Basic Fundamentals of Insurance - 12%

Question 1

What is a legal representative of a insurance company?

Answer 1

Agent or Producer

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

Question 2

A person applying for insurance

Answer 2

Applicant or Proposed insured

Question 3

Permission to do something?

Answer 3

Consent

Question 4

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

Answer 4

Insurable Interest

Question 5

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

Answer 5

Insurance Policy

Question 6

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

Answer 6

insured

Question 7

The company who issues and insurance policy

Answer 7

Insurer (principal)

Question 8

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

Answer 8

Policy owner

Question 9

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

Answer 9

Premium

Question 10

What is insurance?

Answer 10

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.

Question 11

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

Answer 11

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

Question 12

Offer

Answer 12

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

Question 13

Acceptance

Answer 13

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

Question 14

The binding force in any contract?

Answer 14

Consideration

Question 15

Insurance is the transfer of?

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

Answer 15

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

Question 16

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

Answer 16

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.

Question 17

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

Answer 17

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

Question 18

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

Answer 18

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.

Question 19

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

Answer 19

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.

Question 20

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

Answer 20

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

Question 21

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.

Answer 21

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

Question 22

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.

Answer 22

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

Question 23

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

Answer 23

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.

Question 24

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

Answer 24

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

Question 25

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

Answer 25

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.

Question 26

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

Answer 26

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.

Question 27

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

Answer 27

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.

Question 28

In a replacement situation, all of the following must be considered except A. Exclusions B. Assets C. Benefits D. Limitations

Answer 28

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.

Question 29

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

Answer 29

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.

Question 30

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

Answer 30

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.

Question 31

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.

Answer 31

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

Question 32

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

Answer 32

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.

Question 33

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.

Answer 33

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.

Question 34

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.

Answer 34

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.

Question 35

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

Answer 35

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

Question 36

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

Answer 36

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

Question 37

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

Answer 37

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