General Insurance LAH Flashcards
Which of the following types of insurers limits the exposures it writes to those of its owners?
Limited insurer
Captive insurer
Restricted insurer
Confined insurer
An insurer that confines or largely limits the exposures it writes to those of its owners is called a captive insurer. A “captive insurer” is an insurance company that primarily focuses on insuring the risks of its owners, meaning it largely limits the exposures it writes to those of its parent company or affiliated entities, essentially acting as an “in-house” insurance provider for its owners.
A(n) ________ insurer assumes risk from another insurance company.
Reciprocal
Assumption
Captive
Reinsurance
“Reinsurance”. A reinsurance insurer assumes risk from another insurance company.
An agent’s authority to bind an insurer to an insurance contract may be granted in the
buyer’s guide and policy summary
agent’s license and insurance company’s certificate of authority
agent’s contract and the insurance company’s appointment
state guaranty association
“agent’s contract and the insurance company’s appointment”. The agent’s contract and appointment with the insurance company grants the authority to bind an insurer to an insurance contract.
When a ceding insurer transfers a portion of its risk to an assuming insurer on a case by case basis, this process is referred to as
Facultative reinsurance
Reciprocity
Treaty reinsurance
Quotative pooling
Facultative reinsurance is reinsurance for a single risk or a defined package of risks
Dividends from a mutual insurance company are paid to whom?
Stockholders
Preferred stockholders
Policyholders
Beneficiaries
Mutual insurance companies are owned by policyowners, to whom dividends are paid.
Which reinsurance contract between two insurers involves an automatic sharing of the risks assumed?
Arbitrage reinsurance
Excess reinsurance
Facultative reinsurance
Treaty reinsurance
Treaty reinsurance
At what point must a life insurance applicant be informed of their rights that fall under the Fair Credit Reporting Act?
At the policy’s delivery
When the insurer receives the MIB report
Upon completion of the application
Before the appointment is scheduled
Upon completion of the application
Who regulates an insurer’s claim settlement practices?
National Association of Claim Adjusters
State insurance departments
State attorney general
National Association of Insurance Commissioners
“State insurance departments”. State insurance departments regulate claim settlement practices
The State Guaranty Association guarantees
that a policy will be issued
that dividends will be paid
that a claim will be paid if an admitted insurer becomes insolvent
the rate of return on a policy
If an insurance company is unable to pay its claims, the State Guaranty Association will step in and pay the outstanding claims
A group-owned insurance company that is formed to assume and spread the liability risks of its members is known as a
captive insurer
risk assumption group
risk retention group
treaty insurer
group-owned insurer whose primary activity consists of assuming and spreading the liability risks of its members is called a risk retention group.
A(n) ________ agent is an insurance agent who represents only ONE insurance company.
exclusive
inclusive
captive
domestic
A captive agent is an insurance agent who only works for one insurance company.
The stated amount or percent of liquid assets that an insurer must have on hand that will satisfy future obligations to its policyholders is called
retention
surplus
reserves
credits
reserves.
Dividends from a stock insurance company are normally sent to
beneficiaries
policyowners
insureds
shareholders
Shareholders normally receive dividends in a stock insurance company.
What is the accounting measurement of an insurance company’s future obligations to its policyowners?
Reserves
Surplus account
Credits
Retention fund
“Reserves”. The accounting measurement of an insurer’s future obligations to its policyholders is reserves.
Which of the following financial products creates an instant estate, no matter when the date of death?
Deferred annuity
Certificate of deposit
Mutual Funds
Life insurance
Life insurance creates an instant estate, regardless of when death occurs
Which of the following is a syndicate established by a group of insurers to share underwriting duties?
Lloyd’s organization
Reinsurer
NAIC
Multi-line insurers
he Lloyd’s organization is a syndicate of individuals and companies that individually underwrite insurance
A reciprocal insurer typically has an administrator who manages the premiums collected from the group’s members. This administrator is called a(n)
attorney general
reciprocal director
attorney-in-fact
reciprocal commissioner
he administrator of a reciprocal insurer who manages the premiums collected from the group’s members is called an attorney-in-fact.
