The Insurance Transaction

Question 0

What are binders?

Answer 0

An oral/written statement made by the agent that the insured had immediate protection that is set for a specified time.

Binder does NOT guarantee that a policy will be issued, only that there is a temporary coverage.

Question 1

What is an application?

Answer 1

The application is the insureds offer it contains underwriting info and rating info to determine if applicant should be accepted and if so at what premium

Question 2

What sources do underwriters use to determine risk of applicant?

Answer 2

Inspection services, government bureaus, insurance industry bureaus, financial info devices, previous insurers and companies own claim files

Question 3

What is the Fair Credit Reporting Act?

Answer 3

Protects consumers by requiring that the consumer be notified in certain situations and by establishing provisions for the removal of outdated and incorrect info

Question 4

What is adverse selection?

Answer 4

The tendency for people with greater than average exposure to loss to purchase insurance

Question 5

How many construction classifications do underwriters recognize?

Answer 5

6

Question 6

What is the first class of construction underwriters recognize?

Answer 6

Class 1: frame structures have outside support walls, roof, and floors constructed of wood or other combustible materials. The exterior walls may be covered with stucco or brick veneer and the interior walls are typically lath and plaster.

Question 7

What is the second class of construction underwriters recognize?

Answer 7

Class 2: Joisted masonry; have outside support walls made it non combustible masonry materials (such as increase, brick, hallow concrete block stone or tile) and roof and floor made of combustible materials.

Question 8

What is the third construction classification underwriters recognize?

Answer 8

Class 3: noncombustible; one whose exterior walls floors and roof are constructed of an supported by non combustible materials such as metal asbestos or gypsum

Question 9

What is the fourth class of construction recognized by underwriters?

Answer 9

Class four: masonry noncombustible; have exterior walls constructed of masonry materials and a roof and floor made of metal or other non combustible materials

Question 10

What is the fifth class of construction recognized by underwriters?

Answer 10

Class five: Modified fire resistive; buildings that are modified fire resistive have exterior walls floors and roof constructed of masonry or fire resistive materials with a fire resistive rating of two hours less

Question 11

What is the sixth class of construction underwriters recognize?

Answer 11

Class 6: fire resistive; constructed of masonry or fire resistance materials with a fire resistance rating of 2 or more hours.

Question 12

What are the three basic ways in which a premium can be computed?

Answer 12

Judgement rating, manual rating, and merit rating

Question 13

What is judgement rating?

Answer 13

The premium is determined by considering the individual risk

Question 14

What is manual rating?

Answer 14

The company’s rates for a particular state or area are obtained by consulting a manual which is stored on a computer

Question 15

What is merit rating?

Answer 15

Starts with class or manual rates which are then modified to reflect the unique characteristics of the risk that are not reflected in the manual rate

Question 16

What is experience rating?

Answer 16

A form of merit rating that modifies the manual premium in the basis of the insureds loss experience over some period (usually 3 years)

Question 17

What is retrospective rating?

Answer 17

Bases the insureds premium on losses incurred during the policy period

Question 18

What is schedule rating?

Answer 18

Applied a system of debts and credits to reflect characteristics of a particular insured

Question 19

What is misrepresentation?

Answer 19

A written or verbal misstatement of a material fact involved in the contract on which the insurer relies

Question 20

What is concealment?

Answer 20

Similar to misrepresentation except that it involves withholding rather than misstating a material fact

Question 21

What is fraud?

Answer 21

A deliberate misrepresentation that causes harm

Question 22

What four elements does an act of fraud contain?

Answer 22

1. ) someone deliberately lies
2. ) the intent of the lie is for someone else to rely on that lie
3. ) another person relies on that lie
4. ) the other person suffers harm as a result of relying on that lie

Question 23

What are warranties?

Answer 23

Agreements made between the insurance company and the insured that certain conditions will be met. They can void the contract if breached.

Question 24

What is a waiver?

Answer 24

The intentional relinquishment of a known right