General Insurance LAH

Question 1

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

Answer 1

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.

Question 2

A(n) ________ insurer assumes risk from another insurance company.

Reciprocal
Assumption
Captive
Reinsurance

Answer 2

“Reinsurance”. A reinsurance insurer assumes risk from another insurance company.

Question 2

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

Answer 2

“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.

Question 2

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

Answer 2

Facultative reinsurance is reinsurance for a single risk or a defined package of risks

Question 3

Dividends from a mutual insurance company are paid to whom?

Stockholders
Preferred stockholders
Policyholders
Beneficiaries

Answer 3

Mutual insurance companies are owned by policyowners, to whom dividends are paid.

Question 4

Which reinsurance contract between two insurers involves an automatic sharing of the risks assumed?

Arbitrage reinsurance
Excess reinsurance
Facultative reinsurance
Treaty reinsurance

Answer 4

Treaty reinsurance

Question 5

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

Answer 5

Upon completion of the application

Question 6

Who regulates an insurer’s claim settlement practices?

National Association of Claim Adjusters
State insurance departments
State attorney general
National Association of Insurance Commissioners

Answer 6

“State insurance departments”. State insurance departments regulate claim settlement practices

Question 7

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

Answer 7

If an insurance company is unable to pay its claims, the State Guaranty Association will step in and pay the outstanding claims

Question 8

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

Answer 8

group-owned insurer whose primary activity consists of assuming and spreading the liability risks of its members is called a risk retention group.

Question 9

A(n) ________ agent is an insurance agent who represents only ONE insurance company.

exclusive
inclusive
captive
domestic

Answer 9

A captive agent is an insurance agent who only works for one insurance company.

Question 10

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

Answer 10

reserves.

Question 10

Dividends from a stock insurance company are normally sent to

beneficiaries
policyowners
insureds
shareholders

Answer 10

Shareholders normally receive dividends in a stock insurance company.

Question 11

What is the accounting measurement of an insurance company’s future obligations to its policyowners?

Reserves
Surplus account
Credits
Retention fund

Answer 11

“Reserves”. The accounting measurement of an insurer’s future obligations to its policyholders is reserves.

Question 12

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

Answer 12

Life insurance creates an instant estate, regardless of when death occurs

Question 13

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

Answer 13

he Lloyd’s organization is a syndicate of individuals and companies that individually under­write insurance

Question 14

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

Answer 14

he administrator of a reciprocal insurer who manages the premiums collected from the group’s members is called an attorney-in-fact.

Question 15

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

Answer 15

“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.

Question 16

Which of the following is an unincorporated association whose members provide coverage for one another?

Reciprocal
Lloyds
Self-insurer
Surplus lines

Answer 16

A reciprocal association is an unincorporated association whose members provide coverage for one another.

Question 17

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

Answer 17

All of these are roles provided by the National Association of Insurance Commissioners EXCEPT “Regulate state insurance commissioners”.

Question 18

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

Answer 18

An endorsement is a written form attached to an insurance policy that alters the policy’s coverage, terms, or conditions. Sometimes called a rider

Question 19

What type of reinsurance contract involves two companies automatically sharing their risk exposure?

Treaty
Excess
Arbitrage
Facultative

Answer 19

Under treaty reinsurance, each party automatically accepts specific percentages of the insurer’s business

Question 20

Who elects the governing body of a mutual insurance company?

chairman of the board
bondholders
stockholders
policyholders

Answer 20

The governing body of a mutual insurance company is elected by the policyholder.

Question 21

What qualifies as acceptance of an insurance contract offer?

A declined policy
The initial premium only
The application and initial premium
An issued policy

Answer 21

An issued policy signifies acceptance of an offer of an insurance contract

Question 22

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

Answer 22

Reinsurance contracts accept a portion of the risk underwritten by another insurer who has contracted for the entire coverage amount.

Question 23

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

Answer 23

Consent is not needed when a parent purchases a life insurance policy on a minor.

Question 24

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

Answer 24

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.

Question 25

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

Answer 25

Similar objects of insurance that are exposed to the same group of perils are called homogeneous exposure units

Question 26

A business becoming incorporated is an example of risk ____. retention transfer severance reduction

Answer 26

"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).

Question 27

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

Answer 27

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.

Question 28

What type of risk involves the potential for loss AND the possibility for gain? Homogeneous Adverse Pure Speculative

Answer 28

"Speculative". A speculative risk involves the potential for loss and the possibility for gain.

Question 29

Which of the following can be defined as a cause of a loss? Adversity Peril Risk Hazard

Answer 29

"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.

Question 30

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

Answer 30

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.

Question 31

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

Answer 31

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.

Question 32

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

Answer 32

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.

Question 33

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

Answer 33

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.

Question 34

Use of XYZ Insurance Company brochures, business cards, and rating guides is an example of Implied authority Expresses authority Apparent authority Fiduciary duty

Answer 34

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.

Question 35

Statements made by an insured on an accident and health insurance application are considered to be conditional representations warranties aleatory

Answer 35

Statements made by applicants for insurance are considered to be representations and not warranties

Question 36

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

Answer 36

Insurance contracts are aleatory. This means there is an element of chance and potential for unequal exchange of value for both parties.

