Unit 1: General Insurance Terms and Related Concepts | Chapter 1-5: The Insurance Transaction

Question 1

Before information about an applicant may be accessed from a source other than the applicant, the applicant must:

a) guarantee the material facts given during the application process.
b) issue a certificate of insurance.
c) be given an estimated premium charge
d) provide authorization.

Answer 1

Before information about an applicant may be accessed from a source other than the applicant, the applicant must:

provide authorization.

In addition to the application, the staff underwriter will have access to additional information. Before personal information may be accessed from a source other than the applicant or public records, authorization must be provided as part of the application process.

Question 2

If unable to verify disputed information within __________ , a reporting agency must promptly delete that information from the file.

a) 90 days
b) 30 days
c) 2 weeks
d) 2 months

Answer 2

If unable to verify disputed information within __________ , a reporting agency must promptly delete that information from the file.

30 days

If the reporting agency is unable to verify disputed information within 30-days, the reporting agency must promptly remove the disputed information from the file.

Question 3

A binder may be:

a) in writing only
b) written or electronically provided only
c) written or oral.
d) verbal or oral.

Answer 3

A binder may be:

written or oral.

A binder may be written or oral.

Question 4

If an application for insurance is rejected by the insurer based on information obtained from an inspection or credit report, the insurer is required to provide the applicant with the name of the __________ .

a) reporting agency
b) insurance Director
c) department issuing the premium refund
d) underwriter agency

Answer 4

If an application for insurance is rejected by the insurer based on information obtained from an inspection or credit report, the insurer is required to provide the applicant with the name of the __________ .

reporting agency

If the application for insurance is rejected by the insurer, based on information obtained through an inspection or credit report, the insurer must provide the applicant with the name of the reporting agency.

Question 5

An insured may cancel a policy:

a) At anytime by providing prior written notification, indicating the effective date of the cancellation.
b) At policy anniversary only.
c) Within 60-days of the effective date of the policy only.
d) At anytime by providing oral notification to the insurer.

Answer 5

An insured may cancel a policy:

At anytime by providing prior written notification, indicating the effective date of the cancellation.

An insured may cancel a policy at anytime by providing written notification indicating the effective date of the cancellation. It is the insurer that is limited to what it may initiate cancellation for.

Question 6

Fraud is __________ in property and casualty insurance.

a) a valid peril
b) anticipated
c) expected by reporting agencies
d) forever
* Under a property or casualty insurance policy, if the insurer determines the insurance was fraudulently obtained or the insured is in the process of committing fraud relative to the insurance coverage, the insurer can deny a claim and consider the insurance to be null and void.*

Answer 6

Fraud is __________ in property and casualty insurance.

• a valid peril
• anticipated
• expected by reporting agencies
• forever

Under a property or casualty insurance policy, if the insurer determines the insurance was fraudulently obtained or the insured is in the process of committing fraud relative to the insurance coverage, the insurer can deny a claim and consider the insurance to be null and void.

Question 7

If requested by the consumer, a reporting agency is required to disclose to the consumer the nature and substance of __________ at the time of the request. An individual may also request their credit score.

• only the contested information
• all information in their file
• the last 30 days of relevant information
• the agent who created the report

They are required to disclose *all* information in the file at the time of the request. The credit score may be excluded, however, they may request their credit score and it is common practice that it is disclosed as well.

Answer 7

If requested by the consumer, a reporting agency is required to disclose to the consumer the nature and substance of __________ at the time of the request. An individual may also request their credit score.

• only the contested information
• all information in their file
• the last 30 days of relevant information
• the agent who created the report

They are required to disclose *all* information in the file at the time of the request. The credit score may be excluded, however, they may request their credit score and it is common practice that it is disclosed as well.

Question 8

Oregon requires that in the event of cancellation of a fire insurance policy by the insurer, the insurer provide 10 days prior written notification in the event of non-payment of premium and __________ for any other reason.

• 3 weeks
• 2 months
• 30 days
• 45 days

The insurer may cancel a fire insurance policy at any time by giving 10 days written notice of cancellation to the insured in the event of nonpayment of premium or 30 days written notice for any other reason.

Answer 8

Oregon requires that in the event of cancellation of a fire insurance policy by the insurer, the insurer provide 10 days prior written notification in the event of non-payment of premium and __________ for any other reason.

