the info to ID risk exposures
Implement risk management recommendations
Monitor the plan for any changes and/or updates

A

Gather

IGADCIM
Identify, Gather, Analyze, Develop, Communicate, Implement, Monitor

186
Q

A fire destroyed the county municipal civic center. The fire would be considered

A

Peril.

The fire would be the peril that caused the damage.
What caused the fire would be the hazards.

187
Q

Which of the following statements regarding insurance contracts are correct?

I Insurance contracts are generally contracts of Indemnity, meaning that the policyowner will be reimburesed by the insurer only up to the actual loss amount without the opportunity for profit.
II Insurance contracts are of utmost good faith, meaning that both parties must disclose all facts truthfully, or the contract may be reformed or rescinded.
III Insurance contracts are unilateral contracts, in that all parties to the contract are legally bound to perform.
IV Insurance contracts are aleatory, meaning that the outcome is affected by chance, and the dollars collected by the parties are usually unequal.

A

I II IV
They are of Indemnity: you get back the amount of the loss and no more.
They are of utmost faith: no one lies or omits facts.
They are aleatory: outcome is affected by chance and amounts exchanged are usually unequal.

They are also Unilateral: only ONE party is legally bound to perform.

188
Q

Which is correct?

Insurance is the dispersion of actual from expected results.
Moral hazard is the cause of financial loss.
Law of large numbers theory asserst that with more members in a group, the probability that the actual loss will equal the expected loss is greater.
A peril is the indifference to loss that creates carelessness and increases the likelihood of loss.

A

Law of large numbers one. Basically says, if you have way more data, your assumptions/calculations will be more accurate.

Peril is the cause of financial loss
Moral hazard is the indifference to loss that creates carelessness and increases the chance of loss
RISK IS THE DISPERSION OF ACTUAL FROM EXPECTED LOSS. I didn’t know this one

189
Q

Which agency specializes ONLY in rating insurance companies?

AM Best
S&P
Moodys
Fitch

A

AM Best

190
Q

Which agency specializes ONLY in rating insurance companies?

A

AM Best

191
Q

All of the following provide indirect Federal regulation of the insurance industry except:

IRS, NAIC, Dodd-Frank Act, HIPAA

A

NAIC. Does nothing directly or indirectly to REGULATE the insurance industry. It does indirectly IMPACT the insurance industry I believe.

192
Q

Which defense against liability reduces the defendant’s proportion of liability based upon the injured party’s contribution to the total negligence that causes injury?

Last clear chance rule
Comparative negligence
Assumption of risk
Contributory negligence

A

Comparative negligence.

Not contributory negligence. Contributory negligence would apply if someone had broken brake lights, slammed on their brakes, you didn’t notice (bc no brake lights) and hit them.

193
Q

Which of the following statements concerning the collateral source rule are CORRECT?

The rule states that a person who commits a tort will be liable for full damages.
The person who commits a tort is liable for full damages, even though the plaintiff has other sources of recovery available.
The collateral source rule prevents the person who committed the tort from benefitting because of fortuitous circumstances.
The collateral source rule prevents an insurance company from receiving a portion of the insured’s right to recover from the defendant.

I III IV
I II III
I II
II III IV

A

I II III

194
Q

Which of the following statements concerning the collateral source rule are CORRECT?

The rule states that a person who commits a tort will be liable for full damages.
The person who commits a tort is liable for full damages, even though the plaintiff has other sources of recovery available.
The collateral source rule prevents the person who committed the tort from benefitting because of fortuitous circumstances.
The collateral source rule prevents an insurance company from receiving a portion of the insured’s right to recover from the defendant.

I III IV
I II III
I II
II III IV

A

I II III

195
Q

Unilateral means:

1 party can’t transfer the contract to another
1 party only makes a legally enforceable promise
There is no legal enforcement
Both parties make legally enforceable promises

A

Only one party makes a legally enforceable promise.

Uni - 1. Then from there just remember, only one side has to perform.

