AD Banker General Insurance Flashcards by Kerri Burriss

Determining acceptable risks is the primary responsibility of the:

A
Underwriter

B
Producer

C
Auditor

D
Adjuster

A (The selection of risk is the primary responsibility of the underwriter, who protects the insurer by selecting risks that fall into the normal range of expected losses.)

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The uncertainty of loss from fire, wind, or hail is a type of:

A
Speculative risk

B
Pure risk

C
Risk retention

D
Physical hazard

B (There is no chance of gain from exposure to a risk of loss by fire, wind, or hail.)

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An insured should not profit from an insurance transaction. This describes which of the following principles?

A
The principle of subrogation

B
The principle of personal aspect

C
The principle of indemnity

D
The principle of utmost good faith

C (Indemnity is restoring the insured to the same financial condition as before the loss, i.e., no profit.)

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What is the term for a contract written by one party on a “take it or leave it” basis?

A
Contract of Adhesion

B
Aleatory contract

C
Bilateral contract

D
Conditional contract

A (A Contract of Adhesion is a contract between two parties that does not allow for negotiation. Any ambiguity in the contract is construed against the party who drew it up.)

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Gambling is considered which of the following types of risk?

A
Speculative

B
Pure

C
Insurable

D
Stable

A (A speculative risk is one with both the possibility of gain or loss.)

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All of the following are producer responsibilities, EXCEPT:

A
Issue policies

B
Represent the insurer

C
Solicit and accept applications, and forward them to the insurer

D
Provide quotes and collect premiums

A (Producers do not issue policies. Insurers issue policies. Producers represent the insurer in soliciting, receiving, and forwarding applications, providing quotes, and collecting premiums.)

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Because only the insurance company makes a promise to pay a future covered claim, the insurance contract is:

A
Unilateral

B
Aleatory

C
Conditional

D
Bilateral

A (A unilateral contract is one in which one party (the insurer) makes a promise of performance.)

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Policyholder A’s insurer is providing coverage on too many homes subject to wind losses. As a result, the company decides to reinsure those policies to share the high risk of wind loss. The reinsurance contract can best be described as which of the following?

A
An agreement between your agent and the insurance company

B
An agreement between you and the reinsurance company

C
An agreement between you, the insurance company, and the reinsurer

D
An agreement between the insurance company and the reinsurer

D (A reinsurance contract is between the insuring company and the reinsurer, and does not involve the insured.)

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A potential cause of loss, such as fire, explosion, flood, or theft is considered to be a(n):

A
Hazard

B
Peril

C
Occurrence

D
Accident

B (A peril is a cause of potential loss to property such as fire, windstorm, hail, or flood.)

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When an insurance policy is not clear, the court will usually interpret in favor of the insured because of which characteristic?

A
The policy is a conditional contract

B
The policy is a bilateral contract

C
The policy is a contract of adhesion

D
The policy is an aleatory contract

C (A contract of adhesion is a contract between two parties that is written on a ‘take it or leave it’ basis. Because the other party has no control over the terms of the contract, any ambiguity is usually construed against the party who drew it up.)

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All of the following are restricted from entering into an insurance contract, except:

A
Retired persons

B
Minors

C
People under the influence of drugs or alcohol

D
Mentally incompetent persons

A (Persons without legal capacity to enter an agreement are minors, the mentally incompetent, and those under the influence of an intoxicant.)

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Which is the correct term to describe a contract prepared by one party and submitted to the other party on a “take it or leave it” basis, without negotiations?

A
Contract of Adhesion

B
Conditional contract

C
Valued contract

D
Aleatory

A (A Contract of Adhesion is one that is prepared by one party and presented to the other party on a “take it or leave it” basis.)

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Which of the following statements is true concerning the National Association of Insurance Commissioners?

A
The NAIC establishes insurance law at the federal level

B
The NAIC provides research and recommendations

C
The NAIC enforces insurance regulations

D
The NAIC appoints Commissioners/Directors of Insurance for each state

B (The NAIC is an advisory group that makes regulatory and legislative recommendations, but has no legal authority to enact or enforce laws.)

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If an insurer is incorporated in Rhode Island, but primarily does business in New York, what type of insurer would it be considered in New York?

A
Alien

B
Nonadmitted

C
Domestic

D
Foreign

D (An insurer that is incorporated under the laws of another state is considered a foreign insurer.)

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Estoppel is defined as which of the following?

