II. General Insurance Flashcards
The risk of loss may be classified as:
a. Pure risk and speculative risk
b. Certain risk and un-named risk
c. Named risk and un-named risk
d. High risk and low risk
a. Pure risk and speculative risk
Pure risks involve the probability or possibility of loss with no chance for gain. Pure risks are generally insurable. Speculative risks involve uncertainty as to whether the final outcome will be gain or loss. Speculative risks are generally uninsurable.
An insured purchased an insurance policy 5 years ago. last year, she received a dividend check from the insurance company that was not taxable. This year, she did not receive a check from the insurer. From what type of insurer did the insured purchase the policy?
Mutual: Funds not paid out after paying claims and other operating costs are returned to the policyowners in the form of a dividend. If all funds are paid out, no dividends are paid.
An individual’s tendency to be dishonest would be indicative of a
a. moral hazard
b. morale hazard
Moral:
What is the major difference between a Stock Company and a Mutual Company?
Ownership: Mutual companies are owned by policyholders, while stock companies are owner by stockholders.
Mutual companies are owned by policyholders and issue participating policies- policy owners are entitled to dividends, which, in the case of mutual companies, are a return of excess premiums and are therefore nontaxable. Dividends are generated when the premiums and the earnings combined exceed actual cost of providing coverage, creating a surplus. Dividends are not guaranteed.
A situation in which a person can only lose or have no change represents
a. speculative risk
b. adverse selection
c. hazard
d. pure risk
Pure risk refers to situations that can only result in a loss or no change. Pure risk is the only type insurance companies are willing to accept.
A tornado that destroys property would be an example of which of the following?
a. a loss
b. a physical hazard
c. a peril
d. a pure risk
a peril is the cause of loss insured against in an insurance policy
for the purpose of insurance, risk is defined as
a. an event that increases the amount of loss
b. the uncertainty or chance of loss.
b. the uncertainty or chance of loss
What documentation grants express authority to an agent?
a. fiduciary contract
b. state provisions
c. agent’s contract with the pricipal
d. agent’s insurance license
c. Agent’s contract with the principal
The principal grants authority to an agent through the agent’s contract.
Which of the following is a statement that is guaranteed to be true, and if untrue, may breach an insurance contract?
A. Indemnity
B. Representation
C. Warranty
D. Concealment
A warranty in insurance is a statement guaranteed to be true. When an applicant is applying for an insurance contract, the statements he or she makes are generally not warranties, but representations. Representations are statements that are true to the best of the applicant’s knowledge.
Which of the following must an insurer obtain in order to transact insurance within a given state?
A. Business Entity License
B. Insurer’s Certification
C. Certificate of Authority
D. Producer’s Certificate
C. Certificate of Authority
All insurers (domestic, foreign, or alien) must obtain a Certificate of Authority before transacting insurance within a given state.
Which of the following are the authorities that an agent can hold?
A. Authorized and admitted
B. Primary and secondary
C. Express and implied
D. Apparent and allowed
C. Express and implied
The powers and authorities that an agent holds are express and implied. Apparent authority is the appearance of, or the assumption of, authority based on the actions, words, or deeds of the principal or because of circumstances the principal created.
3 types of agent authority: express, implied, and apparent
When an insured makes truthful statements on the application for insurance and pays the required premium, it is known as which of the following?
A. Contract of adhesion
B. Acceptance
C. Consideration
D. Legal purpose
C. Consideration
Consideration is something of value that each party gives to the other. The consideration on the part of the insured is the payment of premium and the representations made in the application.
A participating insurance policy may do which of the following?
A .Provide group coverage
B. Pay dividends to the stock holder
C. Require 80% participation
D. Pay dividends to the policyowner
D. Pay dividends to the policyowner
A participating insurance policy will pay dividends to the owner based upon actual mortality cost, interest earned and costs.
Which of the following is an example of apparent authority of an agent appointed by an insurer?
A. The agent has business cards and stationery printed.
B. The agent puts up a sign with the insurer’s logo without express permission.
C. The agent accepts a premium payment after the end of the grace period.
D. The agent accepts a premium payment during the grace period.
C. The agent accepts a premium payment after the end of the grace period.
An agent who accepts a premium after the end of the grace period appears to the client to have the authority to prevent the policy from lapsing. In fact, the agent has no such power. The power to use business cards, stationery and signage may be either express (written) or implied (not written), but in either case, it is allowed.
An insurer neglects to pay a legitimate claim that is covered under the terms of the policy. Which of the following terms best describes what the insurer has violated?
A. Adhesion
B. Consideration
C. Good Faith
D. Representation
A. Adhesion
The binding force in any contract is consideration. Consideration on the part of the insured is the payment of premiums and the health representations made in the application. Consideration on the part of the insurer is the promise to pay in the event of loss.
