CRAM Course Content Flashcards
What is the primary purpose of a rating service company such as A.M Best?
Determine financial strength of an insurance company
Whish of the following is NOT considered advertising?
a. A rating from a rating service company
b. An illustration
c. A sales presentation
d. Direct mailing from an agency
a. A. M Best company rating is not considered advertising
The Fair Credit and Reporting Act’s main purpose is to:
Protect consumers with guidelines regarding credit reporting and distribution
Ken is a producer who has obtained Consumer Information Reports under false pretenses. Under the Fair Credit Reporting Act, which is the maximum penalty that be imposed on Ken?
$5,000 penalty
Karen is a producer who has obtained personal information about a client without having a legitimate reason to do so. Under the McCarran-Ferguson Act, what is the minimum penalty for this?
$10,000
What is considered to be the primary reason for buying life insurance?
Provide death benefit
An insurer’s claim settlement practices are regulated by the:
State Insurance departments
Why are dividends from a mutual insurer not subject to taxation?
Because dividends are considered to be return of premium
A nonparticipating company is sometimes called a:
Stock Insurance Company
A(n) ___ company is owned by its shareholders.
Stock
The Do Not Call Registry offers exemptions for calls place from all the following EXCEPT:
a. charities
b. political organizations
c. insurance sale calls
d. surveys
c. insurance sale calls
ABC insurance company transfers part of their risk to XYZ insurance company. This situation is called?
Reinsurance
A life insurance company has transferred some of its risks to another insurer. The insurer assuming the risk is called?
Reinsurer
A type of insurance that is owned by its policyowners is called?
Mutual
A nonparticipating policy will…
Not pay dividends
Fraternal Benefit Societies has each of the following characteristics EXCEPT:
a. incorporated
b. without capital stock
c. exist for profits
d. exist for the benefits of its members
c. exist for profits
An insurer’s ability to make unpredictable payouts to policyowners is called?
Liquidity
What kind of life insurance policy is issued by a mutual insurer to provide a return of divisible surplus?
Participating life insurance policy
A plan in which an employee pays insurance benefits from a fund derived from the employer’s current revenues is called?
A self-funded plan
An example of risk sharing would be?
Doctors pooling their money to cover malpractice exposure
What is known as the immediate specific event causing loss and giving rise to risk?
Peril
The cause of a loss is referred to as?
Peril
Which of the following is considered to be an event or condition that increases the probability of an insured’s loss?
a. risk
b. hazard
c. indemnity
d. peril
Hazard
An individual who removes the risk of losing month in the stock market by never purchasing stock is said to be engaged in?
Risk Avoidance
How do insurer’s predict the increase of individual risks?
Law of Large Numbers
Insurance companies determine risk exposure by which of the following?
Law of large numbers and risk pooling
Insurance represents the process of risk…
Transference
All the following are examples of pure risk EXCEPT?
a. losing money at a casino
b. injured while playing football
c. falling at a casino and breaking a hip
d. jewelry stolen during a robbery
a. losing money at the casino
People with higher loss exposure having the tendency to purchase insurance more often than those at average risk. This is called?
Adverse selection
In an insurance contract, the element that shows each party is giving something of value is called?
Consideration
According to the principle of Utmost Good Faith, the insured will answer questions on the application to the best of their knowledge and pay the required premium, while the insurer will deal fairly with the insured and its…
Promises made
Which type of clause describes the following statement: “We have issued the policy in consideration of the representations in your application and payment of the first-term premium.”
Consideration Clause
Legal purpose is a term used in contract law meaning?
There must be legal reasons for entering into the contract
What are an applicant’s statements concerning occupation, hobbies, and personal health history, regarded as?
Representation
TRUE/FALSE: Under a contract of adhesion, the terms must be accepted or rejected in full.
True
A professional liability for which producers can be sued for mistakes of putting a policy into effect is called?
Errors and Omissions
Which contract element is insurable interest a component of?
Legal purpose
All the following are elements of an insurance policy EXCEPT:
a. definitions
b. other insurance
c. claim forms
d. conditions
c. claim forms
The deeds and actions of a producer indicates what kind of authority?
Apparent Authority
In an insurance contract, the applicant’s “consideration” is the…
Statements made in the application and the premium
The term which describes the fact that both parties of a contract may NOT receive the same value is referred to as…
Aleatory
In an insurance contract, the insurer is the only party legally obligated to perform. Because of this, an insurance contract is considered?
Unilateral
What best describes a conditional insurance contract?
A contract that requires certain conditions or acts by the insured individual.
Which of the following is present when an applicant stands to lose value if the insured dies?
a. insurability
b. offer and acceptance
c. insurable interest
d. consideration
c. insurable interest
Insurable interest does not occur in which of the following relationships?
a. sister and brother
b. parent and children
c. business partners
d. business owner and clients
d. business owner and clients
What is considered the insured’s consideration?
A paid premium
Ambiguities in an insurance policy are always resolved in favor of who?
Insured
According to life insurance contract law, insurable interest exists…
at the time of the application
What is implied authority defined as?
Authority that is not specifically given to an agent in the agency contract, but that an agent can reasonably assume to carry out their duties
The power given to an individual producer that is not specifically addressed in their contract is considered what type of authority?
Implied Authority
What makes an insurance policy a unilateral contract?
Only the insurer is legally bound
In order for a contract to be valid, it must…
Contain and offer and acceptance
Intentional withholding of material facts that would affect an insurance policy’s validity is called?
Concealment
The authority given to a licensed producer is provided via the…
Law of Agency
Who is responsible for assembling the policy forms for insured?
Insurance carriers
When the principal gives the agent authority in writing, it’s referred to as…
Express Authority
List the elements of a valid contract
Legal, consideration, competent parties, etc
Bob and Tom start a business. Since each partner contribute an important element to the success of the business, they decide to take life insurance policies out on each other, and name each other as beneficiaries. Eventually, they retire and dissolve the business. Bob dies 12 months later. The policies continue in force with no change. Both partners are still married at the time of Bob’s death. In this situation, who will receive Bob’s policy proceeds?
Tom