A
Estoppel is the failure to disclose known facts

B
Estoppel is the intentional abandonment of a known right

C
Estoppel is the intentional misrepresentation of a material fact

D
Estoppel prevents a party from denying a fact, if the fact was admitted to be true by a previous action

D (The principle of estoppel prevents the denial of a fact, if the fact was admitted to be true previously.)

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All of the following statements regarding financial rating services are correct, except:

A
Independent rating services evaluate and rate the financial ability of insurance companies

B
Agents and producers must place business through an insurer with the lowest rates

C
The ratings are available to the public

D
Rating codes are assigned to show financial strength or weakness of each company rated

B (Agents and producers are responsible for placing business with insurers that are financially sound.)

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Rates are referred to as which of the following when the insurance company files for approval and then implements the rates?

A
Prior Approval

B
Mandatory

C
Open Competition

D
File and Use

D (Rates must be filed with the state insurance department, but the insurance company can use the new rates once they are filed.)

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Dishonest tendencies that increase the probability of loss are which of the following?

A
Morale hazard

B
Pure risk

C
Moral hazard

D
Risk

C (Certain characteristics and dishonest behaviors of people increase the probability of loss.)

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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 requires that the rates cannot be used until the commissioner approves the rate, or until a set time period has expired after the filing.)

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Under aleatory contracts the exchange of values may be:

A
Rescinded

B
Equal

C
Unequal

D
Waived

C (An aleatory contract is contingent on particular events, such a covered loss. Under an insurance policy, the insurer’s obligation to pay a loss depends on uncertain events, while the insured must pay a fixed premium during the policy period. Thus, the exchange of values is likely to be unequal between any given insurer and insured.)

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Which of the following places insurance with a non-admitted insurer when insurance cannot be placed with an admitted insurer?

A
Direct response company

B
General consultant

C
General use producer

D
Surplus Lines producer

D (Only a surplus lines producer may place business directly with a non-admitted insurer.)

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A fire sprinkler system installed in a factory is considered which of the following methods of managing risk?

A
Reduction

B
Avoidance

C
Retention

D
Transfer

A (The fire sprinkler system will minimize the chance and severity of loss, but not entirely prevent it.)

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When an individual faces the risk of economic loss in the event of property damage, this indicates which of the following?

A
Insurable interest

B
Merit rating

C
Limit of recovery

D
Subrogation

A (Typically, if there is a risk of financial loss, there is an insurable interest.)

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Which type of insurance provides coverage when insurance is not available from an admitted carrier?

A
Surplus

B
Residual

C
Facultative

D
Foreign

A (Non-admitted business must be transacted through a Surplus Lines broker or producer.)

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The Reasonable Expectations Doctrine states that: A A policyowner may expect the insurer to refund premiums if no claims are made B The insurer may reasonably expect full cooperation of the insured in the event of a loss C The reasonable expectations of policyowners will be honored even if the strict terms of the policy do not support these expectations D A policyowner may reasonably expect that all claims submitted will be paid

C (Reasonable expectations is a legal doctrine that holds that the reasonable expectations of policyowners will be honored even if the strict terms of the policy do not support these expectations.)

Which type of risk involves the possibility of loss or gain? A Insurable B Pure C Speculative D Stable

C (A speculative risk is one where there is the possibility of gain or loss.)

All of the following statements regarding financial rating services are correct, except: A Independent rating services evaluate and rate the financial ability of insurance companies B Agents and producers must place business through an insurer with the lowest rates C The ratings are available to the public D Rating codes are assigned to show financial strength or weakness of each company rated

B (Agents and producers are responsible for placing business with insurers that are financially sound.)

An applicant inaccurately representing information on the application is guilty of: A Fraud B Concealment C Waiver and Estoppel D Misrepresentation

D (Misrepresentation is a false statement contained in the application. Fraud is an intentional deception of the truth in order to induce another to part with something of value or to surrender a legal right. Concealment is the willful holding back or secretion of material facts pertinent to the issuance of insurance or a claim. Waiver and Estoppel are terms that apply to the insurer, not the applicant.)

Which of the following is not a function of insurance? A To exchange a small certain expense for a large uncertain loss B To protect against uncertainty and reduce anxiety C To transfer risk from the insured to the insurer D To act as an investment vehicle for the insured

D (Investment entails speculative risk, which is not insurable.)