An insurance applicant MUST be informed of an investigation regarding his/her reputation and character according to the
National Association of Insurance Commissioners
State Guaranty Association
Fair Labor Standards Board
Fair Credit Reporting Act
“Fair Credit Reporting Act”. The Fair Credit Reporting Act is a Federal law requiring an individual to be informed if that individual is being investigated by an inspection company.
Which of the following is an unincorporated association whose members provide coverage for one another?
Reciprocal
Lloyds
Self-insurer
Surplus lines
A reciprocal association is an unincorporated association whose members provide coverage for one another.
Which of the following is NOT an objective of the National Association of Insurance Commissioners?
Promote efficiency in the administration of state insurance laws
Regulate state insurance commissioners
Protect the interest of policyowners and consumers
Encourage uniformity in state insurance laws
All of these are roles provided by the National Association of Insurance Commissioners EXCEPT “Regulate state insurance commissioners”.
Christopher is issued an insurance policy that contains an attached agreement which alters the terms of the policy. This attached agreement is called a(n)
restriction
sanction
extension
endorsement
An endorsement is a written form attached to an insurance policy that alters the policy’s coverage, terms, or conditions. Sometimes called a rider
What type of reinsurance contract involves two companies automatically sharing their risk exposure?
Treaty
Excess
Arbitrage
Facultative
Under treaty reinsurance, each party automatically accepts specific percentages of the insurer’s business
Who elects the governing body of a mutual insurance company?
chairman of the board
bondholders
stockholders
policyholders
The governing body of a mutual insurance company is elected by the policyholder.
What qualifies as acceptance of an insurance contract offer?
A declined policy
The initial premium only
The application and initial premium
An issued policy
An issued policy signifies acceptance of an offer of an insurance contract
An insurer has a contractual agreement which transfers a portion of its risk exposure to another insurer. What type of contractual arrangement is this?
Mutuality agreement
Reinsurance contract
Reciprocity arrangement
Coinsurance contract
Reinsurance contracts accept a portion of the risk underwritten by another insurer who has contracted for the entire coverage amount.
Which situation would not require the insured’s consent when a life insurance policy is issued?
A policy is purchased by a parent for a minor child
A policy is purchased by a business partner for another partner
A policy is purchased by an employer for an employee
A policy is purchased by a husband for his wife
Consent is not needed when a parent purchases a life insurance policy on a minor.
All of these statements correctly describe an aleatory contract EXCEPT
Only one party makes any kind of legally enforceable offer
Potential unequal exchange of value for both parties
A legal wager is considered an aleatory contract
Element of chance is involved
Insurance contracts are aleatory, which means there is an unequal exchange. The premiums paid by the applicant are small in relation to the amount that will be paid by the insurance company in the event of a loss.
For insurance purposes, similar objects which are exposed to the same group of perils are referred to as
Homogeneous exposure units
Common hazards
Homogenous perils
Similar exposure units
Similar objects of insurance that are exposed to the same group of perils are called homogeneous exposure units
A business becoming incorporated is an example of risk ____.
retention
transfer
severance
reduction
“transfer”. Incorporation of a business is an example of risk transfer (legally separating the owner’s personal assets from the business liabilities, meaning that if the business faces financial difficulties or lawsuits, the owner’s personal wealth is generally protected from being used to cover those debts, effectively transferring the risk to the company entity itself).
An insurance application requires an applicant to make a full, accurate disclosure of the risk factor involved. Using this criteria, an insurance policy is considered what type of contract?
Estoppel contract
Aleatory contract
Unilateral contract
Contract of utmost good faith
A contract of utmost good faith is a minimum standard that requires both the buyer and seller in a transaction to act honestly toward each other and to not mislead or withhold critical information from one another.
What type of risk involves the potential for loss AND the possibility for gain?
Homogeneous
Adverse
Pure
Speculative
“Speculative”. A speculative risk involves the potential for loss and the possibility for gain.
Which of the following can be defined as a cause of a loss?
Adversity
Peril
Risk
Hazard
“Peril”. A peril may be defined as the cause of a loss (A peril is an event that can cause injury, loss, or destruction. In insurance, a peril is the direct cause of a loss). The hazard is a potential source of harm. Hazards can be natural, human-made, or a combination of both.