196
Q

What is the stated amount of money the insured is required to pay on a loss before the insrer will make any payments under the policy?

Rider
Exclusion
Endorsement
Deductible

A

Deductible

197
Q

Which are types of agent authority?

Express
Legal
Apparent

A

Express, Apparent. Legal is not one.

The three are Express, Implied and Apparent (Ostensible).

Express is the actual authority the agent has. It’s given to the agents by the insurance company and it’s listed in the agency agreement.
Implied is not expressly given to the agents BUT it’s the type of authority given to other agents in similar circumstances usually possess. Example: acceptance of premium payments on behalf of the insurance company.
Apparent authority occurs when an agent does not have express or implied authority, but the insured is led to believe they have the authority.

198
Q

Mega Insurance company has an A+ rating with AM best company, what should a planner tell his client about the rating?

This rating is the highest given by any rating service.
This rating means the company is safe, and the client will never lose money.
AAA+ is the highest rating given by AM Best.
An evaluation of the financial strength of an insurance company is best obtained by consulting more than one rating service.

A

An evaluation of the financial strength of an insurance company is best obtained by consulting more than one rating service.

199
Q

Requirements of an insurable risk?

Large exposure to loss so as to adequately make predictions of the loss
Economically feasible premium
Catastrophic loss
Calculable chance of loss

A

Large exposure to make predictions, calculable chance of loss and economically feasible premiums.

Cannot be catastrophic.

200
Q

The law of agency implies that a fin planner

Doesn’t work exclusively for a firm, but represents several firms
Can make recommendations to the client only after all members of the agency approve those recommendations
May represent a firm; in this case, the firm is responsible for any promises the fin planner makes to the client
Must be part of an agency to practice

A

May represent a firm; in this case, the firm is responsible for any promises the fin planner makes to the client.

201
Q

Tamika incurs substantial medical bills as a result of an auto accident caused by negligence of another driver. Tamika’s insurance pays her med bills, and the policy requires that she assign her right to sue the other driver for the medical bills to the insurance company. Which concept is this?

Aleatory nature of insurance
Adverse selection
Subrogation
Duty of utmost good faith

A

Subrogation.

Think about it. Suing the person would be for the purpose of paying for the medical bills. IF the insurance company pays you, THEY now get to sue the person who hit you to pay back the insurance company. You don’t get double indemnity - specifically the right to money from the insurance company AND to money from the person who hit you.

202
Q

Insurable interest..

It determines how much insurance is needed to protect against a loss of income.
An interested party will suffer a financial loss if the insured loss occurs.
Permanent life insurance policy cash values increase over time.
Exercising a right to the economic benefits of an asset, such a life insurance policy.

A

An interested party will suffer a financial loss if the insured loss occurs.

203
Q

Which of the following is NOT a method of managing risk?

Transfer
Elimination
Reduction
Retention

A

Elimination is not a type of risk management.

204
Q

What is the process of evaluating risks to determine if they are reasonable to accept and to what degree?

Actuarial underwriting
Loss adjustment
Risk assessment
Insurance underwriting

A

Insurance underwriting.

205
Q

Which of the following types of risk is insurance typically used to manage?

Low prob, high severity
Low prob, low severity
High prob, high severity
High prob, low severity

A

Low probability, high severity

206
Q

All of the following are steps in the risk management process except

Monitoring the plan for any changes and/or updates
Identifying the insurance required to cover all risks
Identifying risk management goals
Analyzing and evaluating the information to identify risk exposures facing the client

A

Identifying the insurance required to cover every risk is not necessary. There are other methods to manage risk.

207
Q

Types of agent authority?

Express
Implied
Apparent

A

All

Express - given to the agent by the insurance company and stated in the agency agreement.
Implied - not expressly given to the agent, but it’s implied that they have the authority because other agents in similar situations have authority.
Apparent - occurs when an agent does not have the express or implied authority to do something, but the insured is led to believe the agent has the authority.

