Chapter 1 - General Insurance

Question 1

ADMITTED INSURER

Answer 1

authorized to do insurance business in the state and is issued a Certificate
of Authority by the state’s Department of Insurance

1.4

Question 2

ADVERSE SELECTION

Answer 2

the idea that some risks are less desirable than average risks, and that these risks tend to seek coverage to a greater extent than more favorable risks

Question 3

LOSS

Answer 3

reduction of value

basis for a claim

Question 4

AGENT/PRODUCER

Answer 4

can be the employee of an insurance company that owns the agent’s book
of business, or an independent agent that enters into agency agreements with more than one
insurance company. Independent agent retains ownership of their books of business.

a legal representative of an insurance company who represents the best interests of the company

1.5

Question 5

ALEATORY CONTRACTS

Answer 5

The exchange of value may be unequal

Question 6

ALIEN INSURER

Answer 6

Organized under the laws of a country outside the U.S.

1.4

Question 7

BROKER

Answer 7

Insurance producer not appointed by an insurer and is deemed to represent the best interests of the client

Question 8

CONSIDERATION

Answer 8

In an insurance contract, the value that each party gives the other

Question 9

DOMESTIC INSURER

Answer 9

Domicile refers to the state in which an insurer is incorporated. Domestic insurer is organized under the laws of the resident state

Question 10

ELEMENTS OF A LEGAL CONTRACT

Answer 10

1. Agreement
   a. offer like an application
   b. acceptance as an issued
   policy
2. Consideration
   a. applicant-representation
   and premium
   b. insurer-payment of claims
3. Competent Parties
   a. legal age
   b. mentally competent
   c. not under the influence of
   drugs or alcohol
4. Legal Purpose
   a. not against public policy
   (contract can’t be a crime)

Question 11

EXPRESS AUTHORITY

Answer 11

is written into the producer’s agency contract; implied authority is that which
the public assumes the agent possesses; and apparent authority is created when the agent
exceeds express authority and the insurer does not respond.

1.6

Question 12

FAIR CREDIT REPORTING ACT (FCRA)

Answer 12

protects consumer privacy by ensuring that any data
collected by an insurer remains confidential, and is accurate, relevant, and used for a proper and
specific purpose.

1.7

Question 13

FOREIGN INSURER

Answer 13

Organized under the laws of another state within the United States

Question 14

HAZARD

Answer 14

increases the probability of a loss. The 3 types of hazards are physical, moral, and
morale

1.8

Question 15

INSURABLE INTEREST

Answer 15

in property and casualty insurance must exist at the time of the loss
-/-
When an individual faces the risk of economic loss in the event of property damage

1.9

Question 16

INSURANCE

Answer 16

transfer of loss

protection

Question 17

INSURANCE CONTRACT

Answer 17

t is one of adhesion; one party (the insurer) prepares the contract and
presents it to the second party (the insured), who must accept it on a “take-it-or-leave-it” basis

1.10

Question 18

INSURER

Answer 18

also known as the Principal, the company who issues an insurance policy

Question 19

LAW OF AGENCY

Answer 19

is a three-party relationship where a Principal authorizes an Agent to act on
its behalf to create a legal relationship with a Third Party.

1.6

Question 20

MUTUAL INSURANCE COMPANY

Answer 20

Issues participating policies and is owned by the policyholders who receive non-taxable dividends as a return of unused premium

Question 21

NON-ADMITTED INSURER

Answer 21

an insurer that is not approved by the state Department of Insurance to transact insurance

Question 22

PERIL

Answer 22

the cause of loss

1.8

Question 23

POLICY HOLDER

Answer 23

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

Question 24

PREMIUM

Answer 24

money paid to the insurance company for the insurance policy

Question 25

REASONABLE EXPECTATIONS DOCTRINE

Answer 25

the insured is entitled to coverage that a reasonable and what a prudent buyer can expect

Question 26

REINSURANCE

Answer 26

The transfer of risk between insurance companies. The reinsurer assumes some or all of the risk of the ceding, or primary, insurance company

Question 27

RISK

Answer 27

the uncertainty of a loss

1.8

Question 28

RISK MANAGEMENT

Answer 28

S-sharing: investments of a large number of people may be pooled by use of a corporation or partnership
T-transfer: transferring the risk from one party to another, such as from a consumer to an insurance company
A-avoidance: elimination of the risk, avoid the activity that gives rise to the chance of loss
R-reduction: minimizing the chance of loss, but not preventing the risk. Sprinkler systems, burglar alarms and safety guards on machinery
R-retention: assume the responsibility for loss, self insure the entire loss or a portion of the loss. Choosing deductibles is a method of risk retention

Question 29

STATE COMMISSIONER

Answer 29

The State Commissioner, Supervisor, or Director of Insurance is the chief insurance regulator who protects the insuring population by regulating all insurers and insurance professionals doing business in the State

Question 30

STOCK INSURANCE COMPANY

Answer 30

Issues non-participating policies and is owned by stockholders who received taxable corporate dividends as a return of profit

Question 31

SURPLUS LINES BROKER

Answer 31

places risks with non-admitted insurers when coverage cannot be placed with admitted insurer carriers.

Question 32

UNDERWRITING FACTORS

Answer 32

used to determine premium include the nature of the risk, hazards,
claims history, and other factors that vary depending upon the risk

1.11

Question 33

UNILATERAL CONTRACT

Answer 33

a contract that binds only one party to future performance

Question 34

UTMOST GOOD FAITH

Answer 34

an insurance contract where each party assumes that they can rely on the statements of the other party