Which of the following best describes a surplus lines broker? A A surplus lines broker places risks with nonadmitted insurers when coverage cannot be placed with admitted insurer carriers B A surplus lines broker deals with direct writing companies only C A surplus lines broker accepts business only from non-resident agents D A surplus lines broker deals with admitted carriers only

A (States regulate the procurement of business from nonadmitted carriers by regulating the brokers who place business with these carriers. These brokers are known as surplus lines brokers.)

The concept that the insured should not profit from an insurance transaction is called: A The principle of utmost good faith B The principle of subrogation C The principle of personal aspect D The principle of indemnity

D (Indemnity is the restoration of the insured to the same financial condition as before the loss.)

An insurer with capital that is divided into shares, and is owned by shareholders, is considered a: A Reciprocal insurer B Fraternal Benefit Society C Mutual company D Stock company

D (A stock company is owned by its stockholders and its capital is divided into shares. Corporate taxable dividends are payable to stockholders.)

Which of the following applies when two parties rely upon the promises of the other? A Parole evidence rule B Concept of utmost good faith C Doctrine of estoppel D Concept of adhesion

B (The concept of utmost good faith says that both parties will bargain in good faith to form the contract.)

Which of the following powers describes the authority stated in an agent's agency contract? A Apparent B Assumed C Implied D Express

D (The agency contract, which exists between an insurer and a producer, sets forth the powers that are granted to the producer. These powers are referred to as express because they are directly stated in the contract.)

Estoppel is defined as which of the following? A Estoppel is the intentional misrepresentation of a material fact B Estoppel is the failure to disclose known facts C Estoppel is the intentional abandonment of a known right D Estoppel prevents a party from denying a fact, if the fact was admitted to be true by a previous action

D (The principle of estoppel prevents the denial of a fact, if the fact was admitted to be true previously.)

All of the following are risk management techniques, except: A Transfer B Retention C Enhancement D Avoidance

C (Enhancement is not a risk management technique.)

Which of the following best defines a hazard? A It eliminates the chance of loss B It is a cause of loss C It increases the chance of loss D It increases the amount of loss

C (A hazard increases the likelihood of loss occurring.)

The insurer's promise to pay a covered loss and the insured's payment of the first premium are examples of: A Acceptance B Offer C Legal Purpose D Consideration

D (Consideration is the term used to describe the rights, money, promises or property exchanged between the parties as part of a contract transaction.)

A peril is defined as which of the following? A It is a risk of financial loss B It is the specific cause of loss C It is a condition that may increase a loss D It is an indirect loss

B (A peril is defined as a specific cause of a loss.)

Which of the following is not true about insurance? A It is a means of sharing loss B It eliminates risk C It transfers risk D It protects against uncertainty

B (Insurance transfers, but does not eliminate risk.)

Which term is defined as the possibility of loss? A Negligence B Risk C Peril D Liability

B (Risk is the probability of loss.)

A contract that allows an insured to be restored to the same financial condition as prior to the loss is considered: A An aleatory contract B A unilateral contract C A contract of indemnity D A contract of adhesion

C (Indemnity is defined as restoring the insured to the same financial condition as before the loss.)

Which federal entity administers the Terrorism Insurance Program created by TRIA? A NAIC B Department of Defense C Department of Homeland Security D Department of the Treasury

D (TRIA's Terrorism Insurance Program protects consumers by addressing market disruptions and ensuring the availability and affordability of property and casualty insurance for a terrorism risks. It is administered by the Department of the Treasury.)

Which of the following statements is true concerning the National Association of Insurance Commissioners? A The NAIC appoints Commissioners/Directors of Insurance for each state B The NAIC provides research and recommendations C The NAIC enforces insurance regulations D The NAIC establishes insurance law at the federal level

B (The NAIC is an advisory group that makes regulatory and legislative recommendations, but has no legal authority to enact or enforce laws.)

All of the following are considered part of the consideration of an insurance contract, except: A Payment of the initial premium B Issuance of the policy C The payment of a claim for the insured D The insurer's promise to indemnify in the event of loss

B (The issuance of a policy is not part of the consideration of an insurance contract. It is part of the agreement (acceptance).)

All of the following are options for managing risk, except: A Transferring the risk B Avoiding the risk C Subrogating the risk D Retaining the risk

C (Subrogation is not a risk management technique, but rather a means of collecting a loss payment from a liable party.)