Apparent = Ostensible btw

208
Q

Ronnie has been working and saving for a car since he was 13. He recently turned 165, obtained a driver’s license, and purchased a car for which he paid cash. He went to his insurance agent’s office and purchased the required car insurance. The agent did not notice that he is only 16. In the event of a claim, which option is available to the insurance company?

Refuse to pay the claim because the contract is voidable.
Pay the claim.
Void the contract because Ronnie is a minor.
Tell Ronnie to submit the claim on his parents’ auto insurance policy.

A

Pay the claim.

The insurance agent bound the insurance company to cover Ronnie. It’s the agent’s fault that the age was not verified. The contract’s voidability because one of the participants is a minor simply means that the INSURED is able to void the contract, while the INSURER is bound to perform.

209
Q

Which of the following is NOT a correct statement regarding an insurer’s liability?

Coinsurance may be a splitting of costs.
The policy limit is the max amount that will be paid when the insured loss occurs.
Coinsurance may refer to the minimum percentage of insurance that is required to avoid being penalized for inadequate insurance when there are partial losses.
The actual cash value of a loss is the acquisition cost of the property less depreciation.

A

The actual cash value of a loss is the replacement cost of the property less depreciation.

Weak on this one

210
Q

Which is correct?

Hazard is the cause of financial loss.
Peril is the indifference to loss
Insurance manages risk by having a large pool of people share in financial losses suffered by pool members
Speculative risk involves the chance of loss or no loss

A

Insurance manages risk by having a large pool of people share in financial losses suffered by pool members.

Peril is the cause of financial loss.
Moral hazard is indifference to loss that causes carelessness.
Speculative risk involves both the chance of loss or no loss
Pure risk is either loss or no loss (no gain)

211
Q

Which of the following are necessary elements of an insurable risk?

Loss must be indefinite
There must be homogeneous exposure units
Loss must be accidental
Cannot be catastrophic

A

II III IV

The loss can not be indefinite, it must be measurable.

212
Q

Which is correct?

Aleatory contract: on party might receive benefits substantially greater in value than the benefits received by the other party.
Unilateral contracts require a promise to perform from both the insurance company AND the insured.
Contract of adhesion: the terms can be modified.
Indemnity contract: one that allows the policyowner to be reimbursed for more than the actual amount of the loss.

A

Aleatory: one party might receive benefits way greater in value than the other party.

Unilateral: only one promises to perform. I believe it’s always the insurance company.
Adhesion: terms cannot be modified. Always think HOA, those bitches.
Indemnity: you will be reimbursed for the amount of the loss, no more no less.

213
Q

David’s son will soon turn 16 and start driving. He will be driving an older car. Knowing he must keep the car insured, David decides to eliminate collision and increase the deductible on his comprehensive coverage. Which methods of handling risk is David using?

Risk avoidance
Risk retention
Risk transfer
Risk reduction

A

Risk retention for sure and risk transfer for less sure.

Normally risk transfer would be by transferring risk to another source, but in this case he’s transferring more risk to himself by getting rid of collision coverage and by upping the deductible on comprehensive.

Risk avoidance would be if he didn’t let his son drive.
Risk reduction would be forcing his son to take driving lessons.

214
Q

Once you have implemented the recommendations for managing risk for the client, what is the next step in the risk management process?

Identify risk management goals
Monitor the plan for needed changes
Develop a risk management plan
Gather pertinent data to determine risk exposure

A

Monitor the plan for needed changes.

IGADCIM
Second I is Implement, M is Monitor.

215
Q

Which of the following organizations rate life insurance companies?

S&P
AM BEST
Fitch
Moody

A

All

AM Best specializes and only rates insurance companies.

216
Q

Klaus just bought a new $75k luxury car. What form of risk management would generally be most appropriate? Pick one.

Avoidance
Transfer
Retention
Diversification
Reduction
Elimination

A

Transfer (via insurance)

I originally said avoidance during the course itself, but that’s not right because why buy a badass car and avoid using it at all costs. It’s the most effective, but it’s not the most appropriate form of risk management.

Diversification and Elimination are silly choices and aren’t forms of risk management as far as this course goes.

