Insurance Regulation and General Insurance Flashcards
1
Q
The Federal Fair Credit Reporting Act: A. Protects customer privacy B. Regulates telemarketing C. Prevents money laundering D. Regulates consumer reports
A
D
2
Q
If a customer requests additional information concerning an investigative consumer report, how long does the insurer or reporting agency have to comply? A. 10 days B. 3 days C. 5 days D. 7 days
A
C
3
Q
How many hours of CE must be completed every 2 years?
A. 20 total hours, including 10 hours approved for the line of license that the producer holds.
B. 24 total hours, including 12 hours approved for the line of license that the producer holds.
C. 24 total hours, including 8 hours approved for the line of license that the producer holds.
D. 30 total hours, including 15 hours approved for the line of license that the producer holds.
A
C
4
Q
All of the following actions can be described as twisting EXCEPT:
A. Misrepresenting the terms and conditions of the existing policy to make the new one more attractive.
B. Embellishing the terms of the proposed policy in order to convince the insured to switch.
C. Making an incomplete comparison between the existing and proposed policies.
D. Explaining to client the advantages of permanent insurance over term and suggesting changing policies.
A
D
5
Q
Under the Fair Credit Reporting Act, individuals rejected for insurance due to information contained in a consumer report:
A. Must be informed of the source of the report
B. Are entitled to obtain a copy of the report from the party who ordered it
C. Must be advised that a copy of the report is available to anyone who requests it
D. May sue the reporting agency in order to get inaccurate data corrected.
A
A
6
Q
In the transaction of insurance, which of the following is considered to be representing the client? A. The agent B. The insurer C. The broker D. The Commissioner
A
C
7
Q
Under the Fair Credit Reporting Act, if the consumer challenges the accuracy of the information contained in his or her report, the reporting agency must:
A. Defend the report if the agency feels it is accurate.
B. Change the report.
C. Send an actual certified copy of the entire report to the consumer.
D. Respond to the consumer’s complaint.
A
D
8
Q
Required privacy policy notices to consumers and customers:
A. May be in writing or electronically.
B. May be done orally if done in person.
C. Must be given face-to-face and in writing.
D. May only be done in writing.
A
A
9
Q
Which of the following includes information regarding a person’s credit, character, reputation, and habits? A. Agent’s report B. Consumer report C. Consumer history D. Insurability report
A
B
10
Q
A producer must report to the Director any criminal prosecution of the producer taken in any jurisdiction within how many of the initial pretrial hearing date? A. 10 days B. 30 days C. 45 days D. 90 days
A
B
11
Q
Which of the following statements is NOT true regarding the Director of Insurance in this state?
A. The Director must have a surety bond paid for by the State.
B. The Director is a full-time, salaried position
C. The Director is elected for the term of 4 years
D. The Director is appointed by the Governor
A
C
12
Q
All of the following are minimum requirements to be licensed as a producer in South Carolina EXCEPT:
A. Pass the required license examination
B. Pay the one-time producer fee
C. Be a registered voter in South Carolina
D. Have not been convicted of a felony for the past 10 years.
A
C
13
Q
When are insurers required to renew appointments?
A. December 31st of every even-numbered year
B. September 30th of every odd-numbered year
C. December 31st of every odd-numbered year
D. September 30th of every even-numbered year
A
D
14
Q
An insurer publishes intimidating brochures that portray the insurer’s competition as financially and professionally unstable. Which of the following best describes this act?
A. Legal, provided that the information can be verified
B. Illegal until endorsed by the Guaranty Association
C. Legal, provided that the other insurers are paid royalties for the usage of their names
D. Illegal under any circumstances
A
D
15
Q
During a sales presentation, a producer intentionally makes a statement which may mislead the insurance applicant. This describes A. Defamation B. Twisting C. Coercion D. Misrepresentation
A
D
16
Q
If an insurance wishes to order a consumer report on an applicant to assist in the underwriting process, and if a notice of insurance information practice has been provided, the report may contain all of the following information EXCEPT the applicant’s A. Habits B. Prior Insurance C. Ancestry D. Credit History
A
C
17
Q
All of the following are unfair claims settlement practices EXCEPT
A. -Suggesting negotiations in settling the claim
B. Refusing to pay claims without conducting an investigation
C. Failing to adopt and implement standards for settling claims
D. Failing to acknowledge communication pertaining to a claim
A
A
18
Q
Who is an insurance producer?