The following statements regarding hazards are all correct, except: A A gambling addiction could be a moral hazard B A moral hazard arises from an attitude of indifference to loss C Ice on a sidewalk is a physical hazard D A moral hazard arises from a disposition for dishonesty

B (A physical hazard is a physical condition that increases the likelihood of loss. A moral hazard is tendency toward dishonesty, and a morale hazard is an attitude of indifference to loss.)

Fraud is an intentional act of any of the following, except: A Misrepresentation used to induce someone to part with something of value B Concealment C Deceit D Warranty

D (A warranty is a statement in the application guaranteed true in all respects.)

For a claim to be paid, insurable interest for a property or casualty contract must exist at the time of: A Premium payment B Policy issuance C Policy delivery D Loss

D (For property and casualty, insurable interest must exist at the time of the loss.)

All of the following are producer responsibilities, EXCEPT: A Provide quotes and collect premiums B Solicit and accept applications, and forward them to the insurer C Represent the insurer D Issue policies

D (Producers do not issue policies. Insurers issue policies. Producers represent the insurer in soliciting, receiving, and forwarding applications, providing quotes, and collecting premiums.)

Statements in the application that are guaranteed true, but later found to be false at the time of application, may result in which of the following? A Establishment of a monetary penalty B Voidance of the contract C Nullification of the Warranty D A waiver of the provisions of the warranty

B (A breach of warranty is a determination that a warranty has proven to be untrue, whether intended as a falsehood or not, and may void the contract.)

Which type of producer authority is not spelled out in the contract, but is necessary for carrying out the producer's duties? A Admitted B Express C Assumed D Implied

D (Implied authority is not specifically listed in the contract, but is considered necessary for the producer to carry out their duties. Example: a producer has the express authority to transact insurance business--this implies the authority to provide quotes and collect premiums.)

An agent is best described as which of the following? A A producer who represents persons who have contracted with him/her to obtain insurance for them B A producer who has a contract with an insurer to represent that insurer in the sale of its products C A producer who represents members of the public wishing to purchase insurance D A producer authorized by the Department of Insurance to adjust insurance claims

B (An insurance producer, or agent, has an agency contract with an insurer (the principal), which authorizes him/her to represent that insurer and grants him/her certain powers and authority to place insurance and bind coverage.)

The owner of an antique store leaves valuable breakable items on display while heavy construction is taking place, believing that any pieces that fall and break will be covered by insurance. This demonstrates which hazard?

B (This is considered an attitude of indifference or carelessness, which increases the probability of a loss.)

What type of insurance is provided by the Terrorism Insurance Program established by TRIA? A Life only B Life and health C Commercial property and casualty D Personal lines

C (TRIA, the Terrorism Risk Insurance Act, provides for a Terrorism Insurance Program. Only commercial property and casualty insurance is covered by the program; personal lines and life/health are not.)

Taxable corporate dividends are received by which type of insurer's shareholders? A Stock B Reciprocal C Mutual D Risk Retention Group

A (A stock company is owned by its stockholders who elect the directors and officers.)

In an insurance contract, the value that each party gives the other is called the: A Consideration B Subject matter C Acceptance D Offer

A (Consideration can take the form of money, goods, a promise to do something, or anything else that changes the legal position of the party. A contract cannot exist without consideration being given by both sides.)

All of the following are characteristics of a Mutual Insurance Company, except: A Profits are returned as dividends B They provide insurance to members C Stockholders have ownership D Policyholders elect the Board of Directors

C (A Mutual Insurance Company is owned by its policyholders, and does not have stockholders.)

Which term is described as the relinquishment of a legal right? A Liability B Rescission C Estoppel D Waiver

D (Waiver is the voluntary relinquishment of a legal right.)

What is it called when less desirable insureds seek insurance coverage to a greater extent than better risks? A Estoppel B Sharing C Law of Large Numbers D Adverse selection

D (Adverse selection is the tendency of risks more prone to loss to seek greater than average coverage.)

An organization that writes liability insurance to cover the liability exposure for the mining engineers that belong to its associations is: A The Industry Placement Facility B A risk retention group C A mine subsidence insurer D A risk purchasing group

B (A risk retention group writes the liability coverage and retains the risk itself, as is the case here. A reciprocal insurance company has subscribers who assume a part of the risk of all other subscribers. Mine subsidence is property insurance, and a risk purchasing group buys insurance from another carrier for its members.)

Which insurance company department determines the probability of loss and sets the premium rates? A Claims B Sales C Actuarial D Underwriting

C (The Actuarial Department interprets the statistical information used in rate making, whereas the Underwriting Department is responsible for risk selection.)