217
Q

Which of the following terms best describes the probability of an insured becoming disabled?

Mortality rate
Morbidity rate
Disability rate
Accident and sickness rate

A

Morbidity Rate

218
Q

Which section of an insurance contract includes information provided by the applicant?

Insuring agreement
Conditions section
Declarations section
Exclusions section

A

Declarations section.

Insuring agreement identifies what is insured and for amount and under what conditions.
Exclusions identifies situations that would preclude the company from paying.
Conditions section states the rights and duties of the insurance company and the policy owner

219
Q

Which are examples of risk REDUCTION

Decreasing insurance deductibles
Moving from a high risk neighborhood
Maintaining a safe speed while driving
Installing deadbolt locks in a home

A

Kaplan says II III IV, but I say III and IV because to me, moving neighborhoods is straight up risk AVOIDANCE.

We agree on I though, that’s risk transfer. By decreasing your deductible, you’re agreeing to a higher premium and transferring* more risk to the insurance company.

220
Q

Vicarious liability?

Legal responsibility for criminal acts
Legal responsibility for acts under the negligence per se rule
Legal responsibility extended to someone other than the person who caused the injury
Legal responsibility for extraordinarily dangerous activities

A

Vicarious liability refers to legal responsibility extended to someone other than the person who caused the injury.

Think company owner can get sued if employee driving a company car hits someone while at fault.

221
Q

Because clients can only accept or reject an insurance contract and cannot modify its terms, the contract is said to be:

Aleatory
Of Indemnity
Of Adhesion
Of Utmost good faith

A

Adhesion

222
Q

Insurable interest..

For property and casualty insurance, insurable interest must exist when the policy is issued and at the time of the loss.
For life insurance, insurable interest must exist at the time the policy is issued.

A

Both.

To insure property, the interest must exist at the start of the contract (otherwise you could insure anything that exists) and at the time of the loss (you basically have to say you don’t have it) [I know what you’re thinking, No Fraud]

To insure a life, the life must exist at the start of the contract (otherwise you could insure half of Biden’s voters)

223
Q

Property insurance, insurable interest must exist:

At the time of loss only
At the time of policy issuance only
At both times ^
At neither times ^^

A

At both times.

I know it’s weird to think that you have to have it at the time of loss (you lost it) but what they mean is you have to report when you lost it.

224
Q

Which of the following is correct?

Mutual companies are owned by their policyholders and offer participating policies a share in the profits of the company through the payment of dividends.
Stock companies are owned by the stockholders and usually offer nonparticipating policies
Stock companies are owned by policyholders, while mutual companies are owned by the stockholders

A

I and II

Wrong again

225
Q

Particular risks?

Premature death
Disability
Unemployment
Earthquake

A

Premature death, disability and unemployment.

Unemployment can also be fundamental depending on context.

226
Q

Which of the following statements concerning the collateral source rule are correct? Mutiple.

The rule states that a person who commits a tort will be liable for full damages
The person who commits a tort is liable for full damages, even though the plaintiff has other sources of recovery available.
It prevents the person who committed the tort from benefiting because of fortuitous circumstances.
It prevents an insurance company from receiving a portion of the insured’s right to recover from the defendant.

A

I, II, III

Wrong again

227
Q

Which gave states the authority to regulate the insurance industry?

COBRA
McCarran Ferguson Act
State insurance commissioners
NAIC

A

McCarran Ferguson Act of 1945

228
Q

Primary purpose of the conditions sections of an insurance policy is to

Permit the inclusion of additional coverages
Contain the statements made by the insured
Add exclusions that eliminate coverage for certain periods
Define the duties and rights of both parties

A

Define the duties and rights of both parties.

229
Q

Which specializes in rating ONLY insurance companies?

SP
Moodys
Fitch
AM Best

A

AM Best

230
Q

Important when choosing an insurance producer?

Length of service with company
Professional designations earned
Inclination to service
Production awards earned

A

II and III

Producer = Agent

Personal Risk Management (5 decks)

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