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MN Health and Accident Insurance License > Basic Fundamentals of Insurance - 12% > Flashcards

Basic Fundamentals of Insurance - 12% Flashcards

1
Q

What is a legal representative of a insurance company?

A

Agent or Producer

The classification of a producer usually includes agents and brokers; agents are the agents of the insurer.

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2
Q

A person applying for insurance

A

Applicant or Proposed insured

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3
Q

Permission to do something?

A

Consent

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4
Q

The policy-owner facing the possibility of losing something of value in the event of a loss.

A

Insurable Interest

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5
Q

A contract between a policy-owner (and/or insured) and an insurance company which agrees to pay the insured or the beneficiary for loss caused by specific events

A

Insurance Policy

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6
Q

A person covered by the insurance policy; may or may not be the policy -owner

A

insured

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7
Q

The company who issues and insurance policy

A

Insurer (principal)

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8
Q

The person entitled to exercise the rights and privileges in the policy

A

Policy owner

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9
Q

The money paid to the insurance company for the insurance policy?

A

Premium

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10
Q

What is insurance?

A

The transfer of financial responsibility associated with potential of a loss (risk) to an insurance company, which in turn spreads the costs of unexpected losses to many individuals.

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11
Q

4 essential elements of a insurance contract to make legally binding?

A
  1. Agreement - offer and acceptance
  2. Consideration
  3. Competent parties
  4. Legal Purpose.
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12
Q

Offer

A

The insured(or applicant) makes the offer when submitting the application.

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13
Q

Acceptance

A

Takes place when an insurer’s underwriter approves the application and issues a policy.

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14
Q

The binding force in any contract?

A

Consideration

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15
Q

Insurance is the transfer of?

A. Risk
B. Loss
C. Hazard
D. Peril

A

Insurance is the transfer of financial responsibility associated with a potential of a loss(risk) to an insurance company.

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16
Q

In forming an insurance contract, when does acceptance usually occur?

A. When an insurer receives an application

B. When an insured submits and application

C. When an insurer’s underwriter approves coverage

D. When an insurer delivers the policy

A

In insurance the offer is usually made by the applicant in the form of the application. Acceptance takes place when an insurer’s underwriter approves the application and issues a policy.

17
Q

An insurance contract must contain all of the following to be considered legally binding EXCEPT

A. Beneficiary’s Consent
B. Offer and acceptance
C. Consideration
D. Competent Parties

A

The four essential elements of all legal contracts are offer and acceptance, consideration, competent parties, and legal purpose.

18
Q

In insurance, and offer is usually made when

A. An Agent explains a policy to a potential applicant

B. An applicant submits an application to the insurer.

C. The insurer approves the application and receives the initial premium.

D. The agent hands the policy to the policyholder

A

In insurance, the offer is usually made by the applicant in the form of the application. Acceptance takes place when the insurer’s underwriter approves the application and issues a policy.

19
Q

When the insured makes truthful statements on the application for insurance and pays the required premium, it is known as which of the following?

A. Contract of Adhesion

B. Acceptance

C. Consideration

D. Legal purpose

A

Consideration is something of value that each party gives to the other. The consideration on the part of the insured is the payment of premium and the representations made in the application.

20
Q

A life insurance policy has a legal purpose if both of which of the following elements exist?

A. Insurable interest and Consent

B. Underwriting and Reciprocity

C. Offer and counteroffer

D. Policy-owners and named beneficiaries

A

To ensure legal purpose of a life insurance policy, it must have both insurable interest and consent.

21
Q

What is a definition of a unilateral contract?

A. One-sided: Only one party makes an enforceable promise.

B. Two or more parties go into a contract understanding there may be an unequal exchange of value.

C. One author: the company wrote the contract; the insured must accept it as written.

D. if one party makes a condition, the other party can counteroffer.

A

An insurance contract is unilateral in that only one of the parties to the contract is legally bound to do anything.

22
Q

Representations are written or oral statements made by the applicant that are

A. Considered true to the best of the applicant’s knowledge.

B. Guaranteed to be true

C. Found to be false after further investigation.

D. Immaterial to the actual acceptability of insurance contract.

A

Representations are statements made by an applicant that are believe to be true.

23
Q

An insurer neglects to pay a legitimate claim that is covered under the terms of the policy. Which of the following insurance principles has the insurer violated?

A. Consideration

B. Good Faith

C. Representation

D. Adhesion

A

The binding force in any contract is consideration. Consideration on the part of the insured is the payment of premiums and the health and the health representations made in the application. Consideration on the part of the insurer is the promise to pay in the event of a loss.

24
Q

When would a misrepresentation on the insurance application be considered fraud?

A. Any misrepresentation is considered fraud.

B. If it is intentional and Material

C. Never: Statements by the applicant are only representations

D. When the application is incomplete

A

A misrepresentation would be considered fraud if it is intentional and material. Fraud would be grounds for voiding the contract.

25
Q

Which of the following is a statement that is guaranteed to be true, and if untrue, may breach an insurance contract?

