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Property & Casualty Pre-Licensing Course > General Insurance > Flashcards

General Insurance Flashcards

1
Q

The causes of loss insured against in an insurance policy

A

Perils

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2
Q

Which services are associated with Standards & Poor’s and AM Best

A

Rating the financial strength of insurance companies

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3
Q

A tornado that destroys property would be an example of

A

A peril

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4
Q

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

A

Implied

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5
Q

What documentation grants express authority to an agent?

A

Agent’s contract with the principal

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6
Q

Which of the following are the authorities an agent can hold?

A

Express and Implied.

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7
Q

Definition of fiduciary responsibility (pertaining to insurance)

A

Promptly forwarding premiums to the insurance company

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8
Q

Which type of agent authority is also called “perceived authority”

A

Apparent

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9
Q

What is apparent authority (perceived authority) of an agent?

A

The appearance or assumption of authority based on the actions, words or deeds of the principal or because of circumstances the principal created.

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10
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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11
Q

An insurance company is domiciled in Montana and transacts insurance in Wyoming. Which term best describes the insurer’s classification in Wyoming?

A

Foreign

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12
Q

Foreign Insurer

A

Domiciled in one state and transactions insurance in another state.

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13
Q

Alien insurer

A

Domiciled in one country and transacts insurance in another

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14
Q

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

A

Fiduciary responsibility

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15
Q

Risk retention (definition and examples)

A

Planned assumption of risk, or acceptance of responsibility for the loss by an insured.
Examples: Deductibles, co-payments, self-insurance

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16
Q

Most common way of transferring risk

A

Purchase insurance. Transfers the risk from an individual or group to an insurance company.

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17
Q

Fraternal Benefit Society

A

Non for profit organization that sells insurance only to its members. It must have a lodge system that includes ritualistic work and maintain a representative form of government with elected officers.

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18
Q

Four essential elements of all legal contracts

A
  1. Offer & Acceptance
  2. Consideration
  3. Competent Parties
  4. Legal Purpose
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19
Q

Captive/Exclusive Agent

A

Agrees by contract to produce insurance business only for the insurer they are contracted with.

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20
Q

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

A

Commingling.- It is illegal for insurance producers to commingle premiums collected from the applicants with their own personal funds.

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21
Q

The proposed insured makes the premium payment on a new insurance policy. If the insured should die, the insurer will pay the death benefit to the beneficiary if the policy is approved. This is an example of what kind of contract?

A

Conditional

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22
Q

Conditional Contract

A

Requires both the insurer and policy owner to meet certain conditions before the contract can be executed, unlike the other types of policies which put the burden of condition on either the insurer of the policy owner.

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23
Q

Express authority

A

written into the contract between the insurer and the agent.

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24
Q

What is the term for the entity that an agent represents contractual agreements with third parties?

A

Principal

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25
Q

Surplus lines insurer

A

Do not have a certificate of authority to transact business in the state, but are on the Commissioner’s approved list to transact business under the state’s surplus lines laws.

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26
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

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27
Q

Concealment

A

when a person withholds a material fact that is crucial to making a decision. In insurance, this involves withholding information that would be crucial to underwriting decisions.

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28
Q

Exposure

A

Unit of measurement used to determine rates charged for insurance coverage

29
Q

Representations

A

Written or oral statements made by the applicant that are considered to be true to the best of the applicant’s knowledge.

30
Q

Unilateral contract

A

One sided: only one party makes an enforceable promise.

31
Q

Reinsurance

A

An agreement between a ceding insurer and a assuming insurer. Where the re-insurer indemnifies the ceding insurer for part of all of the losses it sustains related to a policy issued previously. Used to protect themselves from catastrophic losses

32
Q

Ceding insurer

A

originating company that procures insurance on itself in another insurer

33
Q

Insurable risks

A

needs to be statistically predictable. Must involve a loss that is definite as to cause, time place and amount. Insurance cannot be mandatory. Insureds should be randomly selected.

34
Q

Surplus Lines insurance usually involves insurance for which type of individuals?

A

High risk individuals

35
Q

Pure risk

A

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

36
Q

Who might receive dividends from a mutual insurer?

