General Insurance Concepts

Discipline: Insurance

Type of Paper: Question-Answer

Academic Level: Undergrad. (yrs 3-4)

Paper Format: APA

Pages: 1 Words: 275

Question

  1. Business/Risk Management & Insurance
What is an agent/producer?
A legal representative of an insurance company; the classification of producer usually includes agents and brokers; agents are the agents of the insurer.

Applicant or proposed insured
a person applying for insurance

For the purpose of insurance, risk is defined as: a - An event that increases the amount of loss b- The uncertainty or chance of loss c - The certainty of loss d - The cause of loss
B. Risk, or the chance of loss occurring, is the basic reason for buying insurance.

Broker
an insurance producer not appointed by an insurer and is deemed to represent the client.

Insurance policy
a contract between a policyowner (and/or insured) and an insurance company which agrees to pay the insured or the beneficiary for loss caused by specific events.

Insured
the person covered by the insurance policy. This person may or may not be the policyowner.

Insurer (principal)
the company who issues an insurance policy

Policyowner
the person entitled to exercise the rights and privileges in the policy

Premium
the money paid to the insurance company for the insurance policy.

Reciprocity/Reciprocal
a mutual interchange of rights and privileges.

Events in which a person has both the chance of winning or losing are classified as A - Retained risk. B - Speculative risk. C - Insurable. D - Pure risk.
B - Speculative risk
Speculative risk involves the chance of gain or loss and is not insurable.

Which of the following is NOT a goal of risk retention? A - To increase control of claim reserving and claims settlements. B - To fund losses that cannot be insured. C - To minimize the insured's level of liability in the event of loss. D - To reduce expenses and improve cash flow
C - To minimize the insured's level of liability in the event of loss
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.

The risk of loss may be classified as A - Named risk and un-named risk. B - High risk and low risk. C - Pure risk and speculative risk. D - Certain risk and uncertain risk.
C - Pure risk and speculative risk.
Pure risks involve the probability or possibility of loss with no chance for gain. Pure risks are generally insurable. Speculative risks involve uncertainty as to whether the final outcome will be gain or loss. Speculative risks are generally uninsurable.

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.
A - The completed application is submitted.
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.

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
A - Implied
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.

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
A - Agent's contract with the principal
The principal grants authority to an agent through the agent's contract.

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
C - The application given to a prospective insured.
Consideration is something of value that is transferred between the two parties to form a legal contract.

All of the following would be considered an insurance transaction EXCEPT A - Advising a policyholder regarding a claim. B - Negotiating coverage. C - Obtaining an insurance license. D - Soliciting a policy.
C - Obtaining an insurance license.
An insurance transaction means the carrying on of business in insurance, which could include the solicitation of a policy, advising, negotiation, or inducement related to coverage or claims. Obtaining an insurance license is a prerequisite to transacting insurance.

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 faith.
C - Consideration.
The binding force in any contract is consideration. Consideration on the part of the insured is 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 event of loss.

In forming an insurance contract, when does acceptance usually occur? A - When an insured submits an application. B - When an insurer's underwriter approves coverage. C - When an insurer delivers the policy. D - When an insurer receives an application.
B - When an insurer's underwriter approves coverage.
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.

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.

Representations are written or oral statements made by the applicant that are A - Guaranteed to be true. B - Found to be false after further investigation. C - Immaterial to the actual acceptability of the insurance contract. D - Considered true to the best of the applicant's knowledge.
D - Considered true to the best of the applicant's knowledge.
Representations are statements made by an applicant that they believe to be true.