• 3 weeks
• 2 months
• 30 days
• 45 days

The insurer may cancel a fire insurance policy at any time by giving 10 days written notice of cancellation to the insured in the event of nonpayment of premium or 30 days written notice for any other reason.

Question 9

Until a homeowners policy has been in force for __________ , the insurer may cancel for any reason consistent with its underwriting practices.

• 60 days
• 3 months
• 45 days
• 30 days

During the 59 day period, the insurer may use any other information consistent with its rating or underwriting program, including but not limited to conditions or uses of the property discovered by the insurer, as a basis for cancellation or for offering to continue coverage at an increased rate or on different terms. Once the policy has been in force for 60 days, the insurer may cancel for very specific reasons only, as stated in the policy.

Answer 9

Until a homeowners policy has been in force for __________ , the insurer may cancel for any reason consistent with its underwriting practices.

• 60 days
• 3 months
• 45 days
• 30 days

During the 59 day period, the insurer may use any other information consistent with its rating or underwriting program, including but not limited to conditions or uses of the property discovered by the insurer, as a basis for cancellation or for offering to continue coverage at an increased rate or on different terms. Once the policy has been in force for 60 days, the insurer may cancel for very specific reasons only, as stated in the policy.

Question 10

If disputed information contained in a consumer report is not removed from the consumer’s file, the consumer has the right to submit a/an __________ with the reporting agency.

• judgement rating
• alternative consumer report
• letter of dispute
• fraud claim

If disputed information is not removed from the file, the consumer has the right to submit a letter of dispute relating to the report. The letter of dispute must then accompany any subsequent report requested.

Answer 10

If disputed information contained in a consumer report is not removed from the consumer’s file, the consumer has the right to submit a/an __________ with the reporting agency.

• judgement rating
• alternative consumer report
• letter of dispute
• fraud claim

If disputed information is not removed from the file, the consumer has the right to submit a letter of dispute relating to the report. The letter of dispute must then accompany any subsequent report requested.

Question 11

In addition to the insurance policy, an insurer may be required to provide a _______ of insurance. For example, a lender may require proof of coverage before approving a loan on a house. In addition, proof of financial responsibility must be carried in a motor vehicle.

• Certificate
• Document
• Binder
• notary

A Certificate of Insurance may be required by a lender. Oregon is a financial responsibility state for operation of a motor vehicle and requires proof of financial responsibility be carried in the vehicle. In both cases, the insurer issues a certificate of insurance to satisfy the requirement.

Answer 11

In addition to the insurance policy, an insurer may be required to provide a _______ of insurance. For example, a lender may require proof of coverage before approving a loan on a house. In addition, proof of financial responsibility must be carried in a motor vehicle.

• Certificate
• Document
• Binder
• notary

A Certificate of Insurance may be required by a lender. Oregon is a financial responsibility state for operation of a motor vehicle and requires proof of financial responsibility be carried in the vehicle. In both cases, the insurer issues a certificate of insurance to satisfy the requirement.

Question 12

The oldest form of premium rating is referred to as:

• Retrospective Rating
• Judgment Rating
• Manual Rating
• Merit Rating.

The oldest form and least used today is the Judgment Rating.

Answer 12

The oldest form of premium rating is referred to as:

• Retrospective Rating
• Judgment Rating
• Manual Rating
• Merit Rating.

The oldest form and least used today is the Judgment Rating.

Question 13

Cancellation coincident with the effective date is referred to as a __________ cancellation.

• abrupt rate
• refund rate
• retroactive rate
• flat rate

If a policy is cancelled coincident with its effective date, the policy is deemed null and void (non-existent) and the insurer would refund 100% of the premium paid, referred to as a flat rate cancellation.

Answer 13

Cancellation coincident with the effective date is referred to as a __________ cancellation.

• abrupt rate
• refund rate
• retroactive rate
• flat rate

If a policy is cancelled coincident with its effective date, the policy is deemed null and void (non-existent) and the insurer would refund 100% of the premium paid, referred to as a flat rate cancellation.

Question 14

The principle of insurable interest states that the insured must face a risk of __________ if property is damaged or stolen

• physical impairment
• policy cancellation
• a moral hazard
• financial loss

The principle of insurable interest states that the insured must face a risk of financial loss if property is damaged or stolen.