An agent has authority to do all of the following, except: A Countersign insurance contracts B Solicit applications on the insurer's behalf C Appoint a solicitor as his or her representative D Represent the insured's interest

D (An agent is primarily the representative of an insurer.)

Which of the following statements is not correct regarding rates and premiums? A Rates may only be excessive if the insurer is making up for lost reserves B A premium is the total cost for the amount of insurance purchased C Rates are considered inadequate when they do not cover projected losses and expenses D The rate is the amount charged for a particular unit of insurance

A (Rates may not be excessive or unfairly discriminatory for any reason.)

Insurance Company C has decided that it is insuring too many homes in a particular area. Therefore, it decides to reinsure Mr. R's Homeowners Policy because of the high value of his dwelling. The reinsurance contract can best be described as: A An agreement between Mr. R and the reinsurance company B An agreement between Mr. R's agent and Insurance Company C C An agreement between Insurance Company C and the reinsurer D An agreement between Mr. R, Insurance Company C, and the reinsurer

C (A reinsurance contract is between the insuring company and the reinsurer, and does not involve the insured.)

Paul is an agent for ABC Insurance Company, which has just issued a life insurance policy to Maria. Who is the "principal" in this transaction? A Maria, the insured B ABC Insurance Company C Paul, the agent D Maria's beneficiary

B (The principal is part of the Law of Agency. The Law of Agency is a relationship where one party (the agent) represents and acts on behalf of the other party (the principal). The insurance company is the principal.)

What is it called when insureds with less desirable risks seek insurance coverage to a greater extent than insureds with average risks? A Sharing B Adverse selection C Law of Large Numbers D Estoppel

B (Adverse selection is the tendency of risks more prone to loss to seek greater than average coverage.)

Which statement defines a peril? A It is an indirect loss B It is a condition that may increase a loss C It is the specific cause of loss D It is defined as a risk of financial loss

C (A peril is defined as the specific cause of a loss.)

The concept that the insured should not profit from an insurance transaction is called: A The principle of utmost good faith B The principle of personal aspect C The principle of subrogation D The principle of indemnity

D (Indemnity is the restoration of the insured to the same financial condition as before the loss.)

Under the Fair Credit Reporting Act, which of the following statements is correct? A The reporting company can provide confidential information to anyone requesting it B The Act is designed to protect reporting agencies from the public C If an individual is denied coverage, they can request a copy of the report D The reporting agency has no responsibility to investigate inaccurate information

C (The FCRA is designed to protect the public and requires the reporting agency to investigate disputed information. The applicant has the right to request a copy of the report from the reporting agency. This act protects confidential information.)

What is the term for a cause of loss, such as the theft of a car? A Risk B A peril C Hazard D Accident

B (Property insurance insures against perils. A peril is a cause of potential loss to property such as fire, windstorm, hail, flood, etc.)

A potential cause of loss, such as fire, explosion, flood, or theft is considered to be a(n): A Accident B Hazard C Occurrence D Peril

D (A peril is a cause of potential loss to property such as fire, windstorm, hail, or flood.)

An agent is best described as which of the following? A A producer who represents persons who have contracted with him/her to obtain insurance for them B A producer who represents members of the public wishing to purchase insurance C A producer who has a contract with an insurer to represent that insurer in the sale of its products D A producer authorized by the Department of Insurance to adjust insurance claims

C (An insurance producer, or agent, has an agency contract with an insurer (the principal), which authorizes him/her to represent that insurer and grants him/her certain powers and authority to place insurance and bind coverage.)

Insurance Company C has decided that it is insuring too many homes in a particular area. Therefore, it decides to reinsure R's Homeowners Policy because of the high value of R's dwelling. The reinsurance contract can best be described as: A An agreement between R and the reinsurance company B An agreement between R, Insurance Company C, and the reinsurer C An agreement between Insurance Company C and the reinsurer D An agreement between R's agent and Insurance Company C

C (A reinsurance contract is between the insuring company and the reinsurer, and does not involve the insured.)

All of the following are options for managing risk, except: A Retaining the risk B Avoiding the risk C Transferring the risk D Subrogating the risk

D (Subrogation is not a risk management technique, but rather a means of collecting a loss payment from a liable party.)

Which of the following constitutes the acceptance of an offer? A When an insurer issues a binder B When the insurer makes a counteroffer C When the agent assures the applicant they will be covered D When the applicant completes the application

A (The issuance of a binder is indication of the acceptance of an offer.)