A. Any person licensed to sell, solicit or negotiate insurance
B. Any person licensed under the laws of another state
C. Any person employed by an insurance company
D. Any person who represents the insured in the sale of insurance
A
A
19
Q
A producer’s license may be revoked or suspended by the director for all of the following EXCEPT
A. Willful deception of or unjust dealings with the citizens of this state.
B. A conviction of a crime of moral turpitude.
C. A plea of nolo contendere of a crime of moral turpitude.
D. Failure to meet sales quotas set by insurer.
A
D
20
Q
Failure law makes it illegal for any individual convicted of a crime involving dishonesty or breach of trust to work in the business of insurance affecting interstate commerce
A. Without receiving written consent from a Federal Judge
B. Without receiving written consent from an insurance regulatory authority.
C. Under any circumstances
D. Unless they have served an appropriate prison sentence.
A
B
21
Q
Which of the following is NOT correct regarding false statements by a person engaged in the business of insurance?
A. False statements about financial condition of an insurer are unlawful.
B. Statements made with the intent to deceive are unlawful.
C. Only written statements can be considered fraud.
D. Omissions of material fact on insurance application are fraud.
A
C
22
Q
What is the maximum penalty for habitual willful noncompliance with the Fair Credit Reporting Act? A. $1000 B. $100 per violation C. Revocation of license D. $2,500
A
D
23
Q
Once the Director issues a cease and desist order, how soon must an insurer comply with the order? A. Within 3 days B. Within 10 days C. Within 15 days D. Within 30 days
A
D
24
Q
Conducting insurance in this state without a license would be considered a A. Felony B. Minor offense C. Unfair trade practice D. Misdemeanor
A
D
25
The Director must conduct an examination of each insurer in this state at least
A. Every 10 years, and not more often
B. Once a year
C. Every 2 years, but not more often than once per year
D. Every 5 years or as often as deemed appropriate
D
26
```
How soon must nonresident producers notify this state’s Director of change of address
A. 90 days
B. 10 days
C. 30 days
D. 60 days
```
C
27
When the director finds that a license has been obtained by fraud or misrepresentation, he may suspend the license
A. In 30 days.
B. Immediately, but not for more than 30 days
C. Immediately, but not for more than 2 years
D. In 10 days
C
28
In case of a loss, the indemnity provision in insurance policies
A. Restores an insured person to the same financial state as before the loss.
B. Allows the insured to collect 20% more than the actual loss.
C. Pays the insured a percentage of the loss above and beyond the loss.
D. Pays the insured as much as 95% of the loss.
A
29
```
An individual was involved in a head-on collision while driving home one day. His injuries were not serious, and he recovered. However, he decided that in order to never be involved in another accident, he would not drive or ride in a car ever again. Which method of risk management does this describe?
A. Retention
B. Avoidance
C. Reduction
D. Sharing
```
B
30
```
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?
A. Mutual
B. Reciprocal
C. Nonprofit service organization
D. Stock
```
A
31
```
According to the Law of Agency, a principal is represented by a/an
A. Broker
B. Insured
C. Agent
D. Insurer
```
C
32
```
Which of the following insurance providers must be nonprofit and sell insurance only to its members?
A. Service
B. Mutual
C. Reciprocal
D. Fraternal
```
D
33
```
An insurance agent’s responsibilities include all of the following EXCEPT
A. Represent the insurer.
B. Perform professionally
C. Represent the client
D. Perform faithfully
```
C
34
In what way can an agent demonstrate a high standard of ethics?
A. Making enough commissions to cover personal expenses
B. Setting and meeting monthly production goals
C. Recommending qualified retirement plans to each client
D. Putting the client’s best interests before their own
D
35
```
Who might receive dividends from a mutual insurer?
A. Policyholders
B. Subscribers
C. Stockholders
D. Agents
```
A
36
```
Which of the following best describes the concept that the insured pays a small amount of premium for a large amount of risk on the part of the insurance company?
