AD Banker chapter 1 exam - Review Flashcards
Which of the following is a characteristic of a Mutual Insurance Company?
A. Dividends are returned profits
B. A policyholder is a voting member on the Board of Directors
C. Members are provided insurance by the company
D. Stockholders have ownership
C. Members are provided insurance by the company
*** A mutual insurer is owned by its members
All of the following are types of insurers, except:
A) Stock insurers
B) Proprietary insurers
C) Reciprocal insurers
D) Mutual insurers
B. Proprietary insurers
***Proprietary insurer is not a type of insurer.
What is the name for an insurer organized in the same state in which it is authorized to do business?
A. Domestic
B. Alien
C. Admitted
D. Foreign
A. Domestic
***A domestic insurer is organized under the laws of the state it does business in.
All of the following are considered part of the consideration of an insurance contract, except:
A. Issuance of the policy
B. The insurer’s promise to indemnify in the event of loss
C. Payment of the initial premium
D. The payment of a claim for the insured
A. Issuance of the policy
***The issuance of a policy is not part of the consideration of an insurance contract. It is part of the agreement (acceptance).
Each participant of a Lloyds association
A. Is individually liable for each risk they assume
B. Participates on every policy issued
C. Insures against every risk that is underwritten
D. Is legally liable for the unpaid part of any loss sustained by all defaulting underwriters
A. Is individually liable for each risk they assume
***Each member is individually liable only for the particular risk they assume, not all risks underwritten.
The authority of a producer that is stated in his/her agency contract, is said to be:
A. Implied Powers
B. Assumed Powers
C. Express Powers
D. Apparent Powers
C. Express Powers
***The Agency Contract, which exists between an insurer and its producer, sets forth the powers that are granted to the producer. These powers are referred to as Express Powers because they are expressed in the Agency Contract
The predictability of loss improves when the number of similar units increase because of which principle?
A. Accumulated Experience
B. The Golden Rule of Underwriting
C. The Law of Large Numbers
D. The Law of Averages
C. The Law of Large Numbers
***The Law of Large Numbers is an underlying principle of insurance, stating that the greater the number of units of exposure, the greater the accuracy in predicting a loss.
A state requiring that the Commissioner agree that a company’s rates are appropriate before they are made effective uses which type of rating approval?
A. Prior approval
B. Mandatory
C. Open Competition
D. File and use
A. Prior approval
***Prior approval requires that the rates cannot be used until the Commissioner approves the rate, or until a set time period has expired after the filing.
Because the insurance company must pay claims and the insured must comply with the policy terms, the insurance contract is considered which of the following types of contracts?
A. Aleatory contract
B. Unilateral contract
C. Contract of adhesion
D. Conditional contract
C. Conditional contract
***A conditional contract is enforceable only under certain conditions. For example, a claim will be paid only if there has been a covered loss.
Dividends issued by stock insurers are paid to:
A. Members
B. Stockholders
C. Directors
D. Policyholders
B. Stockholders
*** Stock insurers issue taxable corporate dividends to stockholders. (Mutual insurers may issue dividends to policyholders.
Which of the following describes the purpose of the Gramm-Leach-Bliley Act?
A. Enforcement of fraudulent insurance acts
B. Establishing privacy protection for consumers
C. Deregulating the trucking industry
D. Regulating investment companies
B. Establishing privacy protection for consumers
*** Among the most important provisions of GLBA is the implementation of a set of minimum privacy protections for consumers in financial transactions, regulating the gathering, retaining, and disseminating of account numbers, copies of income tax returns, financial statements, driver license numbers, Social Security numbers, Alien Registration, or Passport information.
When Applicant P fails to disclose all motor vehicle violations in an application for automobile insurance, P may be guilty of:
A. Avoidance
B. Estoppel
C. Breach of warranty
D. Concealment
D. Concealment
*** Concealment is the failure to disclose material facts.
Which of the following is a physical hazard?
A. Uneven pavement in a sidewalk
B. An insured’s attitude that good housekeeping is not important
C. Dishonesty on the part of an insured
D. The storage of flammables in a fireproof container
A. Uneven pavement in a sidewalk
*** A physical hazard is a physical condition that increases the probability of loss to the property.
All of the following are elements of an insurable risk, except:
A. There must be a large number of homogenous units with the same exposure
B. The loss must be accidental
C. The loss may be catastrophic
D. The loss must be measurable
C. The loss may be catastrophic
***Insurers want to avoid insuring against catastrophic perils.
Which of the following is not a function of insurance?
A. To exchange a small certain expense for a large uncertain loss
B. To transfer risk from the insured to the insurer
C. To protect against uncertainty and reduce anxiety
D. To act as an investment vehicle for the insured
D. To act as an investment vehicle for the insured
***Investment entails speculative risk, which is not insurable.