Question 37

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

Answer 37

"Implied authority". Implied authority is authority not specifically granted to the agent in the agency contract.

Question 37

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

Answer 37

Agreement in an insurance contract includes all of these EXCEPT "Equity"

Question 37

Which of the following types of risk is insurable? Operational Physical Pure Speculative

Answer 37

Pure risk is insurable.

Question 38

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

Answer 38

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.

Question 38

Which of the following involves sharing an uncertain risk with another similar group? Physical Transfer Speculative Operational

Answer 38

Risk transfer involves sharing an uncertain risk with another similar group.

Question 38

Which element of a contract constitutes a definite and unqualified proposal by one party to another? Adhesion Offer Acceptance Consideration

Answer 38

"Offer". A proposal of contract terms by one party to another is an called an offer.

Question 38

The law of large numbers enables an insurer to avoid adverse selection predict losses assure company profits classify rates

Answer 38

"predict losses". The Law of Large numbers enables an insurer to predict losses.

Question 39

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

Answer 39

Speculative risks (chance of both a loss and gain) are not insurable

Question 40

Which term describes the elimination of a hazard? Risk avoidance Risk transference Risk retention Risk pooling

Answer 40

Eliminating a hazard is an example of risk avoidance.

Question 41

How can an insurance company minimize exposure to loss? Reinsuring risks Risk assumption Reissuance Risk concealing

Answer 41

Many insurers are able to minimize exposure to loss by reinsuring risks

Question 42

Risk ____ is the process of analyzing exposures that create risk and designing programs to handle them. transfer acceptance management administration

Answer 42

The process of analyzing exposures that create risk and designing programs to handle them is called risk management.

Question 43

What type of risk involves the potential for loss with no possibility for gain? Morale risk Pure risk Speculative risk Adverse risk

Answer 43

"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.

Question 44

Which of the following can be defined as "the potential for loss"? Risk Transference Hazard Peril

Answer 44

A risk can be described as "the potential for loss"

Question 45

Which of the following describes the act of insuring a risk against possible loss? Hazard reduction Loss management Risk transfer Risk avoidance

Answer 45

Insuring a risk against possible loss is an example of risk transfer.

Question 46

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

Answer 46

"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".

Question 47

A condition that increases the possibility of financial loss is called a(n) Exposure Risk Peril Hazard

Answer 47

A hazard is a condition that increases the possibility of loss.

Question 48

A hold-harmless clause is an example of risk transfer retention avoidance sharing

Answer 48

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.

Question 49

ABC Company is attempting to minimize the severity of potential losses within its company. The company is engaged in risk transference retention avoidance reduction

Answer 49

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.

Question 50

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

Answer 50

Based on the law of large numbers, as the number of similar insured units increases, predictability of losses improves.

Question 51

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

Answer 51

An insurable risk requires the loss to be calculable or predictable.

Question 52

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

Answer 52

"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.

Question 53

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

Answer 53

An insurance company can be liable for a producer's unauthorized acts when the agency contract is vague concerning the authority granted.

Question 54

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

Answer 54

"Regulate state insurance commissioners". All of these are roles provided by the National Association of Insurance Commissioners EXCEPT "Regulate state insurance commissioners"

Question 55

Under the Law of Agency, the principal is considered to be the insured the plan administrator the insurer the producer

Answer 55

"the insurer". According to the Law of Agency, the insurer is considered to be the principal.

Question 56

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

Answer 56

An agent whose actions exceed the authority granted by contract is not backed by the insurer.

Question 57

Which of the following can be defined as a cause of a loss? Peril Hazard Adversity Risk

Answer 57

A peril may be defined as the cause of a loss

Question 58

Giving up a known right on a voluntary basis is called a(n) disclaimer waiver surrender estoppel

Answer 58

Waiver is defined as the intentional and voluntary giving up of a known right

Question 59

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

Answer 59

Not doing a business deal after deciding it would be too risky is an example of risk avoidance, not retention.

Question 60

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

Answer 60

"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.

Question 61

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

Answer 61

When an offer is answered by a counteroffer, the first offer is void.

Question 62

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

Answer 62

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.

Question 63

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

Answer 63

The correct answer is "consideration". Consideration can be defined as the value given in exchange for the promises sought.

Question 64

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

Answer 64

When a producer acts within the scope of his/her contractual authority, the insurer is legally responsible for these actions.

Question 65

The powers directly given to a producer in an agency contract are called assumed implied apparent express

Answer 65

A producer's powers directly stated in the agency contract are considered express authority.

Question 66

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

Answer 66

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.

Question 67

The following are all elements of a valid contract EXCEPT written evidence competent parties consideration offer and acceptance

Answer 67

"written evidence". A valid contract requires all of these things except written evidence.

Question 68

An appointed producer's implied authority is derived from the NAIC evident authority express authority the insurer's Certificate of Authority

Answer 68

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).

Question 69

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

Answer 69

"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.

Question 70

Which of the following can be defined as "the potential for loss"? Risk Hazard Peril Transference

Answer 70

A risk can be described as "the potential for loss"

Question 71

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

Answer 71

"As the number of insured units increases, the number of losses decreases".

Question 72

A condition that increases the possibility of financial loss is called a(n) Risk Peril Exposure Hazard

Answer 72

A hazard is a condition that increases the possibility of loss.