A. Subrogation
B. Warranty
C. Aleatory
D. Adhesion
```
C (An insurance contract is an aleatory contract in that it requires a relatively small amount of premium for a large risk)
37
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
C. The certainty of loss
D. The cause of loss
B
38
Which services are associated with Standard & Poor’s and AM Best?
A. Providing employment histories for investigative consumer reports
B. Storing medical information collected by insurance companies
C. Rating the financial strength of insurance companies
D. Investigating violations of the Fair Credit Reporting Act
C
39
```
When agents are acting within the scope of their contract, their actions will be assumed to be the acts of the
A. Insurer
B. Policyowner
C. Department of Insurance
D. Insured
```
A
40
```
Because an insurance policy is a legal contract, it must conform to the state laws governing contracts which require all the following elements EXCEPT
A. Conditions
B. Consideration
C. Legal Purpose
D. Offer and Acceptance
```
A
41
```
When an insurer receives a Certificate of Authority from the Department of Insurance, it is then classified as
A. Nonadmitted
B. Domestic
C. Foreign
D. Admitted
```
D
42
```
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
```
C
43
```
Which of the following is owned by a corporation to serve that organization’s needs at lower rates than would otherwise be available with commercial insurance?
A. Captive insurer
B. Internal insurer
C. Customer insurer
D. Reinsurer
```
A (Corporations organize captive insurers in order to obtain lower insurance rates and avoid the uncertainties and risks associated with commercial insurance.)
44
Is it ever possible for more than one producer to split the commissions on an insurance transaction in this state?
A. Yes, it is possible as long as both are licensed for that line of business
B. No, this could cause a conflict of interest
C. No, it is not possible under any circumstances
D. Yes, it is possible as long as they are not related
A
45
```
How many hours of continuing education in Ethics are required for each compliance period?
A. 3
B. 5
C. 8
D. 10
```
A
46
Which of the following will NOT be considered unfair discrimination by insurers?
A. Discriminating in benefits and coverages based on the insured’s habits and lifestyle
B. Charging applicants with similar health histories different premiums based on their ethnicity
C. Cancelling individual coverage based on the insured’s marital status
D. Assigning different risk classifications to applicants based on gender identity
A
47
Which of the following types of policies are protected by the South Carolina Guaranty Association?
A. Supplemental Policies
B. Life insurance policies and annuities
C. Accident and health insurance policies
D. All of the above
D
48
In order to transact business in this state, an agency must meet all the following requirements EXCEPT
A. Submit the Uniform Business Entity Application to the Department
B. Obtain an insurance agency license
C. Pay the required fees
D. Designate a licensed producer to ensure compliance with insurance laws
B
49
```
An applicant is denied insurance because of information found on a consumer report. Which of the following requires that the insurance company supply the applicant with the name and address of the consumer reporting company?
A. Consumer Privacy Act
B. Conditional receipt
C. Disclosure rule
D. Fair Credit Reporting Act
```
D
50
```
What is the minimum age requirement for an insurance producer in this state?
A. 21
B. 25
C. 18
D. 19
```
C
51
Which of the following is NOT considered a misrepresentation as it pertains to unfair trade practices?
A. Stating that the insurance policy is a share of stock
B. Exaggerating the benefits provided in the policy
C. Stating that the competitors will arbitrarily increase their premiums each year
D. Making comparisons between different policies
D
52
```
In the transaction of insurance, which of the following is considered to be representing the client?
A. The agent
B. The insurer
C. The broker
D. The Commissioner
```
C
53
```
What type of licensee represents the insurance company?
A. Consultant
B. Agency
C. Broker
D. Producer
```
D
54
```
The Director must give a written notice of the time and place for the hearing to the person cited to appear within how many days?
A. 20
B. 30
C. 10
D. 15
```
B
55
All of the following are true of the Insurance Fraud Act EXCEPT
A. Requires reports of insurance fraud to be available for public inspection
B. Requires investigation of alleged fraud by the State Law Enforcement Division
C. Established the Insurance Fraud Division in the office of the Attorney General
D. Set penalties for fraud and requires full restitution for fraud.
C
56
```
Within how many days of requesting an investigative consumer report must an insurer notify the consumer in writing that the report will be obtained?
A. 3 days
B. 5 days
C. 10 days
D. 14 days
```
A
57
```
When handling premium funds in the conduct of their business, insurance producers are acting in what capacity?
