Chapter 1: General Insurance

Question 1

Conditions that increase the chance of a loss.

Answer 1

Hazards

Question 2

What are the five characteristics of an ideally insurable risk?

Answer 2

1.Due to chance
2. Defined and measurable
3. Statistically predictable
4. Not catastrophic
5. Randomly selected

Question 3

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

Answer 3

Pure risk

Question 4

What is a risk?

Answer 4

Uncertainty of loss

Question 5

What are the three types of agent authority?

Answer 5

Express, implied and apparent

Question 6

What are the four elements of an insurance contract?

Answer 6

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

Question 7

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

Answer 7

Certificate of Authority

Question 8

If an insurer holds a Certificate of Authority, it is known as what type of insurer?

Answer 8

Authorized or admitted

Question 9

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

Answer 9

Insurance

Question 10

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

Answer 10

Peril

Question 11

What is consideration in an insurance contract?

Answer 11

Consideration is something of value that each party gives to the other. Consideration on the part of the insurer is binding

Question 12

What is consideration on the part of the insurer?

Answer 12

A promise to pay in the event of a loss

Question 13

What does the term reasonable expectations mean in insurance?

Answer 13

Certain expectations for coverage that a reasonable person would have based on sources rather than just the policy’s language

Question 14

Insurance companies are aleatory in nature. What does that mean?

Answer 14

Unequal values are exchanged between the parties to a contract.

Question 15

What does indemnity mean in insurance?

Answer 15

To restore an insured to the same financial status as before a loss. To make them “whole” again

Question 16

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

Answer 16

Insurer

Question 17

What is a warranty in an insurance contract?

Answer 17

An absolutely true statement upon which the validity of the policy depends.

Question 18

A tornado that destroys a property would be an example of what?

Answer 18

Peril

Question 19

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

Answer 19

Foreign

Question 20

In insurance contracts, when does acceptance usually occur?

Answer 20

When the insurer approves a prepaid application

Question 21

What are the methods of managing risk?

Answer 21

1. Avoidance
2. Transfer
3. Sharing
4. Retention
5. Reduction

Question 22

What does the term unilateral contract mean?

Answer 22

A unilateral contract is a one-sided contract. This means only one party makes an enforceable promise

Question 23

What are the three types of hazards?

Answer 23

Physical, moral and morale

Question 24

In insurance contracts, when is the offer usually made?

Answer 24

When the insurance application is sumbitted

Question 25

According to the Law of Agency, who represents the principal?

Answer 25

Agent or producer

Question 26

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

Answer 26

Speculative

Question 27

What provision states that if a policy allows for greater benefits than the financial loss incurred, the insured may be compensated only for the amount of loss?

Answer 27

Indemnity

Question 28

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

Answer 28

When it is intentional and material

Question 29

What type of authority is based on the agent's actions or words?

Answer 29

Apparent

Question 30

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

Answer 30

Domestic, foreign and alien