2: Insurance policies are not drawn up through 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
A contract of adhesion is prepared by only the insurer; the insured’s only option is to accept or reject the policy as it is written.
5: Which authority is NOT stated in an agent's contract but is required for the agent to conduct business?
A Implied
B Apparent
C Assumed
D Express
Implied authority is not written in the agent's contract but is required in order for the agent to conduct business. Implied authority exists because not every single detail of an agent’s authority can be written in a contract.
However, the investment decisions must be made in line with what a person of average intelligence would deem as an appropriate action. Some of the language in the Employee Retirement Income Security Act is comparable to the prudent-person rule, by directing managers of retirement funds and comparable assets to reduce the risk in the portfolio and avoid large losses on the overall return.
An example of an adhesion contract is an insurance contract. In an insurance contract, the company and its agent has the power to draft the contract, while the potential policyholder only has the right of refusal; he or she cannot counter the offer or create a new contract to which the insurer can agree
In an adhesion contract, one party has substantially more power than the other in creating the contract
A unilateral contract is a contract created by an offer than can only be accepted by performance. Overview. In a unilateral contract, there is an express offer that payment is made only by a party's performance. Another example of a unilateral contract is a reward or a contest.
1: Which of the following is a statement that is guaranteed to be true, and if untrue, may breach an insurance contract?
A Concealment
B Indemnity
C Representation
D Warranty
A warranty in insurance is a statement guaranteed to be true. When an applicant is applying for an insurance contract, the statements he or she makes are generally not warranties but representations. Representations are statements that are true to the best of the applicant's knowledge.
2: Which of the following types of agent authority is also called “perceived authority”?
A Express
B Implied
C Fiduciary
D Apparent
Apparent authority (also known as perceived authority) is the appearance or the assumption of authority based on the actions, words, or deeds of the principal or because of circumstances the principal created.
2: All of the following are examples of risk retention EXCEPT
A Premiums.
B Deductibles.
C Copayments.
D Self-insurance.
Retention is a planned assumption of risk, or acceptance of responsibility for the loss by an insured through the use of deductibles, copayments, or self-insurance.
3: After issuing a policy, an insurance company discovers that the policyholder concealed information on the application. The insurance company wants to cancel the policy and give back the money the policyholder has paid. This is an example of
A Contestability.
B Renewal.
C Rescission.
D Refund.
Rescission is when a company wants to cancel a policy and returns funds paid.
5: Which of the following is NOT a goal of risk retention?
A To minimize the insured's level of liability in the event of loss
B To reduce expenses and improve cash flow
C To increase control of claim reserving and claims settlements
D To fund losses that cannot be insured
Retention usually results from three basic desires of the insured: to reduce expenses and improve cash flow, to increase control of claim reserving and claims settlements, and to fund losses that cannot be insured.
9: An individual applies for a life policy. Two years ago he suffered a head injury from an accident, so he cannot remember parts of his past, but is otherwise competent. He has also been hospitalized for drug abuse, but does not remember this when applying for insurance. The insurer issues the policy and learns of his history one year later. What will probably happen?
A Because the insured is currently not a drug user, his policy will not be affected.
B The policy will not be affected.
C The policy will be voided.
D The insurer will sue the insured for committing fraud.
In insurance, fraud is the intentional misrepresentation of material information that is crucial when deciding whether or not to write a contract for an applicant. If an insurer finds that an applicant has committed fraud, it can void the contract, provided that the discovery occurs within the first two years of the effective policy date. In this particular instance the applicant did not commit intentional fraud.
10: A producer who fails to segregate premium monies from his own personal funds is guilty of
A Larceny.
B Embezzlement.
C Theft.
D Commingling.
It is illegal for insurance producers to commingle premiums collected from the applicants with their own personal funds.
A Only one of the parties being legally bound by the contract
B Ambiguities are interpreted in favor of the insured
C Policies are submitted to the insurer on a take-it-or-leave-it basis
D Exchange of unequal values
An aleatory contract is a contract in which unequal amounts or values are exchanged. The amount of premium the insured pays is much less than the potential loss assumed by the insurer.
6: Installing deadbolt locks on the doors of a home is an example of which method of handling risk?
A Transfer
B Self-insurance
C Reduction
D Avoidance
Steps taken to prevent losses from occurring are called risk reduction.
8: An insured stated on her application for life insurance that she had never had a heart attack, when in fact she had a series of minor heart attacks last year for which she sought medical attention. Which of the following will explain the reason a death benefit claim is denied?
A Waiver
B Utmost Good Faith
C Estoppel
D Material misrepresentation
A material misrepresentation will affect whether or not a policy is issued. If the insured had been truthful, it is very likely that the policy would not be issued.
12: In insurance, an offer is usually made when
A The completed application is submitted.
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.
In insurance, the offer is usually made by the applicant in the form of the application. Acceptance takes place when an insurer’s underwriter approves the application and issues a policy.1: 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
Only stock insurance companies are owned and controlled by stockholders.
5: What documentation grants express authority to an agent?
A Agent's contract with the principal
B Agent's insurance license
C Fiduciary contract
D State provisions
The principal grants authority to an agent through the agent's contract.
6: An insurance producer who by contract is bound to write insurance for only one company or group of companies is classified as a/an
A Independent producer.
B Captive agent.
C Solicitor.
D Broker.
A captive/exclusive agent has agreed, by contract, to produce insurance business only for the insurer they are contracted with.
10: Which of the following is NOT the consideration in a policy?
A The premium amount paid at the time of application
B The promise to pay covered losses
C The application given to a prospective insured
D Something of value exchanged between parties
Consideration is something of value that is transferred between the two parties to form a legal contract.
12: Which of the following is the closest term to an authorized insurer?
A Certified
B Licensed
C Legal
D Admitted
Insurers who meet the state's financial requirements and are approved to transact business in the state are considered authorized or admitted into the state as a legal insurer.