A. Special
B. Fiduciary
C. Accounting
D. Financial
```
B
58
```
How often are producers in South Carolina required to pay the license renewal fee?
A. Every 5 years
B. Annually
C. Biennially (every 2 years)
D. Every 3 years
```
C
59
```
What is the maximum duration of a temporary license?
A. 365 days
B. 30 days
C. 180 days
D. 90 days
```
C
60
```
On its advertisement, a company claims that it has funds in its possession that are, in fact, not available for the payment of losses or claims. The company is guilty of
A. Unfair claim practice
B. Rebating
C. Misrepresentation
D. Concealment
```
C
61
```
An insurance company assures its new policyholders that their premium costs will not increase for a period of at least five years. However, due to increasing financial strain, they plan to raise premium costs for all insureds by 10% over the next two years. What term best describes this act?
A. Unfair discrimination
B. Errors and omissions
C. Fraud
D. Defamation
```
C
62
```
If an insurance company wishes to order a consumer report on an applicant to assist in the underwriting process and if a notice of insurance information practices has been provided, the report may contain all of the following EXCEPT the applicant’s
A. Prior insurance
B. Ancestry
C. Credit history
D. Habits
```
B
63
```
Any inducement offered to the insured in the same of an insurance policy that is not specified in the policy is an unlawful practice known as
A. Rebating
B. Twisting
C. Controlled business
D. Coercion
```
A
64
```
If a consumer requests additional information concerning an investigative consumer report, how long does the insurer or reporting agency have to comply?
A. 7 days
B. 10 days
C. 3 days
D. 5 days
```
D
65
In which of the following situations is it legal to limit coverage based on marital status?
A. Divorce within the last six months of applying for insurance
B. It is never legal to limit coverage based on marital status
C. Excessive number of divorces, as defined by the Insurance Code
D. Legal separation during the application process
B
66
```
An insurer may be fined for nonwillful or for willful violations of insurance laws with which of the following respective fines:
A. $5,000/$10,000
B. $20,000/$30,000
C. $15,000/$30,000
D. $10,000/$20,000
```
C
67
Which of the following statements in INCORRECT concerning the Insurance Fraud Act?
A. In addition to any criminal liability, civil penalties may also be imposed for insurance fraud
B. Full restitution must be made to the victims for any economic advantage that was gained by the person or insurer involved in the insurance fraud
C. Anyone found guilty of insurance fraud is charged with a misdemeanor
D. Penalties for insurance fraud vary for 1st and 2nd offenses
C
68
All of the following are true regarding rebates EXCEPT
A. Rebates are only allowed if specifically stated in the policy
B. Rebating can be anything of economic value, given as an inducement to buy
C. Dividends are not considered to be rebates
D. Rebates are allowed if it’s in the best interest of the client
D
69
Which statement regarding signing of blank forms by a producer is true?
A. Signing blank applications and contracts may be permitted on a case by case basis
B. A producer may only sign blank applications for insurance with the insured’s permission
C. Any contracts transmitted through coin-operated machines may be countersigned in blank
D. Signing blank applications or insurance policies is prohibited
D
70
```
Which type of misrepresentation persuades an insured, to his or her detriment, to cancel, lapse, or switch policies from one to another?
A. False advertising
B. Rebating
C. Twisting
D. Switching
```
C
71
```
Anyone who willfully violates a cease and desist order can be fined what maximum amount per day?
A. $50
B. $100
C. $200
D. $500
```
B
72
```
A producer licensed in Life and Health, as well as Property and Casualty, must complete a minimum of how many hours in each line of authority ever 2 years?
A. 8
B. 12
C. 24
D. 16
```
A
73
```
How is the Director selected for the office?
A. Appointed by the NAIC
B. Elected by state insurers
C. Elected by popular vote
D. Appointed by the Governor
```
D
74
```
An insured pays $100 premium every month for his insurance coverage, yet the insurer promises to pay $10,000 for a covered loss. What characteristic of an insurance contract does this describe?
A. Good health
B. Adhesion
C. Conditional
D. Aleatory
```
D
75
```
Which of the following is NOT a characteristic of an insurable risk?
