Unit 1

Question 1

Insurance is a legal contract that serves what purpose

Answer 1

To transfer risk from the insured to the insurer

Question 2

What type of risk is insurable?

Answer 2

Speculative risk

Question 3

Definition of Loss

Answer 3

The reduction of value of an asset

Question 4

Definition of Exposure

Answer 4

The risk assumed by the insurer and amount responsible to pay out at any given time

Question 5

What is unit is Exposure expressed in and how is it measured? What is the purpose of this calculation

Answer 5

Units
Rate x Exposure units
To figure out premium costs

Question 6

Definition of Peril

Answer 6

The cause of Loss

Question 7

Definition of Hazard

Answer 7

anything that increases the likelihood of peril

Question 8

Types of Hazard and their definintons

Answer 8

Moral: conscious traits, ex. dishonesty
Morale: a state of mind or unconscious change of behaviors ex. careless attitude

Question 9

Methods for handling risk includes STARR what does this acronym stand for

Answer 9

Sharing, Transfer, Avoidance, Reduction, Retention

Question 10

The law of large numbers states what

Answer 10

The larger the group the more accurately losses can be predicted

Question 11

CANHAM is an acronym used to formulate insurance policies what does it stand for

Answer 11

Calculable, Affordable, Non-catastrophic, Homogenous, Accidental, Measurable

Question 12

Definition of Adverse selection

Answer 12

an applicant at higher risk of loss than average

Question 13

Definition of Underwriting

Answer 13

An extensive evaluation of an applicant in which an insurance company uses to avoid adverse selection, or reduce risk of loss

Question 14

Definition of Reinsurance

Answer 14

transferring risk from one insurer to another by paying premiums to reduce potential loss

Question 15

In reinsurance there are 2 parties, what are the names and definitions of the parties

Answer 15

Ceding insurer, company offloading risk
Reinsurer, company assuming risk

Question 16

There are 2 types of reinsurance evaluations what are they

Answer 16

Facultative reinsurance, where the reinsurer considers each risk before allowing the transfer

Treaty reinsurance, reinsurers accepts all risks of a certain type from ceding insurer

Question 17

A Stock insurer is owned by who

Answer 17

Stockholders/shareholders

Question 18

Policies issued by a stock insurer are considered what

Answer 18

Non-participating

Question 19

Mutual insurers are owned by who

Answer 19

Policy holders/ policy owners

Question 20

Dividends are distributed in 2 types of insurance companies what are they. These types of companies are sometimes referred to

Answer 20

Stock insurer and Mutual insurer

Legal reserve

Question 21

Policies created by Mutual insurers are called what

Answer 21

Participating

Question 22

Members of Fraternal Benefit Societies with insurance policies are called

Answer 22

Certificate holders

Question 23

A distinctive feature of certificate holders, policies with this feature are called

Answer 23

They may assess additional chargers if premiums don’t cover claims, open contracts

Question 24

What is the name of an unincorporated group with the agreement insure each others’ losses

Answer 24

Reciprocal Insurers

Question 25

What are the members of Reciprocal insurers called

Answer 25

Subscribers

Question 26

What person handles the business side of a Reciprocal insurer

Answer 26

An Attorney-in-fact

Question 27

What is the name for an insurance group created with the purpose of providing liability insurance to policyholders, and owned by the insureds, with the condition the members must all be apart of the same type of business

Answer 27

Risk Retention group

Question 28

Lloyd's associations provide what and are not

Answer 28

A hub for information exchange for member underwriters, insurance companies

Question 29

Self Insurers do what

Answer 29

Retain the risk of loss, often setting aside savings to cover their own losses

Question 30

What type of insurance does the state government provide

Answer 30

Unemployment, Disability, Medical

Question 31

What type of insurance does the federal government provide

Answer 31

Social Security, Military life, Federal Employee comp, Retirement

Question 32

Insurance from the government is considered

Answer 32

Residual Market

Question 33

If an insurance company is operating in the state it was created it's considered

Answer 33

Domestic

Question 34

If an insurance company is operating in a state other than the one it was created it's considered

Answer 34

Foreign

Question 35

An insurance company from outside the US is considered

Answer 35

Alien

Question 36

What is a Certificate of Authority

Answer 36

An insurance license

Question 37

When an insurance company is licensed it's considered

Answer 37

Admitted or Authorized

Question 38

A non licensed insurance company

Answer 38

Non-admitted, unauthorized, non-approved

Question 39

A surplus line insurer is considers

Answer 39

non approved, non admitted, unauthorized

Question 40

You can only use a surplus line insurer if

Answer 40

You have exceptionally large or specialized risk and no authorized insurer will cover you

Question 41

What is the difference between a broker and an agent

Answer 41

Brokers legally represent the insured Agents legally represent the insurer

Question 42

Individuals that sell the insurance of several companies and are independent contractors, they own the renewals of the policies they sell

Answer 42

Independent Insurance agents

Question 43

Agents representing only one company, independent contractors and own their renewals

Answer 43

Exclusive or Captive agents

Question 44

Hire, train, and supervise other agents within a specific geographical area

Answer 44

General Agents

Question 45

Insurance companies that pay a salary to an employee to sell insurance typically not paid a commission

Answer 45

Direct-writing Companies

Question 46

Policies sold directly to the consumer with no agent or producer involved

Answer 46

Direct Response Marketing

Question 47

In the Law of Agency who is represented and who is representing

Answer 47

Represented is the Principal, representing is the agent

Question 48

Express authority is what

Answer 48

Explicitly stated in a written agreement between the principal and the agent

Question 49

Implied authority is what

Answer 49

Not written in a contract but assumed to be granted in accordance with general business practice

Question 50

Apparent Authority is what

Answer 50

Authority others believe an agent has

Question 51

A person in a position of financial trust is

Answer 51

A Fiduciary

Question 52

Mixing personal funds with insurance funds is what

Answer 52

Commingling

Question 53

What are suitability considerations

Answer 53

the responsibility to make purchase recommendations that are suitable to the applicant

Question 54

What are the 5 things necessary for a legal contract

Answer 54

Consideration, Legal Purpose, Offer, Acceptance, Competent Paties

Question 55

What is considered the Offer in an Insurance contract

Answer 55

Payment

Question 56

Contract in which one party has written and the other party is to adhere

Answer 56

Contract of Adhesion

Question 57

What does in mean to be an Aleatory contract

Answer 57

An unequal contract, meaning on party is receiving unequal benefits or risk

Question 58

A contract in which one can make the reasonable assumption that the other party wont act deceptively

Answer 58

Utmost Good Faith contract

Question 59

A contract in which only one party is required to preform

Answer 59

Unilateral Contract

Question 60

What does a contract of Indemnity mean

Answer 60

Intended to restore the insured back to the financial state prior to loss

Question 61

Definition of warranty

Answer 61

A statement guaranteed to be true

Question 62

Definition of Concealment

Answer 62

intentional failure to disclose a known fact

Question 63

Intentional act to deceive or induce another party to part with something of value

Answer 63

Fraud

Question 64

A person in insurance who commits Fraud can be subject to

Answer 64

A fine, Imprisonment of up to 10 years, both

Question 65

Intentional and voluntarily giving up a known right

Answer 65

Waiver

Question 66

Estoppel

Answer 66

A legal doctrine that prevents a party from denying an action that was accepted previously