CA Regulations - Ins Fundamentals

Question 1

Meg has been in very good health in the past 3 years. She has been exercising, her blood pressure is at a perfect level and her cholesterol is the envy of all her friends. Because Meg is feeling so healthy, she decides to cancel her health insurance policy. This is an example of which of the following risk management methods?

Answer Choices: Select the Correct Answer
Risk control.
Risk transference.
Risk retention.
Risk avoidance.

Answer 1

Risk retention. is correct.

EXPLANATION:
Meg is retaining the risk that she may experience a major health issue and would have to pay the medical bills herself.

Question 2

An insurance contract must comply with the “Principle of Indemnity”. Jarron’s friend Nick, accidentally destroys Jarron’s laptop computer. Nick pays Jarron for the damage, but Jarron also submits a claim to his insurance company for the laptop. The claim will be:

Answer Choices: Select the Correct Answer
Paid, the fact that Jarron has already been paid for the damage has no bearing on the insurance company’s obligation to pay.
Denied because Jarron has already been paid for the damage.
Paid, but only at 50% of the limit of liability.
Denied because the damage was caused by a friend and not the insured.

Answer 2

Denied because Jarron has already been paid for the damage. is correct.

EXPLANATION:
The claim will be denied because Jarron was already paid for the damage to his laptop. If the insurance company paid him again for the same damage, it would violate the principle of indemnity.

Question 3

Horatio is a business owner who is part of a business owners group that are buying old commercial buildings in their small city and refurbishing them. Horatio has bought a beautiful historical building made mostly of wood. He installs a sprinkler system right away to prevent a fire. What risk management strategy is Horatio using?

Answer Choices: Select the Correct Answer
Risk reduction.
Assumption of risk.
Risk avoidance.
Sharing the risk.

Answer 3

Risk reduction. is correct.

EXPLANATION:
Horatio is reducing his risk of fire by installing a sprinkler system. Therefore, he is using the risk reduction method to manage his fire risk.

Question 4

Risk is best defined as:

Answer Choices: Select the Correct Answer
An uncertainty of loss.
An undesirable insured.
A hazardous exposure.
A cause of loss.

Answer 4

An uncertainty of loss. is correct.

EXPLANATION:
Insurance companies insure against the uncertainty of loss. Risk is the uncertainty that a loss might occur and is the reason why people buy insurance.

Question 5

Which of the following describes a “peril”?

Answer Choices: Select the Correct Answer
Lightning that stikes a house and destroys electronic equipment inside.
A wet floor in a grocery store after an employee mops.
Leaving a first floor window open when all residents leave the house.
Driving a car with worn out tires.

Answer 5

Lightning that stikes a house and destroys electronic equipment inside. is correct.

EXPLANATION:
Lightning is the only “peril” in the answer choices because the lightning actually caused the loss. The other three choices are “hazards” that may increase the chance of a loss, but they have not caused a loss.

Question 6

Which of the following is the PRIMARY source of information used by insurance companies during the underwriting process?

Answer Choices: Select the Correct Answer
Credit reports.
Insurance industry statistics and reports.
The application for insurance.
Consumer reports.

Answer 6

The application for insurance. is correct.

EXPLANATION:
All of the answer choices are sources used by insurance companies during the underwriting process, but the PRIMARY source of information is the application.

Question 7

A church has had the woodwork in the building refinished and new stain and varnish has been applied. The workers placed the rags and brushes that were used to apply the varnish in a small closet and closed the door, creating the possibility of spontaneous combustion. Which of the following terms best describes this condition?

Answer Choices: Select the Correct Answer
Catastrophe.
Hazard.
Risk.
Peril.

Answer 7

Hazard. is correct.

EXPLANATION:
This condition is a hazard, any condition that increases the possibility or severity of a loss.

Question 8

A 100-year flood is an example of which of the following types of risk?

Answer Choices: Select the Correct Answer
Fundamental risk.
Particular risk.
Static risk.
Dynamic risk.

Answer 8

Static risk. is correct.

EXPLANATION:
Static risk factors tend to be associated with long term risk, such as an area that may only flood every 100 years.

Question 9

Which of the following is NOT a common risk management technique?

Answer Choices: Select the Correct Answer
Multiply the risk by engaging in hazardous activities.
Avoid the risk by avoiding the activity or selling the property which created the risk.
Assume the risk through deductibles or self-insurance.
Share the risk with others.

