Exam (elaborations)
Michigan Personal Lines Exam Questions and Answers (Graded A)
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Michigan Personal Lines Exam Questions and Answers
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Michigan Personal Lines ExamQuestions and Answers
transfer of risk from person or business to insurer. - Answer -insurance
can end up with a loss or win - Answer -Speculative risk
can only end up with a loss - Answer -pure risk
Risks the insurance company are liable for. - Answer -exposure
the cause of a loss - Answer -peril
the unintended, unforeseen damage to property, injury, or amount paid. - Answer -Loss
physical loss to property with no intervening cause. - Answer -Direct Loss
Consequential loss as the result from a direct loss. - Answer -Indirect Loss
anything that increases the chance that a loss will occur. - Answer -Hazard
A hazard that can be seen. - Answer -Physical Hazard
Dishonesty - Answer -moral hazard
Carelessness - Answer -morale hazard
Two or more individuals or businesses agree to pay a portion of any loss. - Answer -
Sharing
insurance company pays the insured if they have a loss. (the insured no longer bears
that risk. - Answer -Transfer
eliminating any particular risk by not engaging in a certain activity. - Answer -avoidance
the individual or business will pay for the loss if it occurs or a portion of the loss via a
deductible. - Answer -Retention
,Lessening the chance that a loss will occur, or lessening the extent of a loss. - Answer -
Reduction
An agreement between the insured and insurer.
- 1st party - insured (customer)
-2nd party - insurer (insurance company) - Answer -Contract (policy)
The larger the group, the more accurately losses can be predicted. - Answer -Law Of
Large Numbers
the tendency for higher risk individuals to get and keep insurance as compared to
individuals that represent an average level of risk.
-Risks that are greater than average chance of loss.
-Not wanted by insurers.
-Tendency for high risk individuals to get and keep insurance.
-Why insurers go through the underwriting process
-High risk= higher rate to insure or refusal - Answer -Adverse Selection
insurance for insurers. It transfers risk from one insurer to another insurer. - Answer -
Reinsurance
The reinsurer considers each risk before allowing the transfer from the ceding company.
- Answer -facultative reinsurance
The reinsurer accepts all risks of a certain type from the ceding company. - Answer -
treaty reinsurance
business formed as a corporation and owned by its stockholders
-Owned by stockholders
-Dividend is not guaranteed
-Dividend is paid to stockholder
-Dividend is taxable to stockholder
-Issue non-participating policies - Answer -Stock Insurer
does not have stock or stockholders. It is owned by its policyholders (customers) also
known as policy owners.
-Owned by policyholders
-Dividend is not guaranteed
-Dividend is paid to policyholder
-Dividend is not taxable
-Issue participating policies - Answer -Mutual Insurer
the state where a company is incorporated - Answer -Domestic
company is incorporated in another state or US territory. - Answer -Foreign
, company is incorporated in another country - Answer -Alien
-Insurance company
-Admitted
-Certificate of authority
-Sell, place, and service most insurance contracts - Answer -Authorized
-insurance company
-Nonadmitted
-No certificate of authority
-Sell surplus lines insurance products - Answer -Unauthorized
-Insurance sold by unauthorized/nonadmitted insurers
-Can only be sold to certain high risk insureds
-Cannot be sold solely for a cheaper rate than licensed/admitted insurers - Answer -
Surplus lines
individuals that represent only one company. They are independent contractors, not
employees of the insurer. - Answer -Captive agents
contracts made by the agent are considered to be contracts of the insurer. - Answer -
Law Of Agency
Authorities written in agent contract - Answer -Express authority
authorities not written in agent contract but tasks agent must perform. - Answer -Implied
authority
tasks the agent does that a reasonable person would assume as authority. - Answer -
Apparent authority
Trust
-Promptly sends premiums to the insurer.
-Has knowledge of products
-Complies with laws and regulations.
-Does not commingle funds - Answer -Fiduciary
CLOAC
Consideration: Money and statements made on application:
Legal Purpose: Risk transfer that does not violate the law
Offer:
- insured submits application and first month premium to insurer.
- Insurer accepts or insurer declines the risk
CounterOffer:
Agrees to issue policy but with higher premium or restrictions
Insured either accepts the conditions or withdraws their application.
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