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Life & Health Insurance (1 -29) – Questions & Answers
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Life & Health Insurance (1 -29) – Questions & AnswersIn insurance, a type of risk that involves the chance of loss or gain and
which is therefore uninsurable is called Correct Ans - speculative
risk: Speculative risk is risk that may result in loss or gain. This type of risk
is generally uninsurable.
A hurricane is an example of a(n) Correct Ans - Peril: A hurricane is
an example of a peril. A peril is a condition that involves danger or risk and
is the cause of a loss. Insurance policies are written to provide financial
protection against losses from stated perils.
Which of the following is an example of pure risk? Correct Ans - the
loss of life: The loss of a life is a good example of pure risk because there is
no possible gain in this situation.
Which of the following is defined as increasing the severity or frequency of
loss? Correct Ans - Hazard: A hazard does indeed increase the
number of, or the severity of, losses.
Mary refuses to fly on a commercial airplane for her business. This is an
example of risk ________. Correct Ans - Avoidance: Mary refuses to
fly on a commercial airplane for her business. This is an example of risk
avoidance.
The banding together of individuals who collectively agree to cover a loss
suffered by any group member is the definition of which method of
handling risk? Correct Ans - share the risk: Under risk-sharing each
member of a group agrees to share the financial burden of a loss that could
be suffered by any member.
Pamela replaces the batteries in her smoke alarms throughout the house
and tests them once a year. This is an example of Correct Ans - risk
reduction: Risk reduction is an option to lessen the possibility of loss when
a risk cannot be avoided. In this case, the risk of fire that could result in
severe loss is reduced through having active fire alarms.
,Which of the following is considered an element of insurable risk?
Correct Ans - The risk of loss must be measurable with a dollar value
defined.
Adverse selection can be described as Correct Ans - the fact that
people in poor health are more likely to buy and keep insurance. Adverse
selection is selection against an insurer. It refers to the tendency of persons
who are likely to make a claim based on their circumstances to buy and
keep insurance. For example, a person who is sick is more likely to buy
health insurance and to keep the policy in force than a healthy person.
This term is the principle that the greater the number of incidents of a
random process, the more likely that the expected number of incidents and
the actual numbers of incidents will be the same. Correct Ans - law
of large numbers: The law of large numbers describes the principle that the
greater the number of incidents of a random process, the more likely that
the expected number of incidents and the actual numbers of incidents will
be the same. This fact allows the insurer to predict the extent of risk.
Both mutual insurance companies and stock insurance companies have
which of the following features in common? Correct Ans - Both can
issue dividends:The stock company can issue dividends to its stockholders;
the mutual company can issue dividends to its policyowners.
The Grand Halvorson Lodge has 250 members, united by a common Danish
heritage. For 50 years they have also run an annual carnival for the purpose
of sponsoring families in need of medical care for their children. All the
money brought in through dues and fund-raising events is used to support
their non-profit work with needy families. The Grand Halvorson Lodge
offers life insurance to its members. What type of insurer is it considered?
Correct Ans - fraternal benefit society: The members of a lodge or
fraternal organization can provide life insurance for their members.
A group of people who agree to pro-rate and share the losses suffered by
other members is called a(an) ______________ insurer. Correct Ans -
Reciprocal: A group of people who agree to pro-rate and share the losses
suffered by other members is called a reciprocal insurer.
,Which of the following services does Lloyd's of London provide?
Correct Ans - a common meeting ground where member associations
can conduct insurance business: Lloyd's of London provides a common
meeting ground where member associations can conduct insurance
business.
When a state bars the sale of a particular coverage within its boundaries, a
typical insurance company cannot cover it. In this case, an insurer not
licensed in the state can underwrite this insurance through a third party
broker. What type of insurer can underwrite the coverage in this case?
Correct Ans - a surplus lines insurer: A surplus lines insurer is not
licensed to do business in the state. However, it must be eligible to provide
unique coverage when requested through the surplus lines market.
When an insurance company cedes part of an insurance risk to another
insurance company, the process is known as Correct Ans -
reinsurance: When an insurance company wants to transfer some or all of
the risks represented by its insureds, the process is known as reinsurance.
The company accepting the risk being transferred is the reinsurance
company.
Which of the following statements is TRUE about government insurers?
Correct Ans - The populace, through taxation, funds the insurance
program. Government insurance is funded through taxation.
An insurance company that has received a certificate of authority from the
state to sell insurance in that state is known as a(an) ___________ insurer.
Correct Ans - Admitted: An insurance company that has received a
certificate of authority from the state to sell insurance in that state is
known as a(an) admitted insurer. Agents who, within a given state, sell
insurance for a non-admitted insurance company face severe penalties.
In an insurance transaction, the insurance salesperson in the agency
system who legally represents the insurer is known as the __________.
Correct Ans - Agent: In an insurance transaction, the insurance
salesperson in the agency system who legally represents the insurer is
known as the agent. (A broker, on the other hand, has traditionally and
legally been viewed as a representative of the applicant rather than of the
insurer.)
, XYZ Insurance, incorporated in Texas, has agents authorized to sell life
insurance in Arkansas. In Arkansas, XYZ Insurance is categorized as which
of the following? Correct Ans - a foreign insurer: In Arkansas, XYZ
Insurance is categorized as a foreign insurer.
Under the rules of agency, the party for whom the agent acts is called the
______. Correct Ans - Principal: Under the rules of agency, the party
for whom the agent acts is called the principal. An agent and principal are
the two parties involved in the agency relationship.
The agent holds three types of authorities. The authority that a customer
believes that an agent holds based on the agent's statements and which
may make the insurer liable for the agent's acts is called _________ authority.
Correct Ans - Apparent: The authority that a customer believes that an
agent holds based on the agent's statements and which may make the
insurer liable for the agent's acts is called apparent authority.
Which of the following statements is TRUE about a legal contract?
Correct Ans - A contract is enforceable at law. A contract is enforceable
by law. Once all of the elements of the contract have been met then the
contract is binding on all parties.
Based on the definition of a legal contract, which of the following
statements represents an offer? Correct Ans - an application for
coverage presented by the applicant with the first premium. An application
for coverage presented by the applicant with the first premium constitutes
a legal offer.
ABC Insurance reviews Henry Garrett's application for insurance and
decides to insure Henry for an amount that is less than what Henry applied
for. It presents Henry with a policy for $100,000 instead of the $200,000 he
requested. The legal term that refers to the action taken by ABC Insurance
is __________. Correct Ans - Counteroffer: ABC Insurance has rejected
Henry's offer and made a counteroffer.
The terms of an insurance policy must be accepted or rejected as
presented; they are not open to negotiation. Which term describes this
characteristic of insurance policies? Correct Ans - Adhesion: An
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