Answer 14

The principle of insurable interest states that the insured must face a risk of __________ if property is damaged or stolen

• physical impairment
• policy cancellation
• a moral hazard
• financial loss

The principle of insurable interest states that the insured must face a risk of financial loss if property is damaged or stolen.

Question 15

If requested in writing by the consumer, the insurer is required to make a complete and accurate disclosure of the nature and scope of the investigation requested within ______ days of the request.

• 3 (three)
• 5 (five)
• 7 (seven)
• 14 (fourteen)

The insurer must respond to a request relative to the nature and scope of an investigation within 5 days of the consumer’s request. The initial disclosure relative to an investigative consumer report must be provided to the applicant within 3 days of initiating the request for the report.

Answer 15

If requested in writing by the consumer, the insurer is required to make a complete and accurate disclosure of the nature and scope of the investigation requested within ______ days of the request.

• 3 (three)
• 5 (five)
• 7 (seven)
• 14 (fourteen)

The insurer must respond to a request relative to the nature and scope of an investigation within 5 days of the consumer’s request. The initial disclosure relative to an investigative consumer report must be provided to the applicant within 3 days of initiating the request for the report.

Question 16

A Retrospective Rate is a common rating method used with:

• Workers’ Compensation Insurance.
• Dwelling Property Insurance
• Auto Insurance
• Homeowners Insurance.

This is common on Workers’ Compensation insurance where the actual premium is a rate per $100 of payroll, and commercial liability insurance where actual premium may be based on gross receipts (the higher the gross receipts, the higher the traffic/exposure). In both examples the actual premium cannot be determined until the end of the policy period, requiring a look-back (in retrospect), referred to as a retrospective rate. The initial premium charged is based on an estimate of what the exposure will be.

Answer 16

A Retrospective Rate is a common rating method used with:

• Workers’ Compensation Insurance.
• Dwelling Property Insurance
• Auto Insurance
• Homeowners Insurance.

This is common on Workers’ Compensation insurance where the actual premium is a rate per $100 of payroll, and commercial liability insurance where actual premium may be based on gross receipts (the higher the gross receipts, the higher the traffic/exposure). In both examples the actual premium cannot be determined until the end of the policy period, requiring a look-back (in retrospect), referred to as a retrospective rate. The initial premium charged is based on an estimate of what the exposure will be.

Question 17

If an insurer cancels a policy, each of the following might be used to identify the method of premium refund at cancellation, EXCEPT:

• Pro rata.
• Short rate.
• Pro-rate
• Proportionate share.

Pro rata, Pro-rate, and proportionate share are all saying the same thing; short rate is the exception. A short rate applies if the insured cancels.

Answer 17

If an insurer cancels a policy, each of the following might be used to identify the method of premium refund at cancellation, EXCEPT:

• Pro rata.
• Short rate.
• Pro-rate
• Proportionate share.

Pro rata, Pro-rate, and proportionate share are all saying the same thing; short rate is the exception. A short rate applies if the insured cancels.

Question 18

What authority is granted to an appointed agent but not granted to a broker or solicitor?

• Underwriting authority
• Sales authority
• Solicitation authority
• Binding authority
• Even though an appointed agent may be referred to as a “field underwriter,” field underwriting responsibility involves full disclosure to the home office underwriting staff and is technically not underwriting authority. An appointed agent will have binding authority. This is the ability to “bind” coverage for a limited period of time, which gives the home office underwriters an opportunity to evaluate the risk.*
• Binding authority is granted to an appointed agent, but not to a broker or solicitor*.

Answer 18

What authority is granted to an appointed agent but not granted to a broker or solicitor?

• Underwriting authority
• Sales authority
• Solicitation authority
• Binding authority
• Even though an appointed agent may be referred to as a “field underwriter,” field underwriting responsibility involves full disclosure to the home office underwriting staff and is technically not underwriting authority. An appointed agent will have binding authority. This is the ability to “bind” coverage for a limited period of time, which gives the home office underwriters an opportunity to evaluate the risk.*
• Binding authority is granted to an appointed agent, but not to a broker or solicitor*.

Question 19

The application is the applicant’s __________ based on the information provided in the application.

• business referral
• promise
• binding authority
• offer to purchase

The application is the applicant’s “offer” to purchase based on the information provided in the application. It is also the insurer’s first insight into the insurability of the applicant.