Which of the following is not an element of an insurable risk? A Accidental loss B Large number of homogenous units C The ability to set a measurable value on it D Catastrophic perils

D (Insurers want to avoid catastrophic perils.)

Which of the following best describes the principle of indemnity? A The insureds position is not improved after sustaining a loss B The insured is restored to the same financial condition as prior to the loss, with no loss or gain C The insured is restored to a financial condition as good as, or better than, the insured was before the loss D The insured compensates the insurer for any expenses it incurs in adjusting the loss

B (Indemnity is the principle that restores an insured party to the economic position they enjoyed before sustaining a loss.)

Which of the following terms refers to the risk management technique of assuming the responsibility for a loss? A Retention B Transfer C Reduction D Avoidance

A (Risk retention involves assuming the responsibility for loss.)

Which type of insurance provides coverage when insurance is not available from an admitted carrier? A Foreign B Residual C Facultative D Surplus

D (Non-admitted business must be transacted through a Surplus Lines broker or producer.)

Rates are referred to as which of the following when the insurance company files for approval and then implements the rates? A File and Use B Prior Approval C Open Competition D Mandatory

A (Rates must be filed with the state insurance department, but the insurance company can use the new rates once they are filed.)

All of the following are types of insurers, except: A Stock insurers B Proprietary insurers C Reciprocal insurers D Mutual insurers

B (Proprietary insurer is not a type of insurer.)

When an applicant intentionally fails to make a material fact known, it is known as: A Misrepresentation B Deception C Concealment D Bad faith

C (Concealment is defined as the withholding of known facts, the knowledge of which would change the decision of an insurer with respect to underwriting, settling a loss, or determining the premium.)

A false statement in the application for insurance is called a: A Representation B Misrepresentation C Concealment D Warranty

B (A misrepresentation can render the contract void if the misrepresentation is material to the risk.)

All of the following are characteristics of a Mutual Insurance Company, except: A Stockholders have ownership B Policyholders elect the Board of Directors C They provide insurance to members D Profits are returned as dividends

A (A Mutual Insurance Company is owned by its policyholders, and does not have stockholders.)

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 Mandatory B Open Competition C Prior approval D File and use

C (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.)

All of the following are considered part of the consideration of an insurance contract, except: A Payment of the initial premium B The insurer's promise to indemnify in the event of loss C Issuance of the policy D The payment of a claim for the insured

C (The issuance of a policy is not part of the consideration of an insurance contract. It is part of the agreement (acceptance).)

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 Contract of adhesion B Unilateral contract C Conditional contract D Aleatory contract

C (A conditional contract is enforceable only under certain conditions. For example, a claim will be paid only if there has been a covered loss.)

Which statement defines estoppel? A Estoppel is the failure to disclose known facts B Estoppel prevents the denial of a fact previously established to be true C Estoppel is the intentional misrepresentation of a material fact D Estoppel is the intentional abandonment of a known right

B (Estoppel is the principle that prevents an insurer from denying a fact or a promise that has been already settled.)

All of the following statements regarding financial rating services are correct, except: A The ratings are available to the public B Independent rating services evaluate and rate the financial ability of insurance companies C Agents and producers must place business through an insurer with the lowest rates D Rating codes are assigned to show financial strength or weakness of each company rated

C (Agents and producers are responsible for placing business with insurers that are financially sound.)

Which of the following statements is not correct regarding rates and premiums? A A premium is the total cost for the amount of insurance purchased B The rate is the amount charged for a particular unit of insurance C Rates are considered inadequate when they do not cover projected losses and expenses D Rates may only be excessive if the insurer is making up for lost reserves

D (Rates may not be excessive or unfairly discriminatory for any reason.)

Who do producers represent when transacting the business of insurance? A The insured B The Commissioner C Themselves D The insurer

D (Producers act on behalf of the principal, who in this case is the insurer.)

The principle of indemnity helps avoid which of the following? A Adverse selection B Overpayment of a claim C Underinsurance D Loss exposure

B (The principle of indemnity restores the insured to the same financial status as before the loss, protecting against overpayment and making a profit from a loss.)

The Law of Large Numbers provides that: A As the number of insured units increases, predictability of losses improves B As the number of insured units increases, losses decrease C Small certain losses are substituted for large uncertain losses D If funds are insufficient to pay claims, the insured is assessed additional premium

A (The larger the sample is, the more accurate the prediction is.)