Chapter 1:

Question 1

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

Answer 1

The agent’s

Question 2

What are the five characteristics of an ideally insurable risk?

Answer 2

Lost must be 1) due to chance, 2) definite and measurable, 3) statistically predictable, 4) not catastrophic, and 5) Coverage cannot be mandatory

Question 3

For the purpose of insurance, what is risk?

Answer 3

Uncertainty of loss

Question 4

Who owns stock companies?

Answer 4

Stockholders

Question 5

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

Answer 5

Foreign

Question 5

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

Answer 5

Insurable interest and consent

Question 6

What type of risk is insurable?

Answer 6

Pure

Question 7

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

Answer 7

Authorized or admitted

Question 8

What are the three types of agent authority?

Answer 8

Express, implied and apparent

Question 9

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

Answer 9

Insurer

Question 10

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

Answer 10

Adverse selection

Question 11

An applicant conceals relevant health information on the application. The applicant presents what type of hazard?

Answer 11

Moral

Question 12

What entities make up the Medical Information Bureau?

Answer 12

Insurers

Question 13

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

Answer 13

Stock company

Question 13

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

Answer 13

The agent

Question 14

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

Answer 14

Insurance

Question 15

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

Answer 15

Domestic, foreign and alien

Question 16

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

Answer 16

Peril

Question 17

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

Answer 17

Fiduciary

Question 18

Insurance is a contract that protects the insured from what?

Answer 18

Loss

Question 19

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

Answer 19

Certificate of Authority

Question 20

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

Answer 20

When it is intentional and material

Question 21

What are the three types of hazards?

Answer 21

Physical, moral and morale

Question 22

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

Answer 22

When the insurer approves a prepaid application

Question 23

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

Answer 23

Loss

Question 24

What are the four elements of an insurance contract?

Answer 24

Agreement (offer and acceptance), consideration, competent parties, and legal purpose

Question 25

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

Answer 25

Restriction of coverage, refusal to accept a risk, and accepting a risk at a higher rate

Question 26

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

Answer 26

Alien

Question 27

Whom does an insurance agent represent?

Answer 27

Insurance company

Question 28

An insurance policy paid a nontaxable dividend to the insured one year, and nothing the next. From what type of insurer did the insured purchase the policy?

Answer 28

Mutual

Question 29

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

Answer 29

When the insurance application is submitted

Question 30

When does an insurance policy go into effect?

Answer 30

When the policy is delivered and the premium is paid?

Question 31

Wagering on a sporting event is known as what type of risk?

Answer 31

Speculative

Question 32

What is a warranty in an insurance contract?

Answer 32

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

Question 33

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

Answer 33

Hazards

Question 34

According to the Law of Agency, a principal is represented by whom?

Answer 34

Agent or producer

Question 35

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

Answer 35

Pure risk

Question 36

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

Answer 36

Foreign

Question 37

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

Answer 37

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

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

Answer 39

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

Question 40

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

Answer 40

Send the application back to the applicant for signature

Question 41

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 41

Morale

Question 42

Which statement regarding insurable risk is not correct? A. Insurance cannot be mandatory B. Insureds cannot be randomly selected. C. The insurable risk needs to be statistically predictable D. An insurable risk must involve a loss that is definite as to cause, time, place and amount.

Answer 42

B. Insureds cannot be randomly selected

Question 43

In forming an insurance contract, when does acceptance usually occur? A. when an insurer's underwriter approves coverage B. When an insurer receives and application C. When an insurer delivers the policy D. When an insured submits an application

Answer 43

A. When an insurer's underwriter approves coverage