Section 1- Life Insurance Basics

Question 0

An insurer incorporated under the laws of the state in which it is operating is considered to be:

Answer 0

Domestic company has their home office in this state. A foreign company is another state and an alien company is another country

Question 1

Speculative risk involves?

Answer 1

Uncertainty of loss
Possibility of gain
Feature of gambling
(Not a feature of insurance)

Question 2

An insurance company owned by its policy holders, who receive a return of unused premiums in the form of policy dividends is a(n):

Answer 2

Mutual company.

Dividends paid by mutual companies aren’t taxable

Question 3

What are the methods for dealing with exposure to risk?

Answer 3

Retain
Transfer
Avoid

Question 4

The authority of an insurance produce that is spelled out in the written words of the agency between the producer and the insurer is:

Answer 4

Express authority is written down or “expressed” in your producers contract.

Question 5

Under contract of law the actions by a party may intentionally and voluntarily give up a known right. When this occurs, it is known as:

Answer 5

Waiver is defined as a voluntarily giving up your legal right. The doctrine of estoppel states that once you give up your right you can’t get it back

Question 6

In forming a legal contract, each party must give something of value. Under contract law, this is referred to as:

Answer 6

Consideration.
Consideration is defined as the exchange of values. A client exchanged a small certain amount of the premium for a large uncertain amount.

Question 7

Principle of Indemnity states:

Answer 7

States that you cannot recover more than you lost

Question 8

The Doctrine of Adhesion states:

Answer 8

Any ambiguity in an insurance contract is always construed against the party who wrote it. This is why the insured often wins in court, since they had to buy the policy without negotiation.

Question 9

When an insurance applicant makes a statement to the best of his knowledge on an app that becomes part of the contract, the statement is considered to be a:

Answer 9

Representation

Question 10

The uncertainty about loss that exists whenever more than one outcome is possible is called:

Answer 10

Risk

Question 11

In property and casualty and in medical expense insurance, the princibple of making someone whole again after loss by paying for only actual losses is called:

Answer 11

The Principle of Indemnity states you cannot make profit from Insurance

Question 12

Which type of licensee may legally represent an authorized insurer such as Lloyd’s of London?

Answer 12

Surplus brokers represent unauthorized insurers. Producers represent the Insurer

Question 13

The insurance business is regulated primarily by:
State law
Federal law

Answer 13

State law

Question 14

In which company May stockholders share in the profits and losses of the insurer.

Service
Mutual
Stock
Assessment

Answer 14

Stockholders may receive dividends from the shares of stock they own in a stock company. Dividends aren’t guaranteed but if paid are taxable.

Question 15

In which company May policyholders receive policy dividends when there is profit?

Answer 15

Mutual since they issue a participating policy. Dividends if payed are not taxable.

Question 16

A producer is a representative of?

Answer 16

The insurance company-aka the insurer

Under the doctrine of agency, insurers are responsible for what their producers do

Question 17

What term means that an insurance contract may be of unequal benefit to one party or another?

Answer 17

Aleatory-

Means the consideration is not necessarily equal

Question 18

What contractual element consists of the offer and the acceptance?

Answer 18

Mutual agreement

Question 19

Insurance is a means of _________ risk?

Answer 19

Transferring

Question 20

The tendency to create a loss on purpose to collect from the insurance company is called a _______?

Answer 20

Moral hazard

Question 21

All of the following are required elements of a legal contract, except :
Offer and acceptance 
Legal purpose
Competent parties
Waiver and estoppel

Answer 21

Waiver and Estoppel are legal doctrines, but not parts of contracts.

Question 22

A binder: 
Is always a written agreement 
Guarantees that a policy will be issued 
May only be issued by the Insurance company 
May be oral or written

Answer 22

Oral or written- is temp coverage while the application is being underwritten

Question 23

In order for an insurance policy to be enforceable, there are four essential elements:

Answer 23

Consideration- exchange of something of value
Offer- usually when signed &first premium payed
Acceptance of the offer- application approved
Legal purpose & legal capacity