AINS 21 Chapter Four Review Questions with Correct Answers
Question 1:
Identify 3 factors that influence an agency relationship.
Answer:
Three factors that influence an agency relationship are: legal roles, legal responsibilities, and
scope of authority.
Question 2:
What are the 2 essential elements of an agency relationship?
Answer:
The 2 essential elements of an agency relationship are the agent's authority to act for the
principal and the principal's control over the agent's actions on the principal's behalf.
Question 3:
Identify the 5 duties that the laws of agency impose on insurance agents.
Answer:
The 5 duties that the laws of agency impose on insurance agents are: (1) Be loyal to the
principal (2) Obey the principal's lawful instructions. (3) Exercise a reasonable degree of care in
actions on behalf of the principal. The agent must act as a reasonably prudent person would
under the same or similar circumstances. (4) Account promptly for any of the principal's money
that the agent holds. Under the duty of accounting, the agent is responsible to the principal for
all of the principal's money and property that comes into the agent's possession. (5) Keep the
principal informed of all facts relating to the agency relationship. This is the duty of relaying
information.
Question 4:
Identify 3 examples of the rights and duties an agency contract addresses.
Answer:
Examples of the rights and duties an agency contract addresses include the right to make
insurance coverage effective and any limitations on that right. The contract also specifies how
the agent is to handle funds, including stipulations on how and when the agent must remit
premiums to the insurer. Insurance agency contracts usually give the agent the right to employ
subagents, who may act on behalf of the insurer according to the terms of the agency contract.
, Question 5:
Identify the legal responsibilities of the principal to the agent.
Answer:
The legal responsibilities of the principal to the agent include: (1) Pat the agent for services
performed (2)
Indemnify, or
reimburse, the agent for any losses or damages suffered without the agent's fault, but arising
out of the agent's actions on behalf of the principal. If a third party sues the agent in connection
with activities performed on behalf of the principal, the principal must reimburse the agent for
any liability incurred if the agent was not at fault.
Question 6:
Identify the 2 types of actual authority.
Answer:
Actual authority can be express authority or implied authority.
Question 7:
Alex owns and manages the Independent Insurance Agency. He'd like to begin offering payment
plans to his customers who have large insurance premiums. Alex has made arrangements with
a local bank that will finance the premiums for his customers. How can he determine whether
this type of arrangement is acceptable to the insurers that he represents?
Answer:
Alex can determine whether this type of arrangement is acceptable by consulting the agency
contract or agency agreement. It specifies the scope of the agent's authority and relationship
with the insurer.
Question 8:
Identify the 3 main insurance distribution systems.
Answer:
The 3 main insurance distribution systems are: (1) the independent agency and brokerage
marketing systems (2) the exclusive agency marketing system and (3) the direct writer
marketing system.
Question 1:
Identify 3 factors that influence an agency relationship.
Answer:
Three factors that influence an agency relationship are: legal roles, legal responsibilities, and
scope of authority.
Question 2:
What are the 2 essential elements of an agency relationship?
Answer:
The 2 essential elements of an agency relationship are the agent's authority to act for the
principal and the principal's control over the agent's actions on the principal's behalf.
Question 3:
Identify the 5 duties that the laws of agency impose on insurance agents.
Answer:
The 5 duties that the laws of agency impose on insurance agents are: (1) Be loyal to the
principal (2) Obey the principal's lawful instructions. (3) Exercise a reasonable degree of care in
actions on behalf of the principal. The agent must act as a reasonably prudent person would
under the same or similar circumstances. (4) Account promptly for any of the principal's money
that the agent holds. Under the duty of accounting, the agent is responsible to the principal for
all of the principal's money and property that comes into the agent's possession. (5) Keep the
principal informed of all facts relating to the agency relationship. This is the duty of relaying
information.
Question 4:
Identify 3 examples of the rights and duties an agency contract addresses.
Answer:
Examples of the rights and duties an agency contract addresses include the right to make
insurance coverage effective and any limitations on that right. The contract also specifies how
the agent is to handle funds, including stipulations on how and when the agent must remit
premiums to the insurer. Insurance agency contracts usually give the agent the right to employ
subagents, who may act on behalf of the insurer according to the terms of the agency contract.
, Question 5:
Identify the legal responsibilities of the principal to the agent.
Answer:
The legal responsibilities of the principal to the agent include: (1) Pat the agent for services
performed (2)
Indemnify, or
reimburse, the agent for any losses or damages suffered without the agent's fault, but arising
out of the agent's actions on behalf of the principal. If a third party sues the agent in connection
with activities performed on behalf of the principal, the principal must reimburse the agent for
any liability incurred if the agent was not at fault.
Question 6:
Identify the 2 types of actual authority.
Answer:
Actual authority can be express authority or implied authority.
Question 7:
Alex owns and manages the Independent Insurance Agency. He'd like to begin offering payment
plans to his customers who have large insurance premiums. Alex has made arrangements with
a local bank that will finance the premiums for his customers. How can he determine whether
this type of arrangement is acceptable to the insurers that he represents?
Answer:
Alex can determine whether this type of arrangement is acceptable by consulting the agency
contract or agency agreement. It specifies the scope of the agent's authority and relationship
with the insurer.
Question 8:
Identify the 3 main insurance distribution systems.
Answer:
The 3 main insurance distribution systems are: (1) the independent agency and brokerage
marketing systems (2) the exclusive agency marketing system and (3) the direct writer
marketing system.