Answer 19

The application is the applicant’s __________ based on the information provided in the application.

• business referral
• promise
• binding authority
• offer to purchase

The application is the applicant’s “offer” to purchase based on the information provided in the application. It is also the insurer’s first insight into the insurability of the applicant.

Question 20

Which of the following is NOT a subject of the insurable interest rule?

• To reduce moral hazards.
• To demonstrate insurable interest at the time of application.
• As a method of measurement.
• To prevent gambling.

Under property and casualty insurance, proof of insurable interest must be demonstrated at time of loss, not at the time of application.

Answer 20

Which of the following is NOT a subject of the insurable interest rule?

• To reduce moral hazards.
• To demonstrate insurable interest at the time of application.
• As a method of measurement.
• To prevent gambling.

Under property and casualty insurance, proof of insurable interest must be demonstrated at time of loss, not at the time of application.

Question 21

After a policy has been in force for a period of time, __________ modifier may be imposed by the insurer based on actual experience.

• a retrospective rate
• a merit rate
• an experience rate
• an automatic rate
• After a policy has been in force for a period of time, an experience rate modifier may be imposed, either a discount or surcharge based on experience.*
• An experience rate would apply to a premium rate going forward, whereas, a retrospective rate makes a premium adjustment to the policy period just completed.*
• A merit rate could be applied from policy inception, e.g. a good student discount on car insurance, the insured has installed and maintained fire alarms and/or fire protective sprinkler systems, etc*.

Answer 21

After a policy has been in force for a period of time, __________ modifier may be imposed by the insurer based on actual experience.

• a retrospective rate
• a merit rate
• an experience rate
• an automatic rate
• After a policy has been in force for a period of time, an experience rate modifier may be imposed, either a discount or surcharge based on experience.*
• An experience rate would apply to a premium rate going forward, whereas, a retrospective rate makes a premium adjustment to the policy period just completed.*
• A merit rate could be applied from policy inception, e.g. a good student discount on car insurance, the insured has installed and maintained fire alarms and/or fire protective sprinkler systems, etc*.

Question 22

A look-back or premium audit relating to the actual premium charged is referred to as a/an:

• Experience Rate.
• Retrospective Rate
• Merit Rate.
• Look-back Rate.
• A retrospective rate involves an initial premium deposit, which is based on an estimate of the risk exposure up front, with a final premium determination made at the end of the policy period based on a premium audit. This is a common approach where the insured does not know what the actual risk exposure will be until the end of the policy period. A retrospective rate involves a look-back to make the final premium determination.*
• A good example is Workers’ Compensation insurance, because the premium is a rate per $100 of payroll. A business owner must estimate his/her payroll in advance of paying it and a premium is determined based on that estimate, then at the end of the policy period the dollar amount of the actual payroll is submitted to the insurer and appropriate adjustment is made to the premium earned, which may be more or less than the initial estimate.*

Answer 22

A look-back or premium audit relating to the actual premium charged is referred to as a/an:

• Experience Rate.
• Retrospective Rate
• Merit Rate.
• Look-back Rate.
• A retrospective rate involves an initial premium deposit, which is based on an estimate of the risk exposure up front, with a final premium determination made at the end of the policy period based on a premium audit. This is a common approach where the insured does not know what the actual risk exposure will be until the end of the policy period. A retrospective rate involves a look-back to make the final premium determination.*
• A good example is Workers’ Compensation insurance, because the premium is a rate per $100 of payroll. A business owner must estimate his/her payroll in advance of paying it and a premium is determined based on that estimate, then at the end of the policy period the dollar amount of the actual payroll is submitted to the insurer and appropriate adjustment is made to the premium earned, which may be more or less than the initial estimate.*

Question 23

The initial basis for establishing a premium rate and most common method of premium rating is called the:

• Manual Rate
• Experience Rate
• Retrospective Rate
• Merit Rate

The initial premium rate is based on a Manual Rate. A Merit or Experience rating may impact the initial rate and certain exposures are subject to an initial premium based on an estimate, and then ultimately a look-back or Retrospective rate.

Answer 23

The initial basis for establishing a premium rate and most common method of premium rating is called the:

• Manual Rate
• Experience Rate
• Retrospective Rate
• Merit Rate

The initial premium rate is based on a Manual Rate. A Merit or Experience rating may impact the initial rate and certain exposures are subject to an initial premium based on an estimate, and then ultimately a look-back or Retrospective rate.