A. The loss must be catastrophic
B. The loss must be due to chance
C. The loss must be measurable
D. The loss exposure must be large
```
A
76
```
When both parties to a contract must perform certain duties and follow rules of conduct to make the contract enforceable, the contract is
A. Personal
B. Unilateral
C. Conditional
D. Aleatory
```
C
77
```
An insurance company is domiciled in Montana and transacts insurance in Wyoming. Which term best describes the insurer’s classification in Wyoming?
A. Unauthorized
B. Foreign
C. Alien
D. Domestic
```
B
78
```
An individual’s tendency to be dishonest would be indicative of a
A. Moral hazard
B. Morale hazard
C. Pure hazard
D. Physical hazard
```
A
79
```
An insurance company sells an insurance policy over the phone in response to a TV ad. Which of the following best describes this act?
A. Direct response marketing
B. Independent agency marketing
C. Illegal
D. Insurance telemarketing
```
A
80
```
Which of the following is a statement that is guaranteed to be true, and if untrue, may breach an insurance contract?
A. Representation
B. Warranty
C. Concealment
D. Indemnity
```
B
81
```
If a court ordered payment for a loss that was not covered in the policy even if it was clearly worded, it would be an example of which legal concept?
A. Reasonable expectations
B. Cease and desist
C. Nonforfeiture
D. Indemnity
```
A
82
```
What method do insurers use to protect themselves against catastrophic losses?
A. Pro rata liability
B. Risk management
C. Reinsurance
D. Indemnity
```
C
83
```
What documentation grants express authority to an agent?
A. Agent’s insurance license
B. Fiduciary contract
C. State provisions
D. Agent’s contract with the principal
```
D
84
On a participating insurance policy issued by a mutual insurance company, dividends paid to policyholders are
A. Guaranteed
B. Not taxable since the IRS treats them as a return of a portion of the premium paid
C. Paid at a fixed rate every year
D. Taxable as ordinary income
B
85
```
What term best describes the act of withholding material information that would be crucial to an underwriting decision?
A. Breach of warranty
B. Concealment
C. Withholding
D. Leading
```
B
86
What is the major difference between government insurers and private insurers?
A. Private insurers offer more programs than government insurers
B. Government insurers offer a wider variety of benefits to their insureds
C. Government programs are funded with taxes and serve national and state social purposes
D. Private insurers are funded with taxes and serve national and state social purposes
C
87
In terms of parties to a contract, which of the following does NOT describe a competent party?
A. The person must have at least completed secondary education
B. The person must not be under the influence of drugs or alcohol.
C. The person must be of legal age
D. The person must be mentally competent to understand the contract
A
88
Which of the following produces evaluations of insurers’ financial status often used in state departments of insurance?
A. AM Best
B. NAIC
C. Consumer’s guide
A
89
```
The authority granted to an agent through the agent’s contract is referred to as
A. Apparent authority
B. Implied authority
C. Absolute authority
D. Express authority
```
D (Express powers are written into the contract between the insurer and the
90
```
Which of the following is NOT an essential element of an insurance contract?
A. Counteroffer
B. Consideration
C. Agreement
D. Legal purpose
```
A
91
```
An insurance contract must contain all of the following to be considered legally binding EXCEPT
A. Consideration
B. Competent parties
C. Beneficiary’s consent
D. Offer and acceptance
```
C
92
```
Which of the following are the authorities that an agent can hold?
A. Primary and secondary
B. Express and implied
C. Apparent and allowed
D. Authorized and admitted
```
B
93
```
An insurance organization that does not issue insurance policies but provides a meeting place for underwriters to conduct business is known as a
A. Fraternal society
B. Mutual company
C. Capital stock company
D. Lloyd’s association
```
D
94
Which of the following statements is INCORRECT about the appointment of producers?
A. Companies may appoint any number of producers
B. Companies must notify the Director of the appointment before the producer solicits any risks or transacts any business
C. An official or licensed representative of the insurer must vouch that the producer is of good character, is trustworthy, and is qualified to act as an agent of the insurer
D. A Certificate of Authority is the license given to the insurer to its producers
D
95
Before granting a Certificate of Authority to a company, the Director must be satisfied by proper evidence that all of the following are true EXCEPT
A. The insurer pays all taxes and performs all duties required by this state
B. The insurer does not have a Certificate of Authority in any other state
C. The insurer has not entered into any agreement which may render its proceedings hazardous to this state
D. The insurer has adequate reserves for the protection of its policyholders in this state
B
96
In order to become licensed as a nonresident producer in this state, a person must do which of the following?
