Chapter 1 - Quiz

Question 1

The authority granted to an agent through the agent’s contract is referred to as

Answer 1

Express Authority

Question 2

An individual was in a head-on collision while driving home one day. His injuries were not serious, and he recovered. However, he decided that in order to never be involved in another accident, he would not drive or ride in a car ever again. What method of risk management does this describe?

Answer 2

Avoidance

Question 3

Who might receive dividents from a mutual insurer?

Answer 3

Policyholders

Question 4

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

Answer 4

Speculative risk

Question 5

An insured purchased an insurance policy 5 years ago. Last year, she received a dividend check from the insurance company that was not taxable. This year, she did not receive a check from the insurer. From what type of insurer did the insured purchase the policy?

Answer 5

Mutual

Question 6

Which of the following would classify as a competent party in an insurance contract?

Answer 6

-The applicant is a 12-year-old student
-The applicant is under the influence of a mind-impairing medication at the time of application
✔️ -The applicant has a prior felony conviction
-The applicant is intoxicated at the time of application

Question 7

A state-issued document empowering an isurance agency to become an admitted insurer is called:

Answer 7

Certificate of Authority

Question 8

Which of the following best describes the concept that the insured pays a small amount of premium for a large amount of risk on the part of the insurance company?

Answer 8

Aleatory

Question 9

Which authority is NOT stated in an agent’s contract, but is required for the agent to conduct business?

Answer 9

Implied Authority

Question 10

In insurance policies, the insured is not legally bound to any particular action in the insurance contract, but the insurer is legally obligated to pay losses covered by the policy. What contract element does this describe?

Answer 10

Unilateral

Question 11

In terms of parties to a contract, which of the following does NOT describe a competent party?

Answer 11

• The person must be mentally competent to understand the contract.
  ✔️- The person must have at least completed secondary education
• The person must not be under the influence of drugs or alcohol.
• The person must be of legal age

Question 12

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

Answer 12

• Representation
• Adhesion
  ✔️ - Consideration
• Good Faith

Question 13

In insurance transactions, fiduciary responsibility means:

Answer 13

Handling insurer funds in a trust capacity

Question 14

Which of the following is NOT a characteristic of an insurable risk?

Answer 14

The loss must be catastrophic

Question 15

An insured stated on her application for life insurance that she has never had a heart attack, when in fact she had a series of minor heart attacks last year for which she sought medical attention. Which of the following will explain the reason a death benefit claim is denied?

Answer 15

Estoppel
✔️Material misrepresentation
Waiver
Utmost good faith

Question 16

A participating insurance policy may do which of the following?

Answer 16

Pay dividends to the policy owner

Question 17

Because an agent is using stationery with the logo of the insurance company, applicants for insurance assume that the agent is authorized to transact on behalf of that insurer. What type of agent authority does this describe?

Answer 17

Apparent

Question 18

Which of the following best describes the concept that the insured pays a small amount of premium for a large amount of risk on the part of the insurance company?

Answer 18

Aleatory

Question 19

A life insurance policy has a legal purpose if both of which of the following elements exist?

Answer 19

Insurable interest and consent

Question 20

Which of the following best describes an insurance company that has been formed under the laws of this state?

Answer 20

Domestic (domicile)

Question 21

Which of the following types of agent authority is also called “perceived authority”?

Answer 21

Apparent Authority

Question 22

For the reported losses of an insured group to become more likely to equal the statistical probability of loss for that particular class, the insured group must become:

Answer 22

Larger

Question 23

Peril is most easily defined as:

Answer 23

The cause of loss insured against

Question 24

An applicant knowingly fails to communicate information that would help an underwriter make a sound decision regarding coverage. This is an example of:

Answer 24

Concealment

Question 25

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

Answer 25

Ownership

Question 26

All of the following actions by a person could be described as risk avoidance EXCEPT:

Answer 26

Investing in the stock market

Question 27

An insured wants to transfer his personal insurance policy to a friend. Under what conditions would this be possible?

Answer 27

The insured will need a written consent of the insurer

Question 28

When both parties to a contract must perform certain duties and follow rules of conduct to make the contract enforceable, the contract is:

Answer 28

Conditional

Question 29

In insurance transactions, fiduciary responsibility means:

Answer 29

Handling insurer funds in a trust capacity

Question 30

What is the definition of a unilateral contract?

Answer 30

One sided: only one party makes an enforceable promise