UNIT 4: Insurance transaction

Question 1

Judgment rating is based on:

A) a evaluation of the characteristics of the individual risk
B) manual rates developed from statistical data
C) calculation and evaluation of the insureds past loss experience

Answer 1

An evaluation of the characteristics of the individual risk.

This is the oldest form of rating. The premium is determined by considering the individual risk. No books or tables are used; premiums are established through careful judgment.

Question 2

What reading method make modifications to manual rate to reflect the unique characteristics of each risk?

A) judgment
B) merit
C) certification

Answer 2

Merit; experience rating, retrospective rating, and schedule readings are all types of merit ratings

Question 3

To void a policy, misrepresentation or concealment must

A) concern material facts
B) be intentional

Answer 3

Concern material facts: misrepresentation is a written or verbal statement of a material fact. It may be either intentionally or unintentionally.

Question 4

An agreement between the insured and the insurer that certain conditions will be met is…

A) misrepresentation
B) warranty
C) estoppel
D) A certificate of insurance

Answer 4

Warranty: a warranty becomes part of the policy. If it is breached, the insurer and void of the policy.

Question 5

An insurance policy (can/cannot) be voided on the basis of a representation made by the insured.

Answer 5

Cannot: most of the statements contained in the insureds application for insurance our presentations – statements that the applicant the leaves are true. Under the law, a representation is not considered a matter to which the parties contract, so a policy cannot be avoided on the basis of a representation.

Question 6

When an insured decides to cancel insurance policy before the expiration date, the unearned premium is returned on a…

A) flat basis
B) pro rata basis
C) short rate basis

Answer 6

Short rate basis: this means the insurer can keep an allowance for expenses.

Question 7

What is a pro rata basis?

Answer 7

When the insurance company cancels, unearned premium is returned on a pro rata basis, which means the company retains only the earned premium.

Question 8

List four information sources besides the application that and underwriter might use to evaluate whether a risk is insurable…

Answer 8

• -Inspection services:
• -government bureaus:
• -insurance industry bureaus:
• -financial information services:
• -previous insurers:
• -the companies own claim files.

Question 9

Which of the following statements about the fair credit reporting act is not correct?

Pre-notification is required for both regular and investigative reports.

Post-notification is required when insurance coverage is denied because of adverse information in a credit report.

And agent who obtains information from a reporting agency under false pretense may be sent to jail and fined.

Consumers have the right to challenge information in the investigative reports and to have incorrect information removed.

Answer 9

Pre-notification: free notification is required for investigative reports but not regular reports.

Question 10

What is adverse selection?

Answer 10

The tendency for people with a greater than average exposure to loss to purchase insurance. Adverse selection may result in large financial losses and decreased profitability for the insurer.

Question 11

Retrospective rating bases premiums on the insurance loss experience
(before/during) the current policy period.

Answer 11

During: retrospective rating is a type of merit rating that bases the insurance premium on losses incurred during the policy period.

Question 12

A certificate of insurance provides…

A) temporary insurance coverage until policies issued
B)Proof that a policy has been written

Answer 12

Proof the policy has been written: a certificate of insurance contains a general summary of the policies coverage. It may be used in loan transactions and other legal matters to provide proof that a policy has been issued.

Question 13

What is the difference between fraud and misrepresentation?

Answer 13

Fridays always intentional and involves and all that affect by one party to deceive and she the other. Misrepresentation may or may not be intentional.

Question 14

An agent tells and insured that a loss caused by flood damage is covered under her homeowners policy. Actually, the policy specifically excludes such losses. The insurance company…

Answer 14

Is estopped from denying coverage because the agent stated that the loss is covered.

Estoppel is a legal principle that states that if one intentionally or unintentionally create the impression that a certain fact exist, and an innocent party relies on that impression and he’s injured as a result, the guilty party may be legally prohibited from asserting that the fact does not exist.

Question 15

The insurance policy is nearing the expiration date. The insurance company doesn’t want to continue the insurance coverage, so it sends The insured a notice that the policy will not continue beyond the expiration date of the policy. This is a…

Answer 15

Nonrenewal: nonrenewal occurs when the insured or the insurer decides to not continue coverage for another policy period After the current policy period Expires

Question 16

Which of the following statements concerning binders is correct?

Answer 16

They expire on the effective date of the policy to which they apply, or on the expiration date of the binder if the policy is not issued.

An agent or an Insurance company may issue a binder. A binder does not guarantee that a policy will be issued; it only guarantees temporary coverage. If the company decides not policy, coverage under the binder maybe cancel by a formal cancellation notice; however, if no formal cancellation is made, coverage remains in effect until the binder expires. If a policies issued, coverage under the binder ceases as of the effective date of the policy.