A. Pass a written examination and pay the required fees
B. Show proof of a valid license for the same line of authority in the home state
C. Be licensed as a resident producer for at least 3 years prior to applying in this state
D. Spend at least 25% of his or her working time in this state
B
97
```
A banker is ready to close on a customer’s loan. The bank is prepared to offer the loan but only if the customer purchases a life insurance policy from the bank in the amount of the loan. This is an example of
A. Coercion
B. Loading
C. Defamation
D. Twisting
```
A
98
```
Forcing a client to buy insurance from a particular lender as a condition of granting a loan is defined as
A. Coercion
B. Rebating
C. Misleading advertising
D. Defamation
```
A
99
```
How often must producers complete continuing education hours?
A. Every 3 years
B. By January 1st of even-numbered years
C. Every 2 years
D. Annually
```
C
100
```
Which authority is NOT stated in an agent’s contract but is required for the agent to conduct business?
A. Apparent
B. Assumed
C. Express
D. Implied
```
D
101
```
Which of the following types of agent authority is also called “perceived authority”?
A. Implied
B. Fiduciary
C. Apparent
D. Express
```
C
102
```
Which insurance principle states that if a policy allows for greater compensation than the financial loss incurred, the insured may only receive benefits for the amount lost?
A. Indemnity
B. Stop-loss
C. Consideration
D. Reasonable expectations
```
A
103
What insurance concept is associated with the names Weiss and Fitch?
A. Types of mutual companies
B. Index used by stock companies
C. Guides describing company financial integrity
D. Policy dividends
C
104
```
Which of the following is the most precise synonym for “authorized” insurer?
A. Legal
B. Admitted
C. Certified
D. Licensed
```
B
105
```
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
B. Reasonable expectations
C. A warranty
D. Implied warranty
```
A
106
Which of the following would be considered an illegal inducement to purchase insurance?
A. Confirming future dividends in a life insurance proposal
B. Mailing an agency brochure to a prospective client
C. Listing insurance companies the agency represents in a letter
D. Inviting prospective clients to the grand opening of the producer’s new office
A
107
```
When twin brothers applied for life insurance from Company A, the company found that while neither of them smoked and both had a very similar lifestyle, one of the twins was in a much stronger financial position than the other. Because of this, the company charged him a higher rate for his insurance. This practice is considered
A. Twisting
B. Controlled business
C. Adverse selection
D. Discrimination
```
D
108
```
Who is responsible for covering the expenses associated with the examination of domestic insurers?
A. The Insurance Guaranty Association
B. The policyholders
C. The examined insurer
D. The Department of Insurance
```
C
109
Which of the following is an example of a producer being involved in an unfair trade practice of rebating?
A. Telling a client that his first premium will be waived if he purchases the insurance policy today
B. Inducing the insured to drop a policy in favor of another one when it is not in the insured’s best interest
C. Charging a client a higher premium for the same policy as another client in the same insuring class
D. Making deceptive statements about a competitor
A
110
Which of the following is an example of a producer being involved in an unfair trade practice of rebating?
A. Telling a client that his first premium will be waived if he purchases the insurance policy today
B. Inducing the insured to drop a policy in favor of another one when it is not in the insured’s best interest
C. Charging a client a higher premium for the same policy as another client in the same insuring class
D. Making deceptive statements about a competitor
A
111
All of the following could be considered rebates if offered to an insured in the sale of insurance EXCEPT
A. Stocks, securities, or bonds
B. An offer to share in commissions generated by the sale
C. Dividends from a mutual insurer
D. An offer of employment
C
112
All of the following are requirements for a nonresident license EXCEPT
A. Submitting a proper application and paying the fees
B. Submitting a licensing application from the home state
C. Holding an active license in the same line of authority in the home state
D. Passing this state’s licensing examination
D
113
In order to transact insurance business in this state, an agency must meet all of the following requirements EXCEPT
A. Obtain an insurance agency license
B. Pay the required fees
C. Designate a licensed producer to ensure compliance with insurance laws
D. Submit the Uniform Business Entity Application to the Department
A
114
An individual applies for a life policy. Two years ago he suffered a head injury from an accident, so he cannot remember parts of his past, but is otherwise competent. He has also been hospitalized for drug abuse but does not remember this when applying for insurance. The insurer issues the policy and learns of his history one year later. What will probably happen?
