Lesson 1 Part 2

Question 1

Contract

Answer 1

Agreement between 2 or more competent parties under the terms which each promises to perform in manner specified

Question 2

4 components for contract to be legal and enforceable

Answer 2

1) Offer & Acceptance (Agreement)
2) Competent Parties
3) Legal Object (Purpose)
4) Consideration

Question 3

Entities deemed incompetent for legal contract

Answer 3

Minors, Mentally incompetent individuals, those under influence of alcohol

Question 4

Aleatory Contract

Answer 4

The value given up by one party does not equal that given up by the other party

Question 5

Contract of Adhesion / One Sided Contract

Answer 5

Where one party creates the contract terms & the other party must comply with them

Question 6

Courts interpret policies to include coverages that an average person would understand them to include

Answer 6

Doctrine of Reasonable Expectations

Question 7

When a party does not enter into agreement in _____________, the other party may void contract.

Answer 7

Utmost Good Faith

Question 8

Executory Contracts

Answer 8

Like an insurance policy, act in contract remains to be performed by one of the parties

Question 9

Unilateral feature

Answer 9

Contract where only the insurer promises to perform; promise made by only one party

Question 10

Contract subject to numerous conditions

Answer 10

Conditional Contract

Question 11

Waiver

Answer 11

Intentional or voluntary relinquishment of a known right in an insurance contract

Question 12

Estoppel

Answer 12

Where there is a form of broken promise from insurer who makes a statement and insured relies on statement, but later insurer doesn’t want to abide by original statement

Question 13

3 required elements of estoppel

Answer 13

1) False representation of material fact
2) Reasonable reliance
3) Harm would result

Question 14

Errors & Omissions (E&O) policies

Answer 14

Claims which result from negligent act(s) of a producer

Question 15

4 parts that make up insurance contract

Answer 15

1) Declarations
2) Insuring Agreement
3) Conditions
4) Exclusions

Question 16

Illustrations of conditions places upon insureds

Answer 16

1) Proof of Loss
2) Assistance of the insured
3) Insured duties in event of loss
4) Notice of loss

Question 17

Modify policies insuring agreements to eliminate uninsurable perils or other coverages not under the term of contract; prevents duplication of coverage

Answer 17

Exclusions

Question 18

Representation

Answer 18

Oral or written statements made by individual seeking to enter consideration contract

Question 19

Warranties

Answer 19

Statements made by applicant regarding nature of the risk to be insured

Question 20

Fraud

Answer 20

Intentional misrepresentation of material fact that may void a contract

Question 21

Binder

Answer 21

Temporary policy that’s subject to terms of contract to be written later

Question 22

Endorsements

Answer 22

Attachment added to policy when changes occur mid term

Question 23

Outline of coverage & premium without any coverage in force

Answer 23

Proposal

Question 24

Price per unit of exposure

Answer 24

Rate

Question 25

Portion of rate needed to pay losses & loss adjustment expenses (loss costs)

Answer 25

Pure premium

Question 26

Loading

Answer 26

Amount added to pure premium for other expenses

Question 27

Pure premium plus loading element

Answer 27

Gross rate

Question 28

Gross premium

Answer 28

Gross rate multiplied by # of exposure units

Question 29

Class rates

Answer 29

Applied to large group of homogeneous loss exposures

Question 30

When large numbers of homogeneous exposures do not exist

Answer 30

Individual/ Specific rate

Question 31

Judgement rating

Answer 31

Determined by underwriter & used when credible statistics are lacking

Question 32

Retrospective rating

Answer 32

Considers actual losses during policy period when final premium for coverage is determined

Question 33

Purpose of rating bureau?

Answer 33

1) Accumulate/Analyze statistical data to develop rates 2) Calculate rates for line of insurance 3) File rates with state authority for approval

Question 34

Insurers who wish to remain outside a rating bureau & file independently

Answer 34

Non bureau insurers

Question 35

Adverse Selection

Answer 35

Tendency of persons whose exposure to loss is higher than average to purchase/continue insurance

Question 36

Underwriting process

Answer 36

1) Selection of insureds 2) Pricing 3) Evaluation of risks 4) Determination of contract conditions

Question 37

4 external sources of info for underwriting department

Answer 37

1) Producer 2) Consumer Reports 3) Government Records 4) Financial Rating Service

Question 38

What is the Insurance Services Office (ISO) 6 basic types of construction?

Answer 38

1) Frame 2) Joisted Masonry 3) Non-Combustible 4) Masonry Non-Combustible 5) Modified Fire Resistive 6) Fire Resistive

Question 39

Appointed by producer to take applications & collect premiums, but unable to countersign policies

Answer 39

Solicitor

Question 40

Insurer specialists not required to be licensed, that help producers sell/service insurance & receive a salary

Answer 40

Service Representative

Question 41

Fiduciary Capacity

Answer 41

Requiring a high degree of trust & confidence

Question 42

Express Authority

Answer 42

Anything an insurer specifically instructs producer to do

Question 43

Authority not specifically given to a producer by insurer

Answer 43

Apparent authority

Question 44

Parol Evidence Rule

Answer 44

When parties place their contract in writing, all previous oral agreements merge into the written contract

Question 45

Frame

Answer 45

Buildings with combustible construction or buildings with walls noncombustible but floor & roof combustible

Question 46

Joisted Masonry

Answer 46

Buildings with fire resistive construction & combustible floor & roof

Question 47

Non-Combustible

Answer 47

Buildings with wall/floor/roof non-combustible or slow burning material supported by non-combustible or slow burning support

Question 48

Masonry Non-Combustible

Answer 48

Buildings with walls of fire resistive construction & with non-combustible or slow burning floor & roof

Question 49

Modified Fire Resistive

Answer 49

Buildings with fire resistive wall/floor/roof, but with fire resistive rating of less than 2 hours, but more than 1.

Question 50

Fire Resistive

Answer 50

Certain thickness of masonry material & fire resistance rating must be at least 2hrs

Question 51

Field Underwriting

Answer 51

Producers evaluate moral quality of applicants

Question 52

Captive Producer

Answer 52

Represents a single company that actually owns the business placed by the producer

Question 53

Producer Responsibilities

Answer 53

1) Identify client needs 2) Suggest/Explain coverage 3) Powers granted to producer by company 4) Record binder information 5) Handle application 6) Deliver policy 7) Maintain records 8) Fiduciary capacity

Question 54

Independent Producer

Answer 54

Owns their "book of business" that is generally placed with different companies