Which of the following is NOT an example of risk retention?
Not doing a business deal after deciding it would be too risky
Deciding a business deal is risky but going through with it anyways
Becoming aware of a risk and taking no action
Self-insuring a given risk
The correct answer is “Not doing a business deal after deciding it would be too risky”. Not doing a business deal after deciding it would be too risky is an example of risk avoidance, not retention (Risk retention means actively choosing to accept a risk and manage it, even if it means potentially facing negative consequences. Not taking a deal because it’s too risky is avoiding the risk altogether, which is not risk retention). Becoming aware of a risk and taking no action is considered an example of risk retention, as it means you are essentially accepting the potential consequences of that risk by choosing not to mitigate or transfer it to another party; this is often referred to as “passive risk retention.
Greg applies for insurance and makes a false statement on the application that will influence whether or not the insurer will accept the risk. Greg’s false statement is called a(n)
unacceptable risk
adverse selection
material misrepresentation
substandard representation
A false statement made by an applicant that would influence an insurer in determining whether or not to accept the risk is considered a material misrepresentation.
Which of these statements is NOT a characteristic of the law of large numbers?
Losses can be predicted in large groups with a higher degree of accuracy
Individual losses can be predicted based on past experience
Rates can be calculated to compensate for losses
Group losses can be predicted based on past experience
The law of large numbers states that larger groups provide better loss predictions. The higher the exposure, the more likely the event can be predicted.
During the application process, a statement made by an applicant that becomes part of the contract is considered to be a(n)
warranty
representation
exclusion
waiver
The correct answer is “warranty”. A warranty is a statement made by the applicant that is guaranteed to be true in every respect and becomes part of the contract.
Use of XYZ Insurance Company brochures, business cards, and rating guides is an example of
Implied authority
Expresses authority
Apparent authority
Fiduciary duty
Apparent authority is what a third party (such as a member of the public) assumes an agent has, based on the actions or words of the principal. By supplying the agent with business cards, brochures, and rating guides, the insurance company has given the impression that it supports the words and actions of its agent.
Statements made by an insured on an accident and health insurance application are considered to be
conditional
representations
warranties
aleatory
Statements made by applicants for insurance are considered to be representations and not warranties
Which of these is true regarding the exchange of consideration among parties involved in an insurance contract?
Must be certified by the state where transaction takes place
Can be unequal
Must be equal
Required to be in currency
Insurance contracts are aleatory. This means there is an element of chance and potential for unequal exchange of value for both parties.
XYZ Insurance Company gives direct authority to its producers to sell insurance through an agency contract, but nothing is stated regarding the collection of premiums. Which authority grants the producer the right to collect premiums?
Express authority
Assumed authority
Implied authority
Apparent authority
“Implied authority”. Implied authority is authority not specifically granted to the agent in the agency contract.
An agreement is reached when an insurance contract is formed. Which of the following is NOT considered to be an element of an agreement?
Offer
Equity
Acceptance
Meeting of the minds
Agreement in an insurance contract includes all of these EXCEPT “Equity”
Which of the following types of risk is insurable?
Operational
Physical
Pure
Speculative
Pure risk is insurable.
The insurer’s obligation to pay a claim depends on whether the insured or beneficiary has complied with all policy conditions. This makes the policy a(n)
agency agreement
contract of good faith
conditional contract
aleatory agreement
The insurer’s obligation to pay a claim depends on whether the insured or beneficiary has complied with all policy conditions, making the policy a conditional contract.
Which of the following involves sharing an uncertain risk with another similar group?
Physical
Transfer
Speculative
Operational
Risk transfer involves sharing an uncertain risk with another similar group.
Which element of a contract constitutes a definite and unqualified proposal by one party to another?
Adhesion
Offer
Acceptance
Consideration
“Offer”. A proposal of contract terms by one party to another is an called an offer.
The law of large numbers enables an insurer to
avoid adverse selection
predict losses
assure company profits
classify rates
“predict losses”. The Law of Large numbers enables an insurer to predict losses.
Which one of these is NOT considered to be an element of an insurable risk?