A. The policy will be voided
B. The insurer will sue the insured for committing fraud
C. Because the insured is currently not a drug user, his policy will not be affected
D. The policy will not be affected
D
115
```
What is the term which best describes when a person develops a form program identifying, evaluating, and funding its losses?
A. Self-insuring
B. Lloyd’s Association
C. Purchasing group
D. Mutual holding company
```
A
116
```
An insured stated on her application for life insurance that she had never had a heart attack, when if fact she had a series of minor heart attacks last year for which she sought medical attention. Which of the following will explain the reason a death benefit claim is denied?
A. Waiver
B. Utmost good faith
C. Estoppel
D. Material misrepresentation
```
D
117
```
An insured pays a $100 premium every month for his insurance coverage, yet the insurer promises to pay $10,000 for a covered loss. What characteristic of an insurance contract does this describe?
A. Adhesion
B. Conditional
C. Aleatory
D. Good health
```
C
118
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. More active
B. Larger . Smaller
D. Older
B (According to the law of large numbers, the larger a 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)
C
119
Which statement regarding insurable risks is NOT correct?
A. An insurable risk must involve a loss that is definite as to cause, time, place, and amount
B. Insureds cannot be randomly selected
C. Insurance cannot be mandatory
D. The insurable risk needs to be statistically predictable
B
120
```
A participating insurance policy may do which of the following?
A. Require 80% participation
B. Pay dividends to the policyowner
C. Provide group coverage
D. Pay dividends to the stockholder
```
B (A participating insurance policy will pay dividends to the owner based upon actual mortality cost, interest earned and costs)
121
```
The proposed insured makes a 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. Personal
B. Unilateral
C. Conditional .
D. Aleatory
```
C (A conditional contract requires both the insurer and policyowner to meet certain conditions before the contract can be executed, unlike other types of policies which put the burden of condition on either the insurer or the policyowner)
122
When would a misrepresentation on the insurance application be considered fraud?
A. Never: statements by the applicant are only representations
B. When the application is incomplete
C. Any misrepresentation is considered fraud
D. If it is intentional and material
D
123
```
Which of the following insurance options would be considered a risk-sharing agreement?
A. Surplus lines
B. Reciprocal
C. Stock
D. Mutual
```
B
124
Which of the following is true regarding a risk retention group?
A. It is a liability insurance company owned by its members
B. It provides support for underwriters and is not an insurance company
C. It is a benefit society formed to provide insurance for members of an affiliated lodge
D. It is a company owned by the stockholders that provides nonparticipating policies
A
125
```
The reduction, decrease, or disappearance of value of the person or property insured in a policy by a peril insured against is known as
A. Exposure
B. Hazard
C. Risk
D. Loss
```
D
126
```
An insurance producer who by contract is bound to write insurance for only one company is classified as a/an
A. Independent producer
B. Captive agent
C. Solicitor
D. Broker
```
B
127
An agent is acting ethically in all of the following situations EXCEPT
A. Working within the conditions of his/her contract
B. Representing the insurer, not the insured
C. Keeping the customers’ best interests in mind
D. Always representing the insured
D (An agent will always be deemed to represent the insurer, not the insured)
128
The insurer may suspect that a moral hazard exists if the policyholder
A. Always drives over the speed limit
B. Is not honest about his health on an application for insurance
C. Is prone to depression
D. Is indifferent to activities that may be dangerous
B (Moral hazards refer to those applicants that may lie on an application for insurance, or in the past, have submitted fraudulent claims against an insurer)
129
```
Which of the following is considered to be a morale hazard?
A. Driving recklessly
B. Smoking
C. Working as a firefighter
D. Engaging in illegal activities
```
A (Morale hazards arise from a state of mind that causes indifference to loss, such as carelessness)
130
```
When an individual purchases insurance, what risk management technique is he or she practicing?