Answer 9

Multiply the risk by engaging in hazardous activities. is correct.

EXPLANATION:
Multiplying a risk is not a risk management technique. Why would anyone want to multiply (increase) their risk of loss?

Question 10

Which of the following is NOT a hazard?

Answer Choices: Select the Correct Answer
Oily rags left by the hot water heater.
Matches within reach of a small child.
Wet leaves on the sidewalk.
A fire started in a waste basket.

Answer 10

A fire started in a waste basket. is correct.

EXPLANATION:
The fire in the waste basket is a peril. The other three responses are all hazards.

Question 11

Willie’s Widgets has been earning a large portion of their market share for 10 years. During Willie’s 11th year in business, Wynonna’s Widgets opens and her superior marketing practices leaves Willie unable to continue in business. Which of the following types of risk caused Willie’s loss?

Answer Choices: Select the Correct Answer
Particular risk.
Fundamental risk.
Static risk.
Dynamic risk.

Answer 11

The correct answer is: Dynamic risk.

EXPLANATION:
A dynamic risk caused Willie’s loss, as dynamic risks are associated with change. Having Wynonna as a competitor was a change that caused Willie to go out of business.

Question 12

Which of the following is most likely to be uninsurable?

Answer Choices: Select the Correct Answer
The purchaser of a new home wants to protect herself from a possible drop in housing prices.
The owner of a business is worried about possible damage to business property done by violent strikers.
An international cargo shipping company is concerned about loses occurring in the middle of the ocean.
A business is worried about loss of profits if the factory catches on fire.

Answer 12

The purchaser of a new home wants to protect herself from a possible drop in housing prices. is correct.

EXPLANATION:
Investing in real estate is an example of a speculative risk because there is the possibility of profit or loss.

Question 13

The Declarations page of an insurance policy contains:

Answer Choices: Select the Correct Answer
The name and address of the insured.
Specifications for the necessary method to submit a proof of loss.
The insurance company’s promise to pay in exchange for the premium payment.
The insured’s and insurer’s duties following a loss.

Answer 13

The name and address of the insured. is correct.

EXPLANATION:
Usually the first page of an insurance policy, the Declarations page, includes the name and address of the insured.

Question 14

Which of the following best describes the purpose of the “insuring agreement(s)” contained in an insurance policy?

Answer Choices: Select the Correct Answer
It contains the insurer’s promise to pay in case of a loss.
It identifies the named insured who is bound by the contract.
It explains the duties of the named insured in case of a loss.
It sets forth the conditions and exclusions.

Answer 14

It contains the insurer’s promise to pay in case of a loss. is correct.

EXPLANATION:
The insuring agreement section of the policy contains the insurer’s promise to pay. This is the section where the “contractual agreement” is located.

Question 15

Joe enters into a contract with Martha to set fire to her house so she can collect on her insurance policy. Martha will pay Joe a portion of the insurance proceeds for his trouble. Which of the following parts of a valid contract is missing in this situation?

Answer Choices: Select the Correct Answer
Competent parties.
Consideration.
Offer and acceptance.
Legal purpose.

Answer 15

Legal purpose. is correct.

EXPLANATION:
For a contract to be valid, it must be for a legal purpose. Burning down Martha’s house for a portion of the insurance money is not a legal purpose.

Question 16

Which of the following terms describes a statement that is guaranteed to be the truth throughout the duration of the policy?

Answer Choices: Select the Correct Answer
A representation.
A warranty.
A waiver.
A condition.

Answer 16

A warranty. is correct.

EXPLANATION:
A warranty is something that becomes part of the contract and is a statement that is considered to be a guarantee of truth for the entire term of the policy.

Question 17

Which of the following sections of an insurance policy contains language to assist an insurance company in managing moral and morale hazards?

Answer Choices: Select the Correct Answer
The Conditions.
The Exclusions.
The Declarations.
The Insuring Agreement.

Answer 17

The Exclusions. is correct.

EXPLANATION:
The “exclusions” set forth in a policy can be a method to manage moral and morale hazards by excluding losses cause by “intentional acts” and “breach of duty”, among others, from coverage.

Question 18

The doctrine of utmost good faith:

Answer Choices: Select the Correct Answer
Requires that the insurer perform their contractual duties as outlined in the policy.
Is the offer of an insurance contract.
Is a legal obligation that requires both parties to the insurance contract act with honesty and integrity.
Requires that the insured perform their duties as outlined in the insurance contract.

