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Insurance > Chapter 1 > Flashcards

Chapter 1 Flashcards

1
Q

Who do agents represent?

A

The insurer that sponsors them

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2
Q

T/F: Insurance is defined as the transfer of risk from one party to another.

A

True

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3
Q

_______ risk is the only type that may be insured.

A

Pure

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4
Q

T/F: An individual is not required to be licensed to receive commissions.

A

F; an individual receiving or sharing commissions must have an insurance license.

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5
Q

Name the two types of risk.

A

Pure risk and speculative risk

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6
Q

The insurer assumes the risk in an insurance policy since it receives a ________.

A

Premium

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7
Q

Authorized insurers are known as _________ companies, while unauthorized insurers are known as ___________ companies.

A

Admitted; nonadmitted

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8
Q

Direct writers employ ________ agents.

A

Captive

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9
Q

In order for a risk to be insurable, the chance of loss must be _______, _______, and __________.

A

Accidental, measurable, and definable

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10
Q

An alien insurer is authorized in ________ and its principal office is located ________ this country.

A

Any state; outside

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11
Q

Give an example of a moral hazard.

A

Filing a false insurance claim.

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12
Q

What is loss exposure?

A

A hazardous condition brought about by the nature of an insured’s activities.

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13
Q

What is apparent authority?

A

When the public merely perceives an agent as having a type of authority.

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14
Q

If a person needs to obtain coverage for a substandard or unusual risk, he would use a _____________ broker.

A

Surplus lines

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15
Q

Describe the Needs Approach.

A

Determining the amount of life insurance a person needs by using their specific financial goals and objectives.

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16
Q

Which type of reinsurance allows the reinsurer to reject the risk?

A

Facultative reinsurance

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17
Q

T/F: A foreign insurer is authorized in a state, but its principal office is in another country.

A

F; A foreign insurer has its principal office in another state.

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18
Q

Which type of reinsurance does not allow the reinsurer to reject the risk?

A

Treaty or automatic reinsurance

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19
Q

What three factors are used to determine the gross premium for a life insurance policy?

A

Mortality, interest and expenses

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20
Q

Define insurance producer.

A

An individual who sells insurance products to the public.

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21
Q

Explain error and omission.

A

An unintentional error or honest mistake by a producer.

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22
Q

Who do solicitors represent?

A

Agents

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23
Q

What is implied authority?

A

Authority not specifically defined in the contract but considered to be an extension of regular duties.

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24
Q

Define the term insurance.

A

When an insurer seeks insurance from another insurer.

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25
Q

When a life insurance death benefit is paid, it creates an __________.

A

Estate

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26
Q

What general name is used to describe agents, brokers, consultants?

A

Producer

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27
Q

T/F: Driving under the influence is an example of a moral hazard.

A

F; DUI is an example of a morale hazard

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28
Q

T/F: An independent agency may place business with only one insurer.

A

F; an independent agency may place business with multiple insurers

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29
Q

What are the two basic types of reinsurance?

A

Facultative and automatic

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30
Q

The insurer’s return on investments is used to determine which factor in the gross premium?

A

Interest

31
Q

Define blackout period.

A

The time period from the insured’s death until the surviving spouse is permitted to receive retirement income benefits.

32
Q

“The greater the number of lives insured, the more predictable losses will be”, is attributable to what law?

A

The law of large numbers

33
Q

Premiums paid for insurance coverage that is not provided are referred to as _______ premiums.

A

Unearned

34
Q

Define the terms peril and hazard.

A

Peril is a cause of a loss.
Hazard is a condition that increases the chance of loss occurring.

35
Q

List some of the personal uses for life insurance.

A

Funeral expenses, estate protection, survivor protection, debt payment, education expenses, etc.

36
Q

T/F: Physical hazards include faulty wiring and slippery floors.

A

T

37
Q

What is the name of the price paid per unit of coverage?

A

Rate

38
Q

T/F: Insurable interest must exist at the time of death.

A

F; insurable interest must exist at the time of policy issue, not death

39
Q

Which valuation approach measures a persons potential future earnings to determine the amount of life insurance needed?

A

The human life value approach

40
Q

Premiums that an insurer is entitled to are referred to as ______ premiums.

A

Earned

41
Q

Name four independent insurance rating services.

A

AM Best Review, Moody’s Investment, S&P, and Weiss Research

42
Q

Insurance policies are contracts of __________.

A

Indemnity

43
Q

What must exist for an individual to purchase life insurance on another individual?

A

Insurable interest

44
Q

T/F: Insurance should restore a person to a better financial position than existed prior to the loss.

A

F; insurance should restore a person to the same financial position that existed prior to the loss.

45
Q

Identify the two parties in a life insurance contract.

A

The policyowner and insurer.

46
Q

T/F: Speculative risk provides the chance for financial gain.

A

T

47
Q

Who issues participating life insurance policies?

A

Mutual companies

48
Q

What is it called when someone owns a life insurance policy on his spouse?

A

Third party ownership

49
Q

What two factors make up the net single premium?

A

Mortality and interest

50
Q

Identify the contents of the total premium.

A

The earned and the unearned premium

51
Q

Explain the concept of actual or express authority.

A

When an agent’s authority is defined in the agent’s contract

52
Q

T/F: Insurable interest must exist when a life insurance policy is issued.

A

T

53
Q

Other than human life value and needs approach, what other methods are used to determine the amount of life insurance?

A

Multiple of earnings, interest only, single needs, “seat of the pants”, and capital needs

54
Q

T/F: The expense factor in the gross premium is based on what the insurer pays for operating expenses.

A

T

55
Q

Name the three types of hazards.

A

Physical, moral, and morale

56
Q

For how long may an agent be imprisoned for making statements that jeopardize the solvency of an insurer?

A

15 years (per Federal Regulation 18, USC 1033/1034)

57
Q

The uncertainty or chance of financial loss is known as _________.

A

Risk

58
Q

Who do brokers represent?

A

Themselves and the policy owner/insured

59
Q

Where does a domestic insurer have its principal or home office?

A

In the state where it is headquartered

60
Q

Name five methods of risk management.

A

Avoidance, retention, sharing, reduction and transfer.

61
Q

What term describes a business that assumes the total risk of potential losses?

A

Self-Insured

62
Q

Morality is the __________ of death at a particular age for an individual.

A

Probability

63
Q

T/F: A fraternal association provides insurance only to its members.

A

T

64
Q

T/F: the most common method of managing risk is to transfer risk.

A

T

65
Q

T/F: Extra charges may apply if the premium is paid on other than an annual basis.

A

T

66
Q

Which type of insurer is owned by its policy holders?

A

A mutual company

67
Q

Who are the owners of a stock company?

A

It’s stockholders

68
Q

When an insurer approves coverage for more bad risks than good risks, he is exposed to ___________ selection.

A

Adverse

69
Q

What are the two major approaches used to determine the amount of life insurance needed?

A

Human life value and needs approach

70
Q

An exclusive agency employs ________ agents who agree to market products of ___ insurer.

A

Independent; one

71
Q

An unincorporated organization in which members insure one another is known as a ___________.

A

Reciprocal

72
Q

Who manages a reciprocal?

A

An attorney-in-fact

73
Q

The insurer seeking reinsurance is the _______ insurer, while the insurer assuming the risk is the __________.

A

Ceding; reinsurer

Insurance (10 decks)

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