An insured purchased an insurance policy 5 years ago. Last year, she received a dividend check from the insurance company that was not taxable. This year, ... [Show More] she did not receive a check from the insurer. From what type of insurer did the insured purchase the policy?
a. mutual
b. reciprocal
c. nonprofit service organization
d. stock
A. mutual
funds not paid out after paying claims and other operating costs are returned to the policy owners in the form of a dividend. if all funds are paid out, no dividends are paid
Following a career change, an insured is no longer required to perform many physical activities, so he has implemented a program where he walks and jogs for 45 minutes each morning. The insured has also eliminated most fatty foods from his diet. Which method of dealing with risk does this scenario describe?
a. retention
b. reduction
c. transfer
d. avoidance
B. reduction
the insured's change in lifestyle and habits would likely reduce the chances of health problems
In insurance, an offer is usually made when
a. an applicant submits an application to the insurer
b. the insurer approves the application and receives the initial premium
c. the agent hands the policy to the policyholder
d. an agent explains a policy to a potential applicant
A. an applicant submits an application to the insurer
in insurance, the offer is usually made by the applicant in the form of an application. acceptance takes place when an insurer's underwriter approves the application and issues a policy
the causes of loss insured against in an insurance policy are known as
a. perils
b. losses
c. risks
d. hazards
A. perils
perils are the causes of loss insured against in an insurance policy
what documentation grants express authority to an agent?
a. agents contract with the principal
b. agents insurance license
c. fiduciary contract
d. state provisions
A. agents contract with the principal
the principal grants authority to an agent through the agent's contract
which of the following best describes an insurance company that has been formed under the laws of this state?
a. domestic
b. sovereign
c. alien
d. foreign
A. domestic
a company is domestic when doing business within the state in which it is incorporated
which of the following factors is NOT considered by an underwriter when determining the premium rates for an individual seeking insurance?
a. medical history
b. sex
c. age
d. race
D. race
age, medical history, and sex provide sound statistical date for determining the probability of loss. Race, religion, sexual orientation, etc. are the factors that cannot be used because there is not sound statistical data to show that they effect the probability of loss; therefore, they are considered to be discriminatory
in insurance transactions, fiduciary responsibility means
a. handling insurer funds in a trust capacity
b. maintaining good credit record
c. being liable with respect to payment of claims
d. commingling premiums with agents personal funds
A. handling insurer funds in a trust capacity
an agents fiduciary responsibility includes handling insurer funds in a trust capacity
the authority granted to an agent through the agent's contract is referred to as
a. absolute authority
b. express authority
c. apparent authority
d. implied authority
B. express authority
express powers are written into the contract between the insurer and the agent
insurance policies are not drawn up though negotiations, and an insured has little to say about its provisions. what contract characteristic does this describe?
a. unilateral
b. conditional
c. personal
d. adhesion
D. adhesion
a contract of adhesion is prepared by only the insurer; the insured's only option is to accept or reject the policy as its written
which of the following insurers are owned by stockholders who have the usual rights of ownership, including the right of voting?
a. reciprocal
b. fraternal
c. stock
d. mutual
C. stock
only stock insurance companies are owned and controlled by stockholders
which of the following best describes the concept that the insured pays a small amount of premium for a large amount of risk on the part of the insurance company?
a. subrogation
b. warranty
c. aleatory
d. adhesion
C. aleatory
an insurance contract is an aleatory contract in that it requires a relatively small amount of premium for a large risk
When an insured makes truthful statements on the application for insurance and pays the required premium, it is known as which of the following?
a. legal purpose
b. contract of adhesion
c. acceptance
d. consideration
D. consideration
consideration is something of value that each party gives to the other. The consideration on the part of the insured is the payment of premium and the representations made in the application
which of the following would qualify as a competent party in an insurance contract?
