The World of Insurance

Question 1

Who makes up the insurance industry?

Answer 1

Insurers, insurance agencies, insurance agents or producers

Question 2

What does the NAIC stand for?

Answer 2

National Association of Insurance Commissioners

Question 3

What does the NAIC do?

Answer 3

provide resources, research, legislative, and regulatory recommendations and interpretations for state insurance regulators. they have no legal authority to enact or enforce insurance laws, and their primary goal is to promote state uniformity

Question 4

Name the 3 types of insurers

Answer 4

stock insurance company, mutual insurance company, and fraternal insurers

Question 5

Which of the following insurers is owned by policyholders?

Answer 5

Mutual insurance company

Question 6

Which of the following insurers is owned by shareholders?

Answer 6

Stock insurance company

Question 7

Which type of insurer is known as a fraternal benefit society?

Answer 7

fraternal insurer - social organization that provides life insurance to members. nonprofits

Question 8

What is the domicile?

Answer 8

location or jurisdiction where an insurer is formed or incorporated

Question 9

what are the three types of domiciles?

Answer 9

alien, foreign, and domestic

Question 10

Which type of domicile does the insurer have business with the USA but is organized under the laws of another country?

Answer 10

alien

Question 11

What type of insurer is approved to transact insurance in a given state if it is being granted a certificate of authority from that state’s department of insurance?

Answer 11

admitted or authorized user

Question 12

what type of insurer is not authorized to transact insurance in a given state, either by failing to comply with state requirements or by not seeking admission?

Answer 12

non admitted or unauthorized user

Question 13

Which act was passed to detect money laundering?

Answer 13

Patriot Act

Question 14

Which act protects consumer privacy by ensuring that data collected by companies on a person is confidential, accurate, relevant, and used for proper use?

Answer 14

fair credit reporting act

Question 15

what does indemnify mean?

Answer 15

to compensate for a loss, or to make one whole again

Question 16

True or False: Contract law requires that insurable interest must exist at the time of the application, not at the time of the loss.

Answer 16

TRUE

Question 17

What is the exchange of value that makes a contract binding?

Answer 17

Consideration. this is the payment of premium, along with an agreement to abide by the conditions of the contract. the insurer’s promise to indemnify in the event of a loss is its consideration, as is specific in the insuring clause of the policy.

Question 18

What are the elements of a legal contract?

Answer 18

consideration, agreement (offer and acceptance), legal purpose, competent parties

Question 19

Are contracts of adhesion negotiable?

Answer 19

no, insurance is a contract of adhesion, written by one party, the insurance company, without any input from the applicant. presented to applicant on a take it or leave it basis. nonnegtiable

Question 20

What is an aleatory contract?

Answer 20

contract that is based on an uncertain event, or “by chance” it can’t be known in advance whether the insurer will have to pay a loss during the policy term, or whether the insured will make premium payments without receiving anything in return. Both parties agree to the terms of the contract, despite the uncertainty.

Question 21

Name the 3 types of contracts?

Answer 21

contract of adhesion, aleatory contract, unilateral contract

Question 22

Describe the conditional contract

Answer 22

both parties must perform certain duties to make the contract enforceable. the insured can only collect if there has been a covered loss, and the insurer has a list of conditions stated in the contract that must be met before a claim will be paid. as long as the specific conditions or duties are performed, the insurer must pay the claims

Question 23

what is a representation?

Answer 23

statements written by the applicant on an application, considered to be true

Question 24

Which type of representation does not affect the acceptance or rating of the risk? Material or Immaterial?

Answer 24

Immaterial representations do not affect the acceptance or rating of the risk

Question 25

Which type of statement impact the acceptance of an insurable risk?

Answer 25

Material Representation

Question 26

What is a false statement contained in an application?

Answer 26

Misrepresentation

Question 27

What are material statements in an application or stipulations in the policy that are guaranteed true in all respects?

Answer 27

warranties

Question 28

What is a unilateral contract?

Answer 28

one in which only one party is legally bound to the contractual obligations.

Question 29

What is a relationship that must exist at the time of the application in which a potential for financial hardship exists in the event of a loss?

Answer 29

insurable interest

Question 30

When it comes to life insurance, insurable interest on one’s own life is:
a. based upon salary
b. calculated by the insured’s assets
c. based on # of dependents
d. unlimited

Answer 30

unlimited

Question 31

The ______ branch is responsible for interpreting and determining the constitutionality of the statues.
a. executive
b. legislative
c. judicial
d. electoral

Answer 31

judicial

Question 32

what gives insurer the right to operate within this state?

Answer 32

a certificate of authority

Question 33

which contract is one in which only one party is legally bound to contractual obligations after the premium is paid?

Answer 33

unilateral contract

Question 34

which of the following manufactures and sells insurance coverage in the form of insurance policies or contracts of insurance?

Answer 34

insurance companies. only insurers can manufacture and issue insurance policies or contracts

Question 35

in a legal sense, premium functions as the insured’s _______.

Answer 35

consideration. the premium paid by the insured represents their consideration - a required element of a legal contract.

Question 36

which jurisdiction has the power to issue rules and regulations to help enforce insurance laws?
1. commissioner, superintendent, or director
2. US Supreme Court
3. Federal insurance officer
4. NAIC

Answer 36

1. commissioner, superintendent, or director

Question 37

the insurance industry is primarily regulated at the:
a. county level
b. insurer level
c. state level
d. federal level

Answer 37

state level