Answer 18

Is a legal obligation that requires both parties to the insurance contract act with honesty and integrity. is correct.

EXPLANATION:
The doctrine of utmost good faith is a legal obligation that requires both parties to the insurance contract act with honesty and integrity.

Question 19

An insured has intentionally deceived his insurer in order to a higher settlement amount on a claim. Such an act is known as:

Answer Choices: Select the Correct Answer
Fraud.
Misrepresentation.
Concealment.
Breach of warranty.

Answer 19

Fraud. is correct.

EXPLANATION:
Fraud is an intentional act designed to deceive and induce another party to part with something of value.

Question 20

The doctrine that states an insured’s policy should provide the coverage that an average prudent person would expect is:

Answer Choices: Select the Correct Answer
The “Reasonable Expectation” doctrine.
The “Applied Principles” doctrine.
The “Ambiguous Language” doctrine.
The “Limited Liability” doctrine.

Answer 20

The “Reasonable Expectation” doctrine. is correct.

EXPLANATION:
When a person buys an insurance policy to insure a specific exposure, there is a reasonable expectation that in case of a covered loss the policy should respond to cover the loss. The doctrine of reasonable expectations states that a policy should include coverages that an average person would reasonably expect it to include.

Question 21

Which of the following is the BEST explanation as to the reason insurance policies are called “unilateral contracts”?

Answer Choices: Select the Correct Answer
Because the insurance contract will only restore one party to the contract to his or her previously held financial position.
Because insurance contract is based on the insured’s personal insurable interest.
Because the insured is the only party to the contract that is required to pay a premium.
Because the insurance company is the only party to the contract that can be sued if they do not meet the terms.

Answer 21

Because the insurance company is the only party to the contract that can be sued if they do not meet the terms. is correct.

EXPLANATION:
An insurance policy is unilateral because only one party is legally-bound to perform its part of the agreement.

Question 22

The agreement between the parties to an insurance contract is known as:

Answer Choices: Select the Correct Answer
Adhesion.
Aleatory.
Offer and acceptance.
Unilateral.

Answer 22

Offer and acceptance. is correct.

EXPLANATION:
An “offer and acceptance” is an agreement between the parties to an insurance contract.

Question 23

Insurance law recognizes two types of waivers. They are:

Answer Choices: Select the Correct Answer
Estoppel / Indemnity
Apparent / Implied
Express / Implied
Specific / Contractual

Answer 23

Express / Implied is correct.

EXPLANATION:
Insurance law recognizes express and implied waivers.

Question 24

Charlene states on an application for personal automobile insurance, that she has not been involved in any “at-fault” accidents within the past five years. The next day, Charlene later remembers an accident and corrects this statement to include an accident that occurred three years ago. Charlene’s original statement can be described as:

Answer Choices: Select the Correct Answer
A representation.
A warranty.
Concealment.
Misrepresentation.

Answer 24

A representation. is correct.

EXPLANATION:
A representation is a statement that is believed to be true when made, which might later prove to be false. In this case, the applicant made no apparent attempt to conceal or misrepresent the time when the accident occurred, it was simply a mistake.

Question 25

For a misrepresentation to void an insurance policy, it must be:

Answer Choices: Select the Correct Answer
Material.
Unilateral.
Personal.
Guaranteed.

Answer 25

Material. is correct.

EXPLANATION:
The misrepresentation (false information) must have been a determining factor (material) in the insurer’s decision to accept the risk. If the insurer would have rejected the insurance application had the true facts been known, the false information provided is “material to the risk”.

Question 26

An applicant fails to disclose known facts when completing an application for insurance. This act is known as:

Answer Choices: Select the Correct Answer
Concealment.
Misrepresentation.
Hard fraud.
Sliding.

Answer 26

Concealment. is correct.

EXPLANATION:
Concealment occurs when an applicant fails to reveal known facts.

Question 27

Which of the following best demonstrates the meaning of “contract of adhesion”?

Answer Choices: Select the Correct Answer
Since the insurance company formulates the policy language, the courts usually will resolve any ambiguities in the insured’s favor.
The insurer should be able to rely on the insured’s representations about the risk and exposures.
Once the insurer has accepted the application they must issue the policy as applied for based on the rule of warranty.
The insured’s premium payment is exchanged for the insurer’s promises to pay in the event of a covered loss.

