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Life Insurance > Chapter 1 - General Insurance > Flashcards

Chapter 1 - General Insurance Flashcards

1
Q

What are characteristics of an insurable risk?

A

The loss exposure must be large, the loss must be due to chance, the loss must be measurable.

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2
Q

A producer who fails to segregate premium monies from his own personal funds is guilty of…

A

Commingling

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3
Q

Events in which a person has both the chance of winning or losing are classified as…

A

Speculative risk

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4
Q

What must an insurer obtain in order to transact insurance within a given state?

A

Certificate of authority

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5
Q

What is not true regarding insurable risks?

A

Insureds cannot be randomly selected.

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6
Q

An individual applies for a life policy. Two years ago he suffered a head injury from an accident, so he cannot remember parts of his past, but is otherwise competent. He has also been hospitalized for drug abuse, but does not remember this when applying for insurance. The insurer issued the policy and learns of his history one year later. What will probably happen?

A

The policy will not be affected.

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7
Q

On a participating insurance policy issued by a mutual insurance company, dividends paid to policyholders are…

A

Not taxable since the IRS treats them as a return of a portion of the premium paid.

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8
Q

The insurer may suspect that a moral hazard exists if the policyholder…

A

Is not honest about his health on an application for insurance.

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9
Q

What is a foreign insurer?

A

An insurer with a home office in another state

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10
Q

Hazard is best defined as…

A

Something that increases the risk of loss

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11
Q

What is considered to be a morale hazard?

A

Driving recklessly

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12
Q

A situation in which a person can only lose or have no change represents…

A

Pure risk

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13
Q

Pertaining to insurance, what is the definition of a fiduciary responsibility?

A

Promptly forwarding premiums to the insurance company

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14
Q

In insurance, an offer is usually made when…

A

The completed application is submitted

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15
Q

What is a statement that is guaranteed to be true, and if untrue, may breach an insurance contract?

A

Warranty

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16
Q

An insurer neglects to pay a legitimate claim that is covered under the terms of the policy. Which insurance principles has the insurer violated?

A

Consideration, which is the binding force in any contract.

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17
Q

The insurer must be able to rely on the statements in the application, and the insured must be able to rely on the insurer to pay valid claims. In the forming of an insurance contract, this is referred to as…

A

Utmost good faith.

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18
Q

Peril is most easily defined as…

A

The cause of loss insured against

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19
Q

The causes of loss insured against in an insurance policy are known as…

A

Perils

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20
Q

An insured intentionally did not disclose a material fact on an application or insurance. This would be considered…

A

Concealment

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21
Q

If an insurance company is domicile in Montana and transacts insurance in Wyoming, which term best describes the insurer’s classification in Wyoming?

A

Foreign

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22
Q

What is the major difference between a stock company and a mutual company?

A

Ownership

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23
Q

In what way can an agent demonstrate a high standard of ethics?

A

Putting the client’s best interests before their own

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24
Q

What is the basis for a claim against an insurance policy?

A

Loss

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25
Q

What is a foreign insurer?

A

An insurer with a home office in another state

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26
Q

The requirement that agents not commingle insurance monies with their own funds is known as…

A

Fiduciary responsibility

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27
Q

What is material misrepresentation?

A

A statement by the applicant that, upon discovery, would affect the underwriting decision of the insurance company

28
Q

A participating insurance policy may…

A

Pay dividends to the policyowner

29
Q

What is an example of apparent authority of an agent appointed by an insurer?

A

The agent accepts a premium payment after the end of the grace period.

30
Q

A person who does not lock the doors or does not repair leaks shows an indifferent attitude. This person presents what type of hazard?

A

Morale

31
Q

The reduction, decrease, or disappearance of value of the person or property insured in a policy by a peril insured against is known as…

A

Loss

32
Q

When applying for an individual life insurance policy, an applicant states that he went to the doctor for nausea, but fails to mention that he was also having severe chest pains. This is an example of…

A

Concealment

33
Q

When an insured makes truthful statements on the application for insurance and pays the required premium, it is known as…

A

Consideration

34
Q

Insurance

A

Transferring risk of loss from an individual or business entity to an insurance company

35
Q

Risk

A

The uncertainty or chance of a loss occurring

36
Q

Pure Risk

A

Refers to situations that can only result in a loss or no change; the only type of risk insurance companies are willing to accept

37
Q

Speculative Risk

A

Involves the opportunity for loss or gain

38
Q

Hazard

A

Conditions or situations that increase the probability of an insured loss occurring

39
Q

Physical Hazard

A

Characteristics that increase the chances of the cause of loss; things you can see

40
Q

Moral Hazard

A

Tendencies towards increased risk; Applicants who may lie on an application; Things that you do

41
Q

Morale Hazard

A

Arise from a state of mind that causes indifference to loss, such as carelessness; things you don’t do

42
Q

Peril

A

The causes of loss insured against in an insurance policy

43
Q

Loss

A

Defined as the reduction, decrease, or disappearance of value of the person or property

44
Q

Methods of handling risk

A

STARR: Sharing, Transfer, Avoidance, Retention, Reduction

45
Q

Avoidance

A

Eliminate exposure to loss

46
Q

Retention

A

Use of deductibles, copayments, or self-insurance

47
Q

Sharing

A

Dealing with risk for a group of individual persons or businesses with the same or similar exposure to loss to share the losses

48
Q

Reduction

A

Attempt to lessen the possibility or severity of a loss

49
Q

Transfer

A

The loss borne by another party through harmless agreements and other contractual agreements

50
Q

Insurable risks

A

Due to chance (outside the insured’s control); Definite and measurable (cause, time, place, amount); Statistically predictable (able to estimate the average frequency and severity of future losses); Not catastrophic (loss will not exceed certain limits); Randomly selected/large loss exposure

51
Q

Stock companies

A

Nonparticipating policies; owned by stockholders; don’t pay dividends

52
Q

Mutual companies

A

Has no stock; owned and controlled by policyholders; surplus money returned as dividends which are nontaxable

53
Q

Domestic Insurer

A

Incorporated in the same state

54
Q

Foreign Insurer

A

Incorporated in another state or territorial possession

55
Q

Alien insurer

A

Incorporated outside the United States

56
Q

Express Authority

A

Authority granted to an agent by means of the contract; written in the contract

57
Q

Implied authority

A

Not expressed or written into the contract, but agent is assumed to have this authority to transact business

58
Q

Apparent Authority

A

The appearance or the assumption of authority because of circumstances created by principal

59
Q

Consideration

A

Something of value each party gives to the other. Insured - premium. Insurer - promise to pay in the event of loss.

60
Q

Indemnity

A

Reimbursement; restore but not let an insured or beneficiary profit from loss

61
Q

Utmost good faith

A

Implies that there will be no fraud, no misrepresentation or concealment between the parties

62
Q

Representations

A

Statements believed to be true to the best of one’s knowledge

63
Q

Misrepresentations

A

Untrue statements that could void the contract

64
Q

Material misrepresentation

A

Statement that could alter the underwriting decision of the insurance company; if it is intentional, it is considered fraud

65
Q

Breach of Warranty

A

Grounds for voiding policy or returning premium

66
Q

Concealment

A

Intentional withholding of information

67
Q

Fraud

A

Intentional misrepresentation or intentional concealment of a material fact

Life Insurance (2 decks)

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