Question 24

If an insured cancels a policy prior to policy expiration, the insurer is required to refund unearned premium but may charge a handling fee, referred to as the __________ .

• manual rate
• pro rate
• flat rate
• short rate

If an insured initiates cancellation, the insurer is required to refund unearned premium, but is allowed to charge a transaction fee (administration), referred to as a short rate. Technically, a short rate is a pro-rate minus a processing fee.

Answer 24

If an insured cancels a policy prior to policy expiration, the insurer is required to refund unearned premium but may charge a handling fee, referred to as the __________ .

• manual rate
• pro rate
• flat rate
• short rate

If an insured initiates cancellation, the insurer is required to refund unearned premium, but is allowed to charge a transaction fee (administration), referred to as a short rate. Technically, a short rate is a pro-rate minus a processing fee.

Question 25

If a consumer disputes information in the credit report, the reporting agency must reinvestigate:

• when and if possible
• according to a pre-established prioritization
• free of charge
• subject to a modest charge to cover administration costs.

If the consumer disagrees with information found in the report, he/she may request a reinvestigation relating to disputed information. The reporting agency must reinvestigate free of charge.

Answer 25

If a consumer disputes information in the credit report, the reporting agency must reinvestigate:

• when and if possible
• according to a pre-established prioritization
• free of charge
• subject to a modest charge to cover administration costs.

If the consumer disagrees with information found in the report, he/she may request a reinvestigation relating to disputed information. The reporting agency must reinvestigate free of charge.

Question 26

Statements made in an application for insurance are considered to be:

• A warranty of information as of the date of application.
• Representations; information true to the best of the applicant’s knowledge and belief.
• A guarantee of facts on that date.
• A statement of fact that is warranted to be true.

Representations are a statement of fact, but not necessarily a guarantee (warranty) of fact.

Answer 26

Statements made in an application for insurance are considered to be:

• A warranty of information as of the date of application.
• Representations; information true to the best of the applicant’s knowledge and belief.
• A guarantee of facts on that date.
• A statement of fact that is warranted to be true.

Representations are a statement of fact, but not necessarily a guarantee (warranty) of fact.

Question 27

A sworn statement, proof of loss, and the insurer’s promise of future benefit in the event of loss are examples of:

• warranties.
• insurable interests.
• endorsements.
• statements of insurability.

A sworn statement, submission of a proof of loss, and the insurer’s promise of benefits are all examples of warranties. In other words, guarantees.

Answer 27

A sworn statement, proof of loss, and the insurer’s promise of future benefit in the event of loss are examples of:

• warranties.
• insurable interests.
• endorsements.
• statements of insurability.

A sworn statement, submission of a proof of loss, and the insurer’s promise of benefits are all examples of warranties. In other words, guarantees.

Question 28

Which Act protects consumers relative to collection and disclosure of personal information?

• Fair Credit Reporting Act
• Investigative Consumer Reports Act
• Fair Credit and Lending Act
• Investigative Urban Renewal Act

The Fair Credit Reporting Act is a federal act introduced in 1970 for the protection of consumers relative to financial institutions (credit and insurance), and for employment purposes that determine eligibility in whole or in part based upon third party reports, which includes credit reports as well as investigative consumer reports.

Answer 28

Which Act protects consumers relative to collection and disclosure of personal information?

• Fair Credit Reporting Act
• Investigative Consumer Reports Act
• Fair Credit and Lending Act
• Investigative Urban Renewal Act

The Fair Credit Reporting Act is a federal act introduced in 1970 for the protection of consumers relative to financial institutions (credit and insurance), and for employment purposes that determine eligibility in whole or in part based upon third party reports, which includes credit reports as well as investigative consumer reports.

Question 29

Supplementary coverages associated with liability insurance are typically included without premium charge and paid:

• to the insurer’s general fund.
• based on a premium audit.
• on the increase in the risk of loss.
• in addition to the limits of insurance.

Supplementary payments are made in addition to the limit of insurance, e.g. costs incurred by the insurer in its investigation or in defense of a claim.