Answer 27

Since the insurance company formulates the policy language, the courts usually will resolve any ambiguities in the insured’s favor. is correct.

EXPLANATION:
A contract that is written by one party and merely accepted by the other party “as is” is known as a “contract of adhesion”.

Question 28

The predetermined amount of an insurance claim that is paid by the policyholder is known as:

Answer Choices: Select the Correct Answer
The premium.
The deductible.
The coinsurance amount.
The insurance to value amount.

Answer 28

The deductible. is correct.

EXPLANATION:
A deductible is the predetermined amount (listed in the policy) that they policyholder will pay on a claim.

Question 29

A written modification of an insurance policy is known as a(n):

Answer Choices: Select the Correct Answer
Modifying form.
Supplement form.
Additional coverage form.
Endorsement form.

Answer 29

Endorsement form. is correct.

EXPLANATION:
An endorsement is used to add, subtract or modify the coverage. Endorsements are added to the policy in writing and take precedent over the original contract wording.

Question 30

Before an insured can bring a lawsuit against their insurer to provide coverage under their policy, the insured must:

Answer Choices: Select the Correct Answer
Cancel the policy.
Have reason to believe the insurer is committing fraud.
File a complaint with the Department of Insurance.
Fulfill all of their required duties as outlined in the policy.

Answer 30

Fulfill all of their required duties as outlined in the policy. is correct.

EXPLANATION:
The “Legal Action Against Insurer” provision in most standard policies requires that the insured complete their required duties before they can bring a lawsuit against the insurer. The insured’s required duties are different depending on whether the policy is a property or casualty policy and the type of coverage provided.

Question 31

The provision in an insurance contract that outlines the process of bringing a contract dispute before an objective third party for resolution is known as:

Answer Choices: Select the Correct Answer
Litigation.
Mediation.
Arbitration.
Assignment.

Answer 31

Arbitration. is correct.

EXPLANATION:
The arbitration clause or provision in an insurance contract specifies the steps in the process of bringing an insurance contract dispute before an objective third party for resolution. Arbitration clauses are included in both property and liability (casualty) insurance policies.

Question 32

A condition found in many insurance policies is known as “Transfer of Rights of Recovery Against Others to Us” actually refers to:

Answer Choices: Select the Correct Answer
Policy assignment.
Subrogation.
Salvage.
Filing legal action.

Answer 32

Subrogation. is correct.

EXPLANATION:
This condition is another name for “subrogation”.

Question 33

All of the following are part of the “entire contract”, EXCEPT:

Answer Choices: Select the Correct Answer
The insuring agreement of the policy is included in the entire contract.
The entire contract includes all endorsements attached to the policy.
An agreement made between the insured and the agent stated verbally, that the agent will personally service the insured’s policy, and it will not be delegated to a staff member is part of the entire contract.
The complete agreement to which the insurer and the insured are held, with no outside stipulations or agreements, are part of the entire contract.

Answer 33

An agreement made between the insured and the agent stated verbally, that the agent will personally service the insured’s policy, and it will not be delegated to a staff member is part of the entire contract. is correct.

EXPLANATION:
An agreement made between the insured and the agent stated verbally, that the agent will personally service the insured’s policy, and it will not be delegated to a staff member is NOT part of the entire contract. This agreement between the agent and the insured is an outside stipulation.

Question 34

When can an insured assign his or her insurance policy over to another party?

Answer Choices: Select the Correct Answer
30 days after the insurer is notified.
Any time during the first 30 days of the policy period.
When the insurer provides written consent.
When the first named insured made a material misrepresentation on the application, and the policy will be voided if it is not assigned.

Answer 34

When the insurer provides written consent. is correct.

EXPLANATION:
The assignment clause states that the policy may only be assigned with the written consent of the insurer.

Question 35

Margaret is a co-owner of a business. She purchases an insurance policy to cover the property of the business and lists Charlie, the other co-owner, on the policy. There are others covered by the policy that are referred to as employees. For the purposes of this policy, Charlie is considered to be:

Answer Choices: Select the Correct Answer
An additional insured.
A first named insured.
A named insured.
An unnamed insured.

Answer 35

A named insured. is correct.

