CH 1 General Insurance

Question 1

When does an insurance policy go into effect?

Answer 1

When the policy is delivered and the premium is paid

Question 2

What are the five characteristics of an ideally insurable risk?

Answer 2

Loss must be:

1) Due to chance
2) Definite and measurable
3) Statistically predictable
4) Not catastrophic
5) Coverage cannot be mandatory

Question 3

What are the four elements of an insurance contract?

Answer 3

1) Agreement (offer and acceptance)
2) Consideration
3) Competent parties
4) Legal purpose

Question 4

If an insurer meets the states financial requirements and is approved to transact business in the state, it is considered what type of insurer?

Answer 4

Authorized or admitted

Question 5

Insurance is a contract that protects the insured from what?

Answer 5

Loss

Question 6

An insurance company that is formed under the laws of another state is known as what type of insurer?

Answer 6

Foreign

Question 7

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

Answer 7

When the insurer approves a prepaid application

Question 8

A person who does not lock the doors to his or her house shows an indifferent attitude. This person presents what type of hazard?

Answer 8

Morale hazard

Question 9

An insurance company is domiciled in California and transacts insurance in Nevada. What is this insurance classification in Nevada?

Answer 9

Foreign

Question 10

The type of insurance company organized to return any surplus money to its policyholders is known as what?

Answer 10

Mutual company

Question 11

In insurance, when is the offer usually made on a contract?

Answer 11

When the insurance application is submitted

Question 12

What is the term for the causes of loss insured against an insurance policy?

Answer 12

Peril

Question 13

An applicant conceals relevant in health information on the application. The applicant resents what type of Hazzard?

Answer 13

Moral

Question 14

The requirement that agents must account for and promptly remit all insurance funds collected is known as what type of agent responsibility

Answer 14

Fiduciary

Question 15

The insurer organized to return a profit to the stockholders is what type of insurer?

Answer 15

Stock company

Question 16

What type of risk is insurable?

Answer 16

Pure risk

Question 17

An insurance policy paid a non-taxable dividend to the insured one year, and nothing the next. From what type of insurer did the insured purchased the policy?

Answer 17

Mutual

Question 18

We are doing on a sporting event is known as what type of risk?

Answer 18

Speculative

Question 19

What are the strategies used by underwriters to prevent adverse selection?

Answer 19

• Restriction of coverage
• Refusal to except a risk
• Accepting a risk at a higher rate

Question 20

In the agent/insurer our relationship, who is considered the principal?

Answer 20

Insurer

Question 21

What is a warranty in an insurance contract?

Answer 21

An absolutely true statement upon which the validity of the insurance contract is based

Question 22

If an agent fails to obtain the applicants signature on the insurance application, what must the insurer do?

Answer 22

Send the application back to the applicant for a signature

Question 23

For the purpose of insurance, what is risk?

Answer 23

Uncertainty of loss

Question 24

According to the law of agency, a principal is represented by whom?

Answer 24

Agent or producer

Question 25

Whose responsibility is it to determine that all the questions on an insurance application or answered?

Answer 25

The agents

Question 26

Insurers are classified according to their domicile. What are the three types of insurance?

Answer 26

1) Domestic
2) Foreign
3) Alien

Question 27

What type of report provides information about the applicants hobbies, habits and financial status?

Answer 27

Inspection report

Question 28

What type of insurer is formed under the laws of another country?

Answer 28

Alien

Question 29

What do individuals use to transfer their risk of loss to a larger group?

Answer 29

Insurance

Question 30

What entities make up the medical information bureau?

Answer 30

Insurers

Question 31

If an applicant does not receive his or her insurance policy, who would be held responsible?

Answer 31

The agent

Question 32

When risks with higher probability of loss are seeking insurance more often than other risk, this is known as what?

Answer 32

Adverse selection

Question 33

What are the three types of hazards?

Answer 33

1) Physical
2) Moral
3) Morale

Question 34

When a change needs to be made on the application for insurance, which is the best method for correcting the information?

Answer 34

Complete a new application or ask the applicant to initial the correction on the original application

Question 35

What are the three types of agent authority?

Answer 35

1) Express
2) Implied
3) Apparent

Question 36

When would a misrepresentation on an insurance application to be considered fraud?

Answer 36

When it is intentional and material

Question 37

When agents act within the scope of their contract, their actions will be assumed by the acts of whom?

Answer 37

The insurer

Question 38

What is the best way to handle incomplete insurance applications?

Answer 38

Return the application to the applicant for completion

Question 39

A situation in which a person can only experience a loss and no gain presents what type of risk?

Answer 39

Pure risk

Question 40

The reduction, decrease, or disappearance of value of the person or property insured in a policy is known as what?

Answer 40

Loss

Question 41

Whom does an insurance agent represent?

Answer 41

Insurance company

Question 42

Conditions that increase the chance of a loss are known as what?

Answer 42

Hazards

Question 43

What document is required for an insurance company to transact insurance?

Answer 43

Certificate of authority

Question 44

What two elements are necessary for a life insurance contract to have a legal purpose?

Answer 44

Insurable interest and consent

Question 45

Who owns stock companies?

Answer 45

Stockholders