Primerica-General Insurance Study Guide 2021/2022 SCORE AN A+

Primerica General Insurance Adverse selection is a concept best described as: Correct Answer: risks with higher probability of loss seeking insurance more often than other risks Courts will interpret any ambiguity in an insurance contract: Correct Answer: in the favor of the insured- insurance policies are contracts of adhesion. the insurer writes the contract and the insured accepts the contract as it is written. when ambiguities exist, courts generally rule in the favor of the insured. which of the following is NOT an essential element of an insurance contract? a. counteroffer b. consideration c. agreement d. legal purpose Correct Answer: a. counteroffer- is not required for a contract to be legally binding 4 essential elements are agreement and acceptance consideration competent parties legal purpose an insured modifies his insurance claims, illegally adjusting them to display a lower amount. what insurance concept does this violate? Correct Answer: utmost good faith which insurer is owned by stockholders who have the usual rights of ownership, including the right of voting and incurring profits or losses? Correct Answer: Stock insurance the authority granted to an agent through the agent's contract is referred to as: Correct Answer: Express authority: express powers are written into the contract between the insurer and the agent A participating insurance policy may: Correct Answer: pay dividends to the policy owner based upon actual