EXPLANATION:
Charlie is a named insured on the policy because his name is listed, but he is NOT the first named insured.

Question 36

Leland has two insurance policies covering his home. Indemnify Insurance carries a $120,000 limit of liability on the home, while Binders Keepers, Inc. carries a limit of $80,000. A fire breaks out in Leland’s kitchen and causes $40,000 in damage. Remember, when there are two or more policies covering the same risk, the “other insurance clause”, determines the method used to calculate each company’s share of the claim. Leland’s policy states that the pro-rata share method will be used. Which of the following is the correct amount that will be paid by Indemnify Insurance?

Answer Choices: Select the Correct Answer
$6,400
$120,000
$80,000
$24,000

Answer 36

$24,000 is correct.

EXPLANATION:
Using the pro-rata share method, where we divide Indemnify Insurance’s share of the loss by the total limit of both policies, multiplied by the loss, leaves Indemnify paying 60% of the loss. 60% of the $40,000 loss, is $24,000.

Question 37

A document that temporarily obligates an insurance company to provide coverage while the issuance of a policy is pending is known as:

Answer Choices: Select the Correct Answer
A binder.
An application.
An endorsement.
A rider.

Answer 37

A binder. is correct.

EXPLANATION:
A coverage binder provides temporary coverage while the insurer underwrites and issues the actual policy.

Question 38

If the “other insurance” clause in a policy specifies that more than one policy will share equally in the loss until the lowest policy limit is exhausted and continue in that fashion until all policy limits are exhausted. This is known as:

Answer Choices: Select the Correct Answer
Pro-rata liability.
Primary and excess liability.
Contribution by equal shares.
Apportionment.

Answer 38

Contribution by equal shares. is correct.

EXPLANATION:
If more than one policy covers a loss, “contribution by equal shares” will require each policy to share in the loss up to the lowest limit of insurance until the lowest limit policy is exhausted. The remaining companies continue to share the loss equally until each policy is exhausted.

Question 39

Which of the following statements best describes “the law of agency”?

Answer Choices: Select the Correct Answer
The activities of any party who receives a percentage of the profits from a business transaction.
A relationship in which someone is authorized by contract to represent another party.
The duties of a professional who is trained and licensed to prepare legal documents.
The activities of any licensed insurance professional.

Answer 39

A relationship in which someone is authorized by contract to represent another party. is correct.

EXPLANATION:
A relationship in which someone is authorized by a contract with a principal to represent them as their agent. An “agent” can be an insurance agent, producer, adjuster, broker, consultant or any other professional who has been contracted to act as the “agent” to the “principal”.

Question 40

The nonrenewal of an insurance policy occurs:

Answer Choices: Select the Correct Answer
At the end of the policy period.
Only when the insured requests it.
Mid-term.
Only when the insured does not pay the premium.

Answer 40

At the end of the policy period. is correct.

EXPLANATION:
The insurer “nonrenews” a policy at the end of the policy period. A “cancellation” may occur at different times and for different reasons.

Question 41

The time period after the policy inception and before the policy expiration is known as:

Answer Choices: Select the Correct Answer
The waiting period.
The statute of limitations.
The underwriting period.
The policy period.

Answer 41

The policy period. is correct.

EXPLANATION:
The policy period is stated on the Declarations page and is the period of time when coverage is in effect. The time period between the policy inception and the policy expiration.

Question 42

The “liberalization clause” of an insurance policy:

Answer Choices: Select the Correct Answer
States that if an insurer decides to broaden its standard policy coverages, then all outstanding policies issued prior to that decision will automatically receive those new coverages at no additional premium.
States that the insurer retains the right to suspend or cancel the policy at any time during the policy period.
States that if a mortgage company liberalizes its loan agreement with the named insured, the insurer must be sent the revised wording within 60 days.
States that if the insurer broadens its underwriting eligibility requirements, all previously denied applicants must be notified within 60 days.

Answer 42

States that if an insurer decides to broaden its standard policy coverages, then all outstanding policies issued prior to that decision will automatically receive those new coverages at no additional premium. is correct.

EXPLANATION:
If an insurer broadens (liberalizes) its standard policy, current policyholders will receive the broadened coverage without paying an additional premium.

Question 43

In most states, which of the following most accurately describes an “admitted insurer”?