Answer 29

Supplementary coverages associated with liability insurance are typically included without premium charge and paid:

• to the insurer’s general fund.
• based on a premium audit.
• on the increase in the risk of loss.
• in addition to the limits of insurance.

Supplementary payments are made in addition to the limit of insurance, e.g. costs incurred by the insurer in its investigation or in defense of a claim.

Question 30

Oregon requires that the insurer take action relative to coverage provided by a binder within:

• 60 days
• 30 days
• 120 days
• 90 days

Oregon requires the insurer take action relative to coverage afforded under a binder within 90 days.

Answer 30

Oregon requires that the insurer take action relative to coverage provided by a binder within:

• 60 days
• 30 days
• 120 days
• 90 days

Oregon requires the insurer take action relative to coverage afforded under a binder within 90 days.

Question 31

According to Oregon rules and regulations, which of the following may NOT be used by the insurer for cancellation of a commercial liability policy?

• Fraud or material misrepresentation.
• An increase in reinsurance covering the risk.
• Failure of the insured to comply with reasonable loss control recommendations.
• Substantial increase in the risk of loss after the policy has been issued.

Cancellation may be initiated by an insurer in the event of a decrease in the reinsurance covering a risk, NOT an increase. Each of the other listed issues are valid reasons an insurer may cancel a commercial liability policy.

Answer 31

According to Oregon rules and regulations, which of the following may NOT be used by the insurer for cancellation of a commercial liability policy?

• Fraud or material misrepresentation.
• An increase in reinsurance covering the risk.
• Failure of the insured to comply with reasonable loss control recommendations.
• Substantial increase in the risk of loss after the policy has been issued.

Cancellation may be initiated by an insurer in the event of a decrease in the reinsurance covering a risk, NOT an increase. Each of the other listed issues are valid reasons an insurer may cancel a commercial liability policy.

Question 32

A binder is temporary coverage only. Which of the following is NOT a correct statement relating to a binder?

• A binder may be oral or in writing.
• Coverage under a binder is effective until the insurer issues the policy or issues a non-acceptance statement (declination).
• A binder is the insurer’s guarantee of coverage.
• A binder is generally effective for 30, 60, or 90 days.

A binder does not guarantee that coverage will be issued. It is temporary coverage only, allowing the insurer’s underwriting staff an opportunity to evaluate the application and requested coverage.

Answer 32

A binder is temporary coverage only. Which of the following is NOT a correct statement relating to a binder?

• A binder may be oral or in writing.
• Coverage under a binder is effective until the insurer issues the policy or issues a non-acceptance statement (declination).
• A binder is the insurer’s guarantee of coverage.
• A binder is generally effective for 30, 60, or 90 days.

A binder does not guarantee that coverage will be issued. It is temporary coverage only, allowing the insurer’s underwriting staff an opportunity to evaluate the application and requested coverage.

Question 33

If the insurer is requesting an investigative consumer report, the applicant must be notified within _______ days of the initial request that a report has been requested.

• 3 (three)
• 5 (five)
• 7 (seven)
• 10 (ten)

The applicant must be notified within 3 days of initiating a request for an investigative consumer report. Further, it must be clearly disclosed to the applicant that personal interviews may be done with friends, neighbors, acquaintances, and business associates in an effort of determining the applicant’s character, general reputation, personal characteristics, and mode of living.

Answer 33

If the insurer is requesting an investigative consumer report, the applicant must be notified within _______ days of the initial request that a report has been requested.

• 3 (three)
• 5 (five)
• 7 (seven)
• 10 (ten)

The applicant must be notified within 3 days of initiating a request for an investigative consumer report. Further, it must be clearly disclosed to the applicant that personal interviews may be done with friends, neighbors, acquaintances, and business associates in an effort of determining the applicant’s character, general reputation, personal characteristics, and mode of living.

Question 34

In the event an error is made when filling out an application for insurance, which of the following is the acceptable procedure?

• Strike out (line through) the incorrect information and input the correct information, which must be initialed by the applicant.
• White out the incorrect information and input the correct information, which must be initialed by the applicant.
• Notify the insurer of the incorrect information
• Tear up the application and start over.

The strike-out must be initialed by the applicant, because technically, only the applicant can make a change in the application.

Answer 34

In the event an error is made when filling out an application for insurance, which of the following is the acceptable procedure?

