Chapter 1 Flash Cards

Conditions that increase the chance of a loss are known as what?

Hazards

In insurance, when is the offer usually made on a contract?

When the insurance application is submitted

Wagering on a sporting event is known as what type of risk?

Speculative

What are the five characteristics of an ideally insurable risk?

Loss must be 1) due to chance, 2) definite and measurable, 3) statistically predictable, 4) not catastrophic, and 5) Coverage cannot be mandatory.

An applicant conceals relevant health information on the application. The applicant presents what type of hazard?

Moral

An insurance policy paid a nontaxable dividend to the insured one year, and nothing the next. From what type of insurer did the insured purchase the policy?

Mutual

What type of insurer is formed under the laws of another country?

Alien

Who owns stock companies?

Stockholders

Whom does an insurance agent represent?

Insurance company

Insurers are classified according to their domicile. What are the three types of insurers?

Domestic, foreign, and alien

When a change needs to be made on the application for insurance, which is the best method for correcting the information?

Complete a new application or ask the applicant to initial the correction on the original application

What do individuals use to transfer their risk of loss to a larger group?

Insurance

What is the best way to handle incomplete insurance applications?

Return the application to the applicant for completion

The type of insurance company organized to return any surplus money to its policyholders is known as what?

Mutual company

Whose responsibility is it to determine that all the questions on an insurance application are answered?

The agent's

What are the four elements of an insurance contract?

Agreement (offer and acceptance), consideration, competent parties, and legal purpose

The insurer organized to return a profit to the stockholders is what type of insurer?

Stock company

When would a misrepresentation on an insurance application be considered fraud?

When it is intentional and material

What are the three types of agent authority?

Express, implied and apparent

What are the three types of hazards?

Physical, moral and morale

In the agent/insurer relationship, who is considered the principal?

Insurer

Insurance is a contract that protects the insured from what?

Loss

The reduction, decrease, or disappearance of value of the person or property insured in a policy is known as what?

Loss

When does an insurance policy go into effect?

When the policy is delivered and the premium is paid

What is the term for the causes of loss insured against in an insurance policy?

Peril

What document is required for an insurance company to transact insurance?

Certificate of Authority

When agents act within the scope of their contract, their actions will be assumed to be the acts of whom?

Insurer

Who is responsible for making sure that an applicant receives the new insurance policy once it's issued?

The agent

What type of risk is insurable?

Pure

What two elements are necessary for a life insurance contract to have a legal purpose?

Insurable interest and consent

The requirement that agents must account for and promptly remit all insurance funds collected is knows as what type of agent responsibility?

Fiduciary

A person who does not lock the doors to their house shows an indifferent attitude. This person presents what type of hazard?

Morale

When risks with higher probability of loss are seeking insurance more often than other risks, this is knows as what?

Adverse selection

According to the Law of Agency, a principal is represented by whom?

Agent or producer

What entities make up the Medical Information Bureau?

Insurers

What are the strategies used by underwriters to prevent adverse selection?

Restriction of coverage, refusal to accept a risk, and accepting a risk at a higher rate

A situation in which a person can only experience a loss and no gain presents what type of risk?

Pure risk

In forming an insurance contract, when does an acceptance usually occur?

When the insurer approves a prepaid application

If an insurer meets the state's financial requirements and is approved to transact business in the state, it is considered what type of insurer?

Authorized or admitted

An insurance company is domiciled in California and transacts insurance in Nevada. What is this insurer's classification in Nevada?

Foreign

What is a warranty in an insurance contract?

An absolutely true statement upon which the validity of the insurance contract is based

An insurance company that is formed under the laws of another state is known as what type of insurer?

Foreign

If an agent fails to obtain the applicant's signature on the insurance application, what must the insurer do?

Send the application back to the applicant for signature

For the purpose of insurance, what is risk?

Uncertainty of loss