Answer Choices: Select the Correct Answer
An insurer that can transact insurance in the state under a certificate of authority.
An insurer with admitted assets that exceed liabilities.
An insurer with a board of directors authorizing it to transact business in the state.
An insurer that accepts applicants without regard to race, gender, or religion.

Answer 43

An insurer that can transact insurance in the state under a certificate of authority. is correct.

EXPLANATION:
An admitted insurer is one that is authorized by a state insurance department to conduct business in that state. A license, known as a certificate of authority is issued to admitted insurers.

Question 44

All of the following statements are true regarding Public Law 15 (The McCarren-Ferguson Act), EXCEPT:

Answer Choices: Select the Correct Answer
Under the law, the federal government retains the right to approve insurance forms.
The law assigned authority to the federal government to regulate fair labor standards.
The law left insurance licensing up to the states.
Under the law, the states regulate the ethical conduct of its insurance licensees.

Answer 44

Under the law, the federal government retains the right to approve insurance forms. is correct.

EXPLANATION:
The federal government does not approve insurance forms, this is left to the state insurance departments.

Question 45

The Insurance Commissioner/Director/Superintendent of a given state would refer to an insurance company formed under the laws of a different state as:

Answer Choices: Select the Correct Answer
An alien insurer.
A foreign insurer.
A domestic insurer.
A surplus lines insurer.

Answer 45

A foreign insurer. is correct.

EXPLANATION:
The Insurance Commissioner/Director/Superintendent of a given state would refer to an insurance company formed under the laws of a different state as a foreign insurer. For example, the Superintendent in New York would refer to an insurer that was formed under the laws of Arizona as a “foreign insurer”.

Question 46

Which of the following is used to bring a standardized insurance form into compliance with state laws?

Answer Choices: Select the Correct Answer
Reinsurance.
State-specific underwriting.
Endorsements.
Executory contracts.

Answer 46

Endorsements. is correct.

EXPLANATION:
Endorsements to the standardized forms are used to change the coverage, bringing it into compliance with state laws.

Question 47

Which of the following organizations creates and maintains model laws that establish standards for how insurance is offered and delivered in the United States?

Answer Choices: Select the Correct Answer
The NAIC.
The NCCI.
The NUCC.
The IIPRC.

Answer 47

The NAIC. is correct.

EXPLANATION:
The National Association of Insurance Commissioners (NAIC) creates and maintains model laws that establish standards for how insurance is offered and delivered in the United States.

Question 48

The most widely used property and casualty insurance forms used in the United States today are published by:

Answer Choices: Select the Correct Answer
The National Association of Insurance Commissioners (NAIC).
The National Uniform Claim Committee (NUCC).
The Insurance Services Office, Inc. (ISO).
The American Association of Insurance Services (AAIS).

Answer 48

The Insurance Services Office, Inc. (ISO). is correct.

EXPLANATION:
The Insurance Services Office, Inc. publishes the most widely used property and casualty insurance forms used in the United States today.

Question 49

What is the main purpose of government regulation of the insurance industry?

Answer Choices: Select the Correct Answer
To provide a better understanding to the general public of the importance of insurance.
To keep insurance losses from falling to the government for payment.
To help insurance companies make a profit.
To protect the insurance consuming public.

Answer 49

To protect the insurance consuming public. is correct.

EXPLANATION:
The purpose of government regulation of the insurance industry is to protect insurance consumers.

Question 50

The purpose of licensing surplus lines brokers in a given state is:

Answer Choices: Select the Correct Answer
To allow them to place business with nonadmitted insurers.
To allow them to place business with admitted insurers.
To allow them to place business with domestic insurers.
To allow them to place business with foreign insurers.

Answer 50

To allow them to place business with nonadmitted insurers. is correct.

EXPLANATION:
Nonadmitted insurers are known as “surplus” or “excess” lines companies. An agent must hold a surplus lines brokers license to transact business with a nonadmitted insurer and only then if the line of insurance is not readily available within the state from admitted insurers.

Question 51

Surplus lines insurers must pay a premium tax. ________________ sets the amount of the premium tax.

Answer Choices: Select the Correct Answer
Federal law
The state Insurance Commissioner
State law
The state Governor.

Answer 51

State law is correct.

EXPLANATION:
State law determines the amount of a surplus lines premium tax.