A. Sharing
B. Retention
C. Transfer
D. Avoidance
```
C (Insurance is a transfer of the risk of financial loss from a covered peril from the insured to the insurance company)
131
```
Which of the following is a unit of measurement an underwriter uses when determining the premium rates for insurance?
A. Exposure
B. Loss
C. Hazard
D. Risk
```
A
132
Conditions that increase the probability of an insured loss.
A. Hazards
B. Perils
C. Loss
D. Insurance
A
133
Causes of loss.
A. Hazards
B. Perils
C. Loss
D. Insurance
B.
134
Reduction of value and basis for a claim.
A. Hazards
B. Perils
C. Loss
D. Insurance
C.
135
Transfer of loss and protection.
A. Hazards
B. Perils
C. Loss
D. Insurance
D
136
Offer - Application; Acceptance - Issued policy.
A. Agreement
B. Consideration
C. Competent Parties
D. Legal Purpose
A
137
Applicant - Representation and premium; Insurer - Payments of claims.
A. Agreement
B. Consideration
C. Competent Parties
D. Legal Purpose
B
138
Legal Age, Mentally Competent, Not under the influence of drugs or alcohol.
A. Agreement
B. Consideration
C. Competent Parties
D. Legal Purpose
C
139
Not against public policy.
A. Agreement
B. Consideration
C. Competent Parties
D. Legal Purpose
D
140
An organization that writes liability insurance to cover the liability exposure for the mining engineers that belong to its associations is:
A
The Industry Placement Facility
B
A risk retention group
C
A risk purchasing group
D
A mine subsidence insurer
D (A risk retention group writes the liability coverage and retains the risk itself, as is the case here. A reciprocal insurance company has subscribers who assume a part of the risk of all other subscribers. Mine subsidence is property insurance, and a risk purchasing group buys insurance from another carrier for its members.)
141
Because the insurance company must pay claims and the insured must comply with the policy terms, the insurance contract is considered which of the following types of contracts?
A (A conditional contract is enforceable only under certain conditions. For example, a claim will be paid only if there has been a covered loss.)
142
The Reasonable Expectations Doctrine states that:
A
The insurer may reasonably expect full cooperation of the insured in the event of a loss
B
A policyowner may expect the insurer to refund premiums if no claims are made
C
The reasonable expectations of policyowners will be honored even if the strict terms of the policy do not support these expectations
D
A policyowner may reasonably expect that all claims submitted will be paid
C (Reasonable expectations is a legal doctrine that holds that the reasonable expectations of policyowners will be honored even if the strict terms of the policy do not support these expectations.)
143
Possibility of loss is called:
A
An insurable interest
B
A peril
C
A risk
D
A hazard
C (Risk, simply defined, is uncertainty concerning a loss. Without the possibility of loss, no such uncertainty exists.)
144
Estoppel is defined as which of the following?
A
Estoppel is the intentional abandonment of a known right
B
Estoppel is the intentional misrepresentation of a material fact
C
Estoppel prevents a party from denying a fact, if the fact was admitted to be true by a previous action
D
Estoppel is the failure to disclose known facts
C (The principle of estoppel prevents the denial of a fact, if the fact was admitted to be true previously.)
145
Which of the following is a characteristic of a Mutual Insurance Company?
A
Dividends are returned profits
B
Members are provided insurance by the company
C
A policyholder is a voting member on the Board of Directors
D
Stockholders have ownership
B (A mutual insurer is owned by its members (not stockholders) and dividends are a return of unused premium (not a return of profit). Although policyholders are the owners of a mutual insurer, they are not voting members of the Board of Directors. Members are provided insurance by the company.)
146
Insurance is designed to provide protection against which of the following?
A
Speculative risk
B
Pure Risk
C
Involuntary risk
D
Certain Risk
B (With pure risk, the only consideration is the possibility of loss or no loss. By contrast, speculative entails a chance of gain as well as a chance of loss.)
147
Where can an insured find insurance coverage after being rejected by Insurer A due to claims history?
A
Risk retention insurer
B
Lloyd's of London
C
Residual market
D
Reinsurance market
C (The residual market is a coverage source of last resort for businesses and individuals who have been rejected by voluntary market insurers.)