A. Concealment
B. Indemnity
C. Representation
D. Warranty

A

A warranty in insurance is a statement guaranteed to be true. When an applicant is applying for and insurance contract, the statements he or she makes are generally not warranties but representations. Representations are statements that are true to the best of the applicants knowledge.

26
Q

If a consumer requests additional information concerning an investigative consumer report, how long does the insurer or reporting agency have to comply?

A. 10 days
B. 3 Days
C. 5 days
D. 7 days

A

Consumers must be advised that they have a right to request additional information concerning investigative consumer reports, and the insurer or reporting agency has 5 days to provide the consumer with the additional information.

27
Q

An insured pays a $100 premium every month for his insurance coverage, yet the insurer promises to pay the $10,000 for a covered loss. What characteristic of an insurance contract does this describe?

A. Aleatory
B. Good Health
C. Adhesion
D. Conditional

A

In an aleatory contract, unequal amounts are exchanged between payments and benefits. In this instance, the insured receives a large benefit for a small price.

28
Q

In a replacement situation, all of the following must be considered except

A. Exclusions
B. Assets
C. Benefits
D. Limitations

A

In a replacement situation the agent must be careful to compare the benefits, limitations and exclusions found in the current and the proposed replacement policy.

29
Q

What mechanism allows individuals to spread their risk of loss to a larger group?

A. Insurance
B. Law of large numbers
C. Exposure
D. Indemnity

A

Insurance is the mechanism whereby an insured is protected against loss by a specified future contingency or peril in return for the present of premium. Because many other individuals with the same or similar risk of loss are paying premiums, funds are available to indemnify those who actually suffer that loss.

30
Q

If a consumer requests additional information concerning an investigative consumer report, how long does the insurer or reporting agency have to comply?

A. 5 days
B. 7 Days
C. 10 Days
D. 3 Days

A

Consumers must be advised that they have a right to request additional information concerning investigative consumer reports, and the insurer or reporting agency has 5 days to provide the consumer with additional information.

31
Q

Which of the following is true about the requirements regarding HIV exams?

A. Prior informed oral consent is required from the applicant.

B. HIV exams may not be used as a basis for underwriting.

C. The applicant must give prior informed written consent.

D. Results may be disclosed to the agent and the underwriter.

A

A separate written consent form must be obtained prior to and HIV exam. HIV exam results may be disclosed to underwriters, but not agents.

32
Q

An insured stated on her application for life insurance that she had never had a heart attack, when in fact she had a series of minor heart attacks last year for which she sought medical attention. Which of the following will explain the reason a death benefit claim is denied?

A, Material misrepresentation
B. Waiver
C. Utmost good faith
D. Estoppel

A

A material misrepresentation will affect whether or not a policy is issued. If the insured had been truthful, it is very likely that the policy would not be issued.

33
Q

The Medical Information Bureau (MIB) was created to protect

A. Insurance departments from lawsuits by policy-owners.

B. Insureds from unreasonable underwriting requirements by the insurance companies.

C. Medical Examiners that perform insurance physical examinations

D. Insurance companies from adverse selection by high risk persons.

A

The MIB makes information available to underwriters to assist them in underwriting process. It is a nonprofit trade organization which receives adverse medical information from insurance companies and maintains confidential medical impairment information on individuals.

34
Q

Which of the following best describes the MIB?

A. It is a rating organization for health insurance.

B. It is a nonprofit organization that maintains underwriting information on applicants for life and heath insurance.

C. It is a government agency that collects medical information on the insured from the insurance companies.

D. It is a member organization that protects insured against insolvent insurers.

A

The Medical Information Bureau (MIB) is a nonprofit trade organization which receives adverse medical information from insurance companies and maintains confidential medical impairment information on individuals.

35
Q

An applicant for a health insurance policy returns a completed application to her agent, along with a check for the first premium. She receives a conditional receipt two weeks later. Which of the following has the insurer done by this point?

A. Approved the application
B. Issued the policy
C. Neither approved the application nor issued the policy
D. Both approved the application and issued the policy

A

When the agent receives that application and issues a conditional receipt, the insurer has not yet approved the application and issued the policy.

36
Q

contracts that are prepared by one party and submitted to the other party on a take-it-or-leave-it basis are classified as

A. Binding contracts
B. Contracts of adhesion
C. Unilateral Contracts
D. Aleatory Contracts

A

D. Contracts of Adhesion

Insurance policies are written by the insurer and submitted to the insured on a take it or leave it basis. The insured does not have any input into the contract, but simply adheres to the contract.

ADHEAD = TAKE OR LEAVE

37
Q

Which of the following best describes the aleatory nature of an insurance contract?

A. Ambiguities are interpreted in favor of the insured

b. Policies are submitted to the insurer on a take-it-or-leave-it basis

C. Exchange of unequal values

D. Only one part of the parties being legally bound by the contract

A

An aleatory contract in which unequal amounts or values are exchanged. The amount of premium the insured pays is much less then the potential loss assumed by the insurer.

ALEATORY - UNEQUAL VALUES

MN Health and Accident Insurance License (12 decks)

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