Question 52

It has been reported to the Insurance Department in a given state that Callie, a licensee in that state, has violated an insurance law. The Insurance Commissioner will hold a hearing to determine the nature of Callie’s behavior. After the hearing, the Commissioner is convinced that Callie has engaged in behavior that violates insurance law. Which of the following is the next step the Commissioner will take?

Answer Choices: Select the Correct Answer
Imposing a fine on Callie according to the insurance laws of the state.
Revoking or suspending Callie’s license.
Issuing a cease and desist order.
Referring Callie’s case to the state attorney general for prosecution.

Answer 52

Issuing a cease and desist order. is correct.

EXPLANATION:
The first step the Commissioner in any state would take is to issue a cease and desist order. This prevents the offender from engaging in the behavior until the Department can determine all the facts of the case, including whether or not members of the public were damaged financially by the offenses committed.

Question 53

All of the following are California adjuster license classifications by legal entity, EXCEPT:

Answer Choices: Select the Correct Answer
Individual.
Partnership.
Corporation.
Cooperative.

Answer 53

Cooperative. is correct.

EXPLANATION:
A “cooperative” or “co-op” is NOT an adjuster license classification by legal entity in California.

Question 54

Before an application for an independent adjuster license is granted, the applicant must meet all of the following requirements, EXCEPT:

Answer Choices: Select the Correct Answer
The applicant must hold a high school diploma or equivalent.
The applicant must have at least two years of experience in insurance claims adjusting.
The applicant must not have committed acts constituting grounds for denial of a license.
Payment of the application fee.

Answer 54

The applicant must hold a high school diploma or equivalent. is correct.

EXPLANATION:
The applicant is not required to hold a high school diploma or equivalent.

Question 55

Independent adjuster license candidate must post a security and may choose a surety bond to meet this requirement. If the license applicant chooses a surety bond, the bond must be made payable to:

Answer Choices: Select the Correct Answer
The people of the State of California.
The Insurance Commissioner.
The California Insurance Guaranty Fund.
The insurer that employs the adjuster.

Answer 55

The people of the State of California. is correct.

EXPLANATION:
The bond must be made payable to the people of the State of California.

Question 56

The application fee for an original adjuster license in California is:

Answer Choices: Select the Correct Answer
$62.
$32.
$188.
$79.

Answer 56

$79. is correct.

EXPLANATION:
The APPLICATION FEE (not license fee) for an original adjuster license in California as of March 3rd, 2019 is $79.

Question 57

The state licensing examination for Independent Adjusters in California must be of sufficient scope to test the license applicant in all of the following areas, EXCEPT:

Answer Choices: Select the Correct Answer
Strategies for managers to ensure that unlicensed adjusters under their supervision follow company policy.
Knowledge of the California Insurance Code.
Knowledge of the terms and conditions of the types of insurance contracts for which the settlement of claims will be made.
Understanding of the obligations and duties of an adjuster.

Answer 57

Strategies for managers to ensure that unlicensed adjusters under their supervision follow company policy. is correct.

EXPLANATION:
The California Independent Adjuster state licensing examination does NOT test on “Strategies for managers to ensure that unlicensed adjusters under their supervision follow company policy.”

Question 58

Any person who knowingly falsifies the fingerprints submitted with their California Independent Adjuster license application:

Answer Choices: Select the Correct Answer
Is guilty of a felony and subject to felony prosecution.
Is guilty of a misdemeanor punishable by a fine not to exceed $500, or imprisonment in the county jail not to exceed one year, or both.
Is guilty of an unfair trade practice and subject to those fines.
Is guilty of a misdemeanor punishable by a fine not to exceed $500, or imprisonment in the county jail not to exceed one year, but not both.

Answer 58

Is guilty of a felony and subject to felony prosecution. is correct.

EXPLANATION:
Any person who knowingly falsifies the fingerprints submitted with their California Independent Adjuster license application is guilty of a felony.

Question 59

A nonlicensed adjuster in California has submitted a certification to the Commissioner that he has read and understands the most recent notice and handbook for adjusting disaster claims when he has not. This adjuster has committed:

Answer Choices: Select the Correct Answer
A misdemeanor.
Perjury.
A felony.
An unfair claim settlement practice.

Answer 59

Perjury. is correct.

EXPLANATION:
This adjuster has committed perjury according to the California Adjuster Act.