• Strike out (line through) the incorrect information and input the correct information, which must be initialed by the applicant.
• White out the incorrect information and input the correct information, which must be initialed by the applicant.
• Notify the insurer of the incorrect information
• Tear up the application and start over.

The strike-out must be initialed by the applicant, because technically, only the applicant can make a change in the application.

Question 35

Oregon regulation states that an insurer may cancel a homeowners policy that has been in force for 60 days or longer for each of the following reasons, EXCEPT:

• Substantial increase in the risk.
• Fraud.
• Unintentional misrepresentation in the application.
• Violation of any of the terms or conditions of the policy.

An insurer may initiate cancellation of a homeowners policy that has been in force for 60-days or longer for one or more of the following reasons only:

• Nonpayment of premium;
• Fraud or material misrepresentation affecting the policy or in the presentation of a claim under the policy;
• Violation of any of the terms and conditions of the policy;
• Substantial increase in the risk of loss after insurance coverage has been issued or renewed, including but not limited to an increase in exposure due to rules, legislation, or court decision; or
• Determination by the Director that continuation of that line or class of insurance by the insurer would jeopardize an insurer’s solvency or place the insurer in violation of the insurance laws of this or any other state.

Answer 35

Oregon regulation states that an insurer may cancel a homeowners policy that has been in force for 60 days or longer for each of the following reasons, EXCEPT:

• Substantial increase in the risk.
• Fraud.
• Unintentional misrepresentation in the application.
• Violation of any of the terms or conditions of the policy.

An insurer may initiate cancellation of a homeowners policy that has been in force for 60-days or longer for one or more of the following reasons only:

• Nonpayment of premium;
• Fraud or material misrepresentation affecting the policy or in the presentation of a claim under the policy;
• Violation of any of the terms and conditions of the policy;
• Substantial increase in the risk of loss after insurance coverage has been issued or renewed, including but not limited to an increase in exposure due to rules, legislation, or court decision; or
• Determination by the Director that continuation of that line or class of insurance by the insurer would jeopardize an insurer’s solvency or place the insurer in violation of the insurance laws of this or any other state.

Question 36

An insurance policy is a legal and binding agreement and will generally contain each of the following, EXCEPT:

• Exclusions.
• Statement of insurable interest.
• Insuring Agreements and Conditions.
• Declarations.

There are five general parts; Declarations, Insuring Agreements, Conditions, Exclusions, and Definitions. Insurable interest must be demonstrated in the event of a loss or claim.

Answer 36

An insurance policy is a legal and binding agreement and will generally contain each of the following, EXCEPT:

• Exclusions.
• Statement of insurable interest.
• Insuring Agreements and Conditions.
• Declarations.

There are five general parts; Declarations, Insuring Agreements, Conditions, Exclusions, and Definitions. Insurable interest must be demonstrated in the event of a loss or claim.

Question 37

If an insurer initiates cancellation of a policy, the insurer is required to refund __________ % of the unearned premium.

• 50%
• 65%
• 80%
• 100%

If the insurer initiates cancellation, the insurer is required to refund 100% of the unearned premium. This is referred to as a pro rata (pro-rate or proportionate share) refund.

Answer 37

If an insurer initiates cancellation of a policy, the insurer is required to refund __________ % of the unearned premium.

• 50%
• 65%
• 80%
• 100%

If the insurer initiates cancellation, the insurer is required to refund 100% of the unearned premium. This is referred to as a pro rata (pro-rate or proportionate share) refund.

Question 38

A merit rate is __________ modifier.

• an experience rate
• a flat rate
• a retroactive rate
• a manual rate

The merit rate is a Manual Rate modifier, referred to the Manual Rate, because in earlier days the information was looked up in a manual. Today, it is still referred to as a “manual rate,” however, the computer does the work; you put the information into the computer and it does the calculation. Examples of merit rates are the insured installing fire protective sprinkler system, burglar alarm systems, or a good student modifier.

Answer 38

A merit rate is __________ modifier.

• an experience rate
• a flat rate
• a retroactive rate
• a manual rate

The merit rate is a Manual Rate modifier, referred to the Manual Rate, because in earlier days the information was looked up in a manual. Today, it is still referred to as a “manual rate,” however, the computer does the work; you put the information into the computer and it does the calculation. Examples of merit rates are the insured installing fire protective sprinkler system, burglar alarm systems, or a good student modifier.