Exam 2 Quiz Flashcards
Reasons for regulation of insurance include which of the following?
I. Maintaining insurer solvency
II. Ensuring reasonable rates
Both
Which of the following statements about the licensing of insurance companies is (are) true?
I. A new capital stock insurer must meet minimum capital and surplus requirements, which vary by state and line of insurance.
II. The licensing requirements for insurance companies are less stringent than those imposed on most other types of firms.
1 only
Which of the following statements about the use of risk-based capital requirements is (are) true?
I. Insurers must have a certain amount of capital depending on the riskiness of their investments and insurance operations.
II. Insurers may be required to take certain actions depending on how much capital they have relative to their risk-based capital requirements.
both
Under what type of rate regulation are insurers required to obtain approval of rates before using them if the rate change exceeds a specified predetermined range?
flex-rating law
A shortcoming of state regulation of insurance according to Congressional committees and the General Accounting Office is that state regulation
leads to decentralized governmental power
provides opportunities for innovation
provides inadequate consumer protection
is more responsive to local needs
provides inadequate consumer protection
A life insurance company based in Canada was licensed to operate in Massachusetts. When operating in Massachusetts, the Canadian insurer would be considered a(n)
alien insurer
State X’s premium tax rate is 2 percent. State Y’s premium tax rate is 3 percent. State X insurers are required to pay the 3 percent rate on business written in State Y. State X requires insurers from State Y to pay a 3 percent premium tax on business written in State X, even though the premium tax rate is only 2 percent in State X. This practice is known as a
retaliatory tax law
Which of the following statements is (are) true regarding the quality of insurance regulation?
I. The quality of insurance regulation is uniform from state to state.
II. All evidence suggests federal regulation of insurance would improve the quality of regulation.
1 only
All of the following statements about insurance regulation are true EXCEPT
Insurance commissioners are appointed in some states and elected in some states
Insurers are subject to regulation by certain federal agencies and laws
The National Association of Insurance Commissioners (NAIC) can force states to adopt the model laws that it drafts
An insurance commissioner can revoke or suspend an insurer’s license to do business in his or her state
The National Association of Insurance Commissioners (NAIC) can force states to adopt the model laws that it drafts
The Dodd-Frank Act created a federal body with some limited regulatory authority. For example, the organization can represent the federal government in international negotiations regarding insurance and it can preempt state law where it conflicts with negotiated international agreements. This body is called the
Federal Insurance Office
Fundamental purposes of the principle of indemnity include which of the following?
I. To reduce physical hazards
II. To prevent the insured from profiting from insurance
2 only
Under which of the following rules is actual cash value determined by taking into consideration all relevant factors an expert would use to determine the value of the property?
the broad evidence rule
Which of the following statements about an insurable interest in life insurance is (are) true?
I. It is required of any person named as beneficiary.
II. It may result from a pecuniary (financial) interest.
2 only
Which of the following statements about subrogation is true?
It is used primarily for losses paid under life insurance policies
It allows the insurer to sue its own insured who is negligent.
The insured’s right to collect benefits may be forfeited if the insured interferes with the insurer’s subrogation rights after a loss occurs.
The insurer is required to exercise its subrogation rights
The insured’s right to collect benefits may be forfeited if the insured interferes with the insurer’s subrogation rights after a loss occurs.
Which of the following statements about a warranty in an insurance contract is (are) true?
I. It is part of the insurance contract.
II. Statements made by an insurance applicant are considered warranties rather than representations.
1 only
A contract in which the values exchanged are not equal because chance is involved is called a(n)
aleatory contract
What is the practical effect of an insurance policy being a conditional contract?
The insurer can refuse to a pay claim if the insured has not complied with all policy provisions
Janice purchased a living room set for $1,000 and insured this furniture on an actual cash value basis. Two years later the living room set was destroyed by a covered peril. At the time of loss, the property had depreciated in value by 25 percent. The replacement cost of the furniture at the time of loss was $1,200. Assuming no deductible, how much will Janice receive from her insurer?
900
Dave is an agent for Easy Pay Insurance. Easy Pay insures only high-quality applicants. Dave wanted to earn more commissions, so he sold some policies to applicants he knew were below-average risks. When these policyowners started filing claims, Easy Pay tried to deny the claims stating that Dave had not acted appropriately. Which general rule of agency makes Easy Pay responsible for the claims of the higher-than-average risk policyowners?
A principal is responsible for the acts of its agents who are acting within the scope of their authority
Some states have a law that requires payment of the face amount of insurance to the insured if a total loss to real property occurs from a peril specified in the law. These laws are called
valued policy laws
That part of a property and liability insurance contract that contains information about the property or activity to be insured is called the
declarations
Exclusions are used in insurance policies for all of the following reasons EXCEPT
to reduce moral hazard
to waive policy conditions
to eliminate coverage for uninsurable perils
to eliminate coverage not needed by typical insureds
to waive policy conditions
Deductibles are not used in which of the following type of insurance?
life insurance
health insurance
property insurance
disability income insurance
life insurance
At what point in time must an insured meet the coinsurance requirement in a property insurance policy in order to avoid having to pay a portion of the loss?
only at the time of loss
only at the time when the policy is issued
only at the time of policy application
both at the time when the policy is issued and at the time of loss
only at the time of loss