a. the applicant is intoxicated at the time of application
b. the applicant is 12 year old student
c. the applicant is under the influence of a mind-impairing medication at the time of application
d. the applicant has a prior felony conviction
D. the applicant has a prior felony conviction
when an insurer and insured enter into a contract, both parties must be legal of age and mentally competent. It is legal for a person convicted of a felony to buy an insurance contract. An intoxicated person, however, may not be mentally competent, a 12 year old student is considered to be underage in most states and a person under mind-impairing medication most likely would not be mentally competent
an insurer neglects to pay a legitimate claim that is covered under the terms of the policy. Which of the following insurance principles has the insurer violated?
a. representation
b. adhesion
c. consideration
d. good health
C. consideration
the binding force in any contract is consideration. consideration on the part of the insureds the payment of premiums and the health representations made in the application. Consideration on the part of the insurer is the promise to pay in the even of loss
which of the following is a primary source of information used for insurance underwriting?
a. application
b. applicant interviews
c. medical records.
d. private investigations
A. application
the application contains most of the information used for underwriting purposes. this is why its completeness and accurarcy are so critical
which of the following is the best reason to purchase life insurance rather than annuities?
a. to liquidate a sum of money over a period of year
b. to create regular income payments
c. to liquidate a sum money over a lifetime
d. to create an estate
D. to create an estate
with insurance, the death creates an immediate estate should the insured die
a producer is helping a married couple determine the financial needs of their children in the event of one or both should die prematurely. This is a personal use of life insurance known as
a. survivorship insurance
b. juvenile protection provision
c. survivorship protection
d. life planning
C. survivorship protection
life insurance can provide the funds necessary for the survivors of the insured to be able to maintain their lifestyle in the event of the insured's death. This is known as survivor protection
a producer agent must do all of the following when delivering a new policy to the insured EXCEPT
a. disclose commissions earned from the sale of the policy
b. explain the policy provisions, riders, and exclusions
c. collect any premium due
d. explain the rating procedures if the policy is rated differently than applied for
A. disclose commissions earned fro the sale of the policy
a producer must explain policy provisions, exclusions, and riders at the time of the delivery, as well as the rating procedures especially if the policy is rated differently than applied for. The producer must also collect any due premium and have the insured sign the statement go continued good health
if an applicant for a life insurance policy and person to be insured by the policy are two different people, the underwriter would be concerned about
a. which individual will pay the premium
b. whether an insurable interest exists between the individuals
c. the gender of applicant
d. the type of policy requested
B. whether an insurable interest exists between the individuals
an insurable interest must exist at the time of the policy is issued. Some relationships are automatically presumed to qualify as an insurable interest. ex: spouses, parents, children, and certain business relationships
When J. applied for a life insurance policy, the agent informed him that a medical exam would be required. The exam may be completed by
a. a physician of the applicant's choice and at his expense
b. a home office underwriter
c. a paramedic or examining physician at the insurer's expense
d. the agent
C. a paramedic or examining physician at the insurer's expense
the applicant may be allowed to select the physician or paramedic facility to perform the examination. The insurer pays the cost of such an examination
The factor added to the net premium to cover the costs of the insurer in obtaining and maintaining the business is called
a. expenses
b. legal reserve
c. dividend accumulation
d. premium tax
A. expenses
loading is another term for expenses. Net premium (mortality minus interest earned) plus expenses (or loading) equal the gross premium
which of the following methods of calculating the amount of life insurance needed takes into account the insured's wages, years until retirement, and inflation?
a. needs approach
b. blackout approach
c. lump-sum approach
d. human life value approach
D. human life value approach
human life value approach is determined by the loss of the income that would result with the death of the insured, after making adjustments for expenses, inflation, etc.
which of the following is NOT required for a producer to tell a prospect?
a. how the insurer would use any outside information regarding the applicant
b. an explanation of products that the insurer is selling
c. what requirements the producer needed to meet to obtain the insurance license
d. from what outside sources the insurer would seek information, regarding the insured
C. what requirements the producer needed to meet to obtain the insurance license
agents are required to inform prospects of the products they are selling, as well as their information collecting practices [Show Less]
