General Insurance

Question 1

What is insurance?

Answer 1

A contract in which the insurance company agrees to indemnify the insured against loss

Question 2

What does insurance do?

Answer 2

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

Question 3

Risk

Answer 3

Uncertainty or chance of loss occurring

Question 4

Pure risk

Answer 4

Situations that can only result in a loss or no change (insurable)

Question 5

Speculative risk

Answer 5

Opportunity for loss or gain (not insurable)

Question 6

Hazard

Answer 6

Situations that increase the probability of an insureds loss occurring

Question 7

Peril

Answer 7

Causes of loss

Question 8

Loss

Answer 8

Reduction, decrease, or disappearance of value caused by a peril

Question 9

Avoidance

Answer 9

Eliminating exposure to a loss

Question 10

Retention (self-insurance)

Answer 10

Planned assumption of risk through the use of deductibles, copayments, or self-insurance

Question 11

What is the purpose of retention?

Answer 11

1. Reduce expenses and improve cash flow
2. Increase control of claim reserving and claims settlements
3. Fund for losses that cannot be insured

Question 12

Sharing (reciprocal)

Answer 12

Dealing with risk for a group of individuals or businesses with the same exposure to loss to share the losses that occur within that group

Question 13

Reduction

Answer 13

Reducing the chance of loss. Ex-installing a smoke detector

Question 14

Transfer

Answer 14

Transfer risk so another loss is borne by another party. Purchasing of insurance relieves the insured of the financial losses risks bring.

Question 15

Insurable risks

Answer 15

• due to chance
• definite and measurable
• statistically predictable
• not catastrophic
• randomly selected and large loss exposure

Question 16

Adverse selection

Answer 16

Poorer risks tend to seek insurance to a greater extent than better risks

Question 17

Law of large numbers

Answer 17

The larger the number of people with a similar exposure to loss, the more predictable actual losses will be

Question 18

Stock companies

Answer 18

Owned by stockholders who share in any profits or losses (private)

Question 19

Nonparticipating policies

Answer 19

Policy owners do not share in profits or losses and do not receive dividends. Taxable dividends are paid to stockholders

Question 20

Participating policies

Answer 20

Issued by mutual companies in which policy owners are entitled to dividends (return of premiums) which are nontaxable.

Question 21

Independent rating services

Answer 21

• AM Best
• Fitch
• Standard and Poor’s
• Moody’s
• Weiss

Question 22

Express authority

Answer 22

Written in the contract

Question 23

Implied authority

Answer 23

Not written in the contract but is assumed to have in order to conduct business

Question 24

Apparent authority

Answer 24

Appearance of authority based on actions, words, or deeds

Question 25

Fiduciary responsibility

Answer 25

It is illegal for insurance producers to commingle premiums with personal funds

Question 26

Offer

Answer 26

Offer is made when applicant submits the application

Question 27

Acceptance

Answer 27

Takes place when an underwriter approves the application and issues a policy

Question 28

Consideration

Answer 28

Something of value that each party gives to the other

Question 29

Contract of adhesion

Answer 29

Contracts are offered on a “take-it-or-leave-it” basis

Question 30

Aleatory contract

Answer 30

Exchange of unequal amounts or values

Question 31

Unilateral contract

Answer 31

Only one of the parties is legally bound to do anything

Question 32

Conditional contract

Answer 32

Certain conditions must be met by policy owner and company in order for contract to be executed

Question 33

Indemnity

Answer 33

The purpose of insurance is to restore, but not let an insured or beneficiary profit from the loss

Question 34

Representations

Answer 34

Statements believed to be true to the best of ones knowledge

Question 35

Misrepresentations

Answer 35

Untrue statements (lies) on the application

Question 36

Warranty

Answer 36

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

Question 37

Concealment

Answer 37

Intentional withholding of information

Question 38

Fraud

Answer 38

Intentional misrepresentation or intentional concealment

Question 39

Waiver

Answer 39

Voluntary act of giving up a legal right

Question 40

Estoppel

Answer 40

Legal consequence of a waiver