A

Policyholders- since dividends in this situation are considered a return on premiums they are not taxable

37
Q

Risk Reduction Method Example

A

Exercising and eating healthy to avoid the risk of disease or illness

38
Q

Major difference between a stock company and a mutual company

A

Ownership.
Mutual companies- policyholders
Sock companies- stockholders

39
Q

Risk avoidance method

A

Eliminating risk of loss by avoiding any exposure to an event that could give rise to such loss. Effect but not practical.

40
Q

In forming an insurance contract, when does acceptance usually occur?

A

When an insurer’s underwriter approves coverage.

41
Q

Direct Response Marketing

A

Bypasses the insurance agent. Business is conducted over the phone, through the mail or online.

42
Q

Aleatory Contract

A

Unequal amounts are exchanged between payments and benefits.

43
Q

Domestic Insurer

A

Doing business within the state in which it is incorporated.

44
Q

A state issued document empowering an insurance company to become an admitted insurer is called

A

Certificate of authority. Then it is considered an admitted insurer

45
Q

Principle of Indemnity

A

the insured can only collect for the amount of the loss even if the policy is written with greater benefit limits

46
Q

Waiver

A

Giving up one’s known right or privilege

47
Q

An insurance company receives an application with some information missing and issues the policy anyway. What is this called?

A

Waiver

48
Q

Speculative Risk

A

Involves uncertainty as to whether the final outcome will be gain or loss.

49
Q

In Insurance transactions, Fiduciary Responsibility means

A

Handling insurer funds in a trust capacity

50
Q

Requirements that must be met before a risk is a proper subject for insurance

A
  1. The loss produced by the risk must be definite
  2. The loss must NOT be intentional
  3. The loss must NOT be catastrophic
  4. There must be a sufficient number of homogeneous exposure units to make losses reasonable predictable.
51
Q

Risk

A

The uncertainty or chance of loss

52
Q

Hazards

A

Events or conditions that increase the chances of an insured loss occurring

53
Q

Consideration

A

Binding force in any contract. Something of value that is transferred between the two parties to form a legal contract.
Insured: premiums
Insurer: promise to pay in the even of loss

54
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

55
Q

Risk retention group

A

Liability insurance company owned by it’s members. The members are exposed to similar liability risks by virtue of being in the same business or industry.

56
Q

In insurance, an offer is usually made when

A

An applicant submits an application to the insurer

57
Q

Contracts of adhesion

A

Written by the insurer and submitted to the insured on a take it or leave it basis.

58
Q

Rescission

A

When a company want to cancel a policy and return funds paid

59
Q

After issuing a policy, an insurance company discovers that a policyholder concealed information on the application. The insurance company wants to cancel the policy and give back the money the policyholder has paid. This is an example of

A

Rescission

60
Q

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

A

larger

61
Q

Law of large numbers

A

the larger the group becomes, the easier it is to predict losses. Insurers use this law in order to predict certain types of losses and set appropriate premiums

62
Q

A participating insurance policy may do which of the following?

A

pay dividends to the policy owner

63
Q

Adverse selection

A

More risks with high probability of loss seeking to purchase and maintain insurance than the risks who present lower probability. Underwriters must guard against this.

64
Q

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

A

The insured will need a written consent of the insurer.- because contracts are written between insurance companies and individuals and they have the right to decide who they want to do business with.

65
Q

warranty

A

statement that is guaranteed to be true

66
Q

Risk Retention

A

Results from three basics desire of the insured:

  1. reduce expenses and improve cash flow
  2. increase control of claim reserving and claim settlements
  3. fund losses that cannot be insured
67
Q

ABC insurance company recieves an incomplete application and issues the policy anyways. Six months later ABC realizes the missing information. What term is used that prevents ABC from forcing the policy owner to answer further questions

A

Estoppel- ABC had waived it’s right to receive answer to the missing information once the policy was issued; therefore, they are estopped from enforcing those waived rights.

68
Q

Comparison between private and government insurers

A

Private insurers may be authorized to transact insurance by state insurance departments

Property & Casualty Pre-Licensing Course (3 decks)

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