General insurance Ch. 1

Question 1

What are the five characteristics of an ideally insurable risk?

Answer 1

Loss must be 1) due to chance, 2) definite and measurable, 3) statistically predictable, 4) not catastrophic, and 5) Coverage cannot be mandatory.

Question 2

What entities make up the Medical Information Bureau?

Answer 2

Insurers

Question 3

Whom does an insurance agent represent?

Answer 3

Insurance company

Question 4

When would a misrepresentation on an insurance application be considered fraud?

Answer 4

When it is intentional and material

Question 5

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

Answer 5

When the insurer approves a prepaid application

Question 6

What document is required for an insurance company to transact insurance?

Answer 6

Certificate of Authority

Question 7

What are the four elements of an insurance contract?

Answer 7

Agreement (offer and acceptance), consideration, competent parties, and legal purpose

Question 8

When does an insurance policy go into effect?

Answer 8

When the policy is delivered and the premium is paid

Question 9

If an insurer meets the state’s financial requirements and is approved to transact business in the state, it is considered what type of insurer?

Answer 9

Authorized or admitted

Question 10

What type of insurer is formed under the laws of another country?

Answer 10

Alien

Question 11

What type of report provides information about the applicant’s hobbies, habits and financial status?

Answer 11

Inspection report

Question 12

What is a warranty in an insurance contract?

Answer 12

An absolutely true statement upon which the validity of the insurance contract is based

Question 13

What two elements are necessary for a life insurance contract to have a legal purpose?

Answer 13

Insurable interest and consent

Question 14

An insurance company is domiciled in California and transacts insurance in Nevada. What is this insurer’s classification in Nevada?

Answer 14

Foreign

Question 15

An insurance policy paid a nontaxable dividend to the insured one year, and nothing the next. From what type of insurer did the insured purchase the policy?

Answer 15

Mutual

Question 16

When risks with higher probability of loss are seeking insurance more often than other risks, this is knows as what?

Answer 16

Adverse selection

Question 17

An applicant conceals relevant health information on the application. The applicant presents what type of hazard?

Answer 17

Moral

Question 18

Whose responsibility is it to determine that all the questions on an insurance application are answered?

Answer 18

The Agent’s

Question 19

In insurance, when is the offer usually made on a contract?

Answer 19

When the insurance application is submitted

Question 20

If an applicant does not receive his or her insurance policy, who would be held responsible?

Answer 20

The agent

Question 21

For the purpose of insurance, what is risk?

Answer 21

Uncertainty of loss

Question 22

The requirement that agents must account for and promptly remit all insurance funds collected is knows as what type of agent responsibility?

Answer 22

Fiduciary

Question 23

When a change needs to be made on the application for insurance, which is the best method for correcting the information?

Answer 23

Complete a new application or ask the applicant to initial the correction on the original application

Question 24

The insurer organized to return a profit to the stockholders is what type of insurer?

Answer 24

Stock company

Question 25

Insurance is a contract that protects the insured from what?

Answer 25

Loss

Question 26

A person who does not lock the doors to his or her house shows an indifferent attitude. This person presents what type of hazard?

Answer 26

Morale

Question 27

Wagering on a sporting event is known as what type of risk?

Answer 27

Speculative

Question 28

What are the three types of agent authority?

Answer 28

• Expressed
• Implied
• Apparent

Question 29

Who owns stock companies?

Answer 29

Stockholders

Question 30

What are the three types of hazards?

Answer 30

• Physical
• Moral
• Morale

Question 31

According to the Law of Agency, a principal is represented by whom?

Answer 31

Agent / Producer

Question 32

Conditions that increase the chance of a loss are known as what?

Answer 32

Hazards

Question 33

What are the strategies used by underwriters to prevent adverse selection?

Answer 33

Restriction of coverage, refusal to accept a risk, and accepting a risk at a higher rate

Question 34

When agents act within the scope of their contract, their actions will be assumed to be the acts of whom?

Answer 34

Issuer

Question 35

A situation in which a person can only experience a loss and no gain presents what type of risk?

Answer 35

Pure risk

Question 36

If an agent fails to obtain the applicant’s signature on the insurance application, what must the insurer do?

Answer 36

Send the application back to the applicant for signature

Question 37

In the agent/insurer relationship, who is considered the principal?

Answer 37

Issuer

Question 38

What type of risk is insurable?

Answer 38

Pure Risk

Question 39

An insurance company that is formed under the laws of another state is known as what type of insurer?

Answer 39

Foreign

Question 40

What is the term for the causes of loss insured against in an insurance policy?

Answer 40

Peril

Question 41

Insurers are classified according to their domicile. What are the three types of insurers?

Answer 41

• Domestic
• Foreign
• Alien

Question 42

The reduction, decrease, or disappearance of value of the person or property insured in a policy is known as what?

Answer 42

Loss

Question 43

What do individuals use to transfer their risk of loss to a larger group?

Answer 43

Insurance

Question 44

The type of insurance company organized to return any surplus money to its policyholders is known as what?

Answer 44

Mutual Company

Question 45

What is the best way to handle incomplete insurance applications?

Answer 45

Return the application to the applicant for completion