Question 60

Insurers in California are permitted to enter into a contract with a third-party to perform the required duties of a Special Investigative Unit (SIU). As a condition of entering into this type of contract, the insurer must submit the contract to the Fraud Division of the California Department of Insurance for examination. All of the following are items that must be expressly included in the contract, EXCEPT:

Answer Choices: Select the Correct Answer
How the insurer will monitor the performance of the contracted third-party.
Provisions that do NOT attempt to relieve the insurer of their obligations under the Insurance Fraud Protection Act (IFPA).
Provisions that will NOT provide disincentives to the referral and/or investigation of suspected insurance fraud.
How the contracted third-party will penalize anyone they prove has committed insurance fraud.

Answer 60

How the contracted third-party will penalize anyone they prove has committed insurance fraud. is correct.

EXPLANATION:
The contract does not have to explain how the contracted third-party will penalize anyone they prove has committed insurance fraud. This would not be the role of the third-party contractor as they would refer to the insurer who would refer to the Fraud Division.

Question 61

Special Investigative Units established within insurance companies authorized in California must have adequate staff to establish, operate, and maintain the unit. Factors that may be considered in determining the number of staff hired in an SIU include all of the following, EXCEPT:

Answer Choices: Select the Correct Answer
The number of policies written and individuals insured in California.
The number of claims received from California insureds on an annual basis.
The amount of net premiums written on California insureds annually.
The volume of suspected fraudulent California claims currently being detected.

Answer 61

The amount of net premiums written on California insureds annually. is correct.

EXPLANATION:
The amount of net premiums written on California insureds annually within an insurer does not play a role in determining the number of staff required to establish, operate, and maintain an SIU.

Question 62

A licensed California adjuster must notify the Commissioner within ________ after closing or changing the location of a branch office.

Answer Choices: Select the Correct Answer
30 days
15 days
60 days
10 days

Answer 62

10 days is correct.

EXPLANATION:
A licensed California adjuster must notify the Commissioner within 10 days after closing or changing the location of a branch office.

Question 63

California adjusters must keep all records relating to claims or losses adjusted or investigated:

Answer Choices: Select the Correct Answer
For at least three years.
For at least five years.
For at least seven years.
For at least ten years.

Answer 63

The correct answer is: For at least five years.

EXPLANATION:
California adjusters must keep all records relating to claims or losses adjusted or investigated for at least five years from the date such business was conducted or transacted.

Question 64

The California Insurance Adjuster Act applies to which of the following?

Answer Choices: Select the Correct Answer
An attorney performing the duties of an attorney with regard to an insurance claim.
A person working for an insurance company to secure information about claimants from public records.
A building contractor who provides a professional evaluation of a loss to an insurance company.
A person licensed as an insurance adjuster in the state and working under contract for various insurers.

Answer 64

A person licensed as an insurance adjuster in the state and working under contract for various insurers. is correct.

EXPLANATION:
A person licensed as an insurance adjuster in the state and working under contract for various insurers is the only answer choice that indicates someone who is subject to the California Insurance Adjuster Act. The other answer choices are specifically listed in the Act as being exempt.

Question 65

The California Insurance Adjuster Act requires that all nonlicensed adjusters must complete the reading of the handbook no later than ___________ from the date on which they began claims adjusting activity in the state.

Answer Choices: Select the Correct Answer
15 business days
180 business days
15 calendar days
180 calendar days

Answer 65

15 calendar days is correct.

EXPLANATION:
The California Insurance Adjuster Act requires that all nonlicensed adjusters must complete the reading of the handbook no later than 15 calendar days from the date on which they began claims adjusting activity in the state.

Question 66

As a condition of adjuster license renewal in California, ________ of continuing education must be completed.

Answer Choices: Select the Correct Answer
20 hours
22 hours
26 hours
24 hours

Answer 66

24 hours is correct.

EXPLANATION:
As a condition of adjuster license renewal in California, 24 hours of continuing education must be completed.

Question 67

Applicants for an adjuster license in California must have experience as demonstrated by the number of hours of actual compensated work they have performed prior to filing the license application. How many hours must adjuster license applicants account for?

Answer Choices: Select the Correct Answer
4,000.
2,000.
1,000.
3,000.

Answer 67

4,000. is correct.

EXPLANATION:
The applicant must provide proof of 4,000 hours of actual compensated work. The insurance code specifies that adjusters must have 2 years of experience and that one year of experience consists of not less than 2,000 hours.