Pure risk
Speculative risk
Loss must be due to chance
Loss cannot be catastrophic
Speculative risks (chance of both a loss and gain) are not insurable
Which term describes the elimination of a hazard?
Risk avoidance
Risk transference
Risk retention
Risk pooling
Eliminating a hazard is an example of risk avoidance.
How can an insurance company minimize exposure to loss?
Reinsuring risks
Risk assumption
Reissuance
Risk concealing
Many insurers are able to minimize exposure to loss by reinsuring risks
Risk ____ is the process of analyzing exposures that create risk and designing programs to handle them.
transfer
acceptance
management
administration
The process of analyzing exposures that create risk and designing programs to handle them is called risk management.
What type of risk involves the potential for loss with no possibility for gain?
Morale risk
Pure risk
Speculative risk
Adverse risk
“Pure risk”. Pure risk involves the potential for loss with no possibility for gain (no opportunity to gain or profit from the event) Pure risk refers to an unavoidable and uncontrollable event that results in either total loss or no loss at all. Examples include natural disasters, theft, property damage, or death. The losses caused by pure risk events can be covered by an insurance policy.
Which of the following can be defined as “the potential for loss”?
Risk
Transference
Hazard
Peril
A risk can be described as “the potential for loss”
Which of the following describes the act of insuring a risk against possible loss?
Hazard reduction
Loss management
Risk transfer
Risk avoidance
Insuring a risk against possible loss is an example of risk transfer.
Which of these statements regarding insurance is false?
Speculative risk cannot be insured
One way insurers deal with catastrophic loss is through reinsurance
As the number of insured units increases, the number of losses decreases
Pure risk can be insured
“As the number of insured units increases, the number of losses decreases”. All of these statements are true EXCEPT “As the number of insured units increases, the number of losses decreases”.
A condition that increases the possibility of financial loss is called a(n)
Exposure
Risk
Peril
Hazard
A hazard is a condition that increases the possibility of loss.
A hold-harmless clause is an example of risk
transfer
retention
avoidance
sharing
A hold-harmless clause found in a contract shifts (TRANSFERS) liability for loss from one party to another.It a clause in a legal contract absolving one party of legal liability for any injuries or damages suffered by another party. It ensures that one party cannot hold the other party legally responsible for any risks incurred from services provided.
ABC Company is attempting to minimize the severity of potential losses within its company. The company is engaged in risk
transference
retention
avoidance
reduction
Risk reduction can reduce the chance that a particular loss will occur, or it can reduce the amount of a potential loss if it occurs.
According to the law of large numbers, how would losses be affected if the number of similar insured units increases?
No effect on predicting losses
Predictability of losses will be improved
The higher the exposure, the higher the cost of each loss
Ability to predict losses decreases
Based on the law of large numbers, as the number of similar insured units increases, predictability of losses improves.
An insurable risk requires
the loss must be catastrophic
that the chance for both a loss or gain exists
that the chance of loss be calculable
that the loss must be incalculable
An insurable risk requires the loss to be calculable or predictable.
An agent’s authority to bind an insurer to an insurance contract may be granted in the
buyer’s guide and policy summary
state guaranty association
agent’s license and insurance company’s certificate of authority
agent’s contract and the insurance company’s appointment
“agent’s contract and the insurance company’s appointment”. The agent’s contract and appointment with the insurance company grants the authority to bind an insurer to an insurance contract.
An insurance company can be liable for a producer’s unauthorized acts
when the agency contract is unclear concerning the authority given
at anytime
only if the agency contract is unilateral
only when a felony is involved
An insurance company can be liable for a producer’s unauthorized acts when the agency contract is vague concerning the authority granted.
Which of the following is NOT an objective of the National Association of Insurance Commissioners?
Protect the interest of policyowners and consumers
Promote efficiency in the administration of state insurance laws
Encourage uniformity in state insurance laws
Regulate state insurance commissioners
“Regulate state insurance commissioners”. All of these are roles provided by the National Association of Insurance Commissioners EXCEPT “Regulate state insurance commissioners”
Under the Law of Agency, the principal is considered to be
the insured
the plan administrator
the insurer
the producer
“the insurer”. According to the Law of Agency, the insurer is considered to be the principal.
An agent whose actions exceed the authority granted by contract is
acting under Implied authority
not backed by the insurer
acting under apparent authority
backed by the insurer
An agent whose actions exceed the authority granted by contract is not backed by the insurer.
Which of the following can be defined as a cause of a loss?
Peril
Hazard
Adversity
Risk
A peril may be defined as the cause of a loss
Giving up a known right on a voluntary basis is called a(n)
disclaimer
waiver
surrender
estoppel
Waiver is defined as the intentional and voluntary giving up of a known right
Which of the following is NOT an example of risk retention?
Deciding a business deal is risky but going through with it anyways
Self-insuring a given risk
Not doing a business deal after deciding it would be too risky
Becoming aware of a risk and taking no action
Not doing a business deal after deciding it would be too risky is an example of risk avoidance, not retention.
Which of these statements is NOT a characteristic of the law of large numbers?
Group losses can be predicted based on past experience
Rates can be calculated to compensate for losses
Losses can be predicted in large groups with a higher degree of accuracy
Individual losses can be predicted based on past experience
“Individual losses can be predicted based on past experience”. The law of large numbers states that larger groups provide better loss predictions. The higher the exposure, the more likely the event can be predicted.
What happens when an initial offer is answered with a counteroffer?
Initial offer is automatically accepted
Initial offer is void
An arbitrator decides on a compromise
The counteroffer is legally enforceable
When an offer is answered by a counteroffer, the first offer is void.
The payment of the first premium, the promise to pay a covered loss, and the agreement to abide by policy conditions are all examples of
legal purpose
acceptance
consideration
representation
In an insurance contract, “consideration” refers to the exchange of value between the insured (paying the premium) and the insurer (promising to pay for covered losses). This includes not only the initial premium payment but also the agreement to follow the policy’s terms and conditions.
The payment of the first premium, the promise to pay a covered loss, and the agreement to abide by policy conditions are all examples of
legal purpose
acceptance
consideration
representation
The correct answer is “consideration”. Consideration can be defined as the value given in exchange for the promises sought.
When a producer acts within the scope of his/her contractual authority, which of the following is legally responsible for these actions?
The broker
The insurer
The insured
The producer
When a producer acts within the scope of his/her contractual authority, the insurer is legally responsible for these actions.
The powers directly given to a producer in an agency contract are called
assumed
implied
apparent
express
A producer’s powers directly stated in the agency contract are considered express authority.
The unwritten authority given to a producer to carry out necessary incidental acts of the agency agreement is called
implied authority
acknowledged authority
express authority
apparent authority
Implied authority is authority that is not expressly granted, but which the agent is assumed to have in order to transact the business of the principal.
The following are all elements of a valid contract EXCEPT
written evidence
competent parties
consideration
offer and acceptance
“written evidence”. A valid contract requires all of these things except written evidence.
An appointed producer’s implied authority is derived from
the NAIC
evident authority
express authority
the insurer’s Certificate of Authority
The correct answer is “express authority”. By the very nature of what producer’s are authorized to do (express authority), producers have the implied authority to act on behalf of the principal (insurer).
What is the insurer responsible for when a producer is acting within the scope of authority granted in the agency contract?
Not responsible for any acts by the producer
All actions by the producer
Responsible for acts by the producer that are authority only
Responsible for acts that involve misrepresentation only
“Responsible for acts by the producer that are authority only”. The significance of authority (whether express, implied, or apparent) is that it ties the company to the acts and deeds of its producers. The law will view the producer and the company as one and the same when the producer acts within the scope of his/her authority.
Which of the following can be defined as “the potential for loss”?
Risk
Hazard
Peril
Transference
A risk can be described as “the potential for loss”
Which of these statements regarding insurance is false?
Pure risk can be insured
Speculative risk cannot be insured
As the number of insured units increases, the number of losses decreases
One way insurers deal with catastrophic loss is through reinsurance
“As the number of insured units increases, the number of losses decreases”.
A condition that increases the possibility of financial loss is called a(n)
Risk
Peril
Exposure
Hazard
A hazard is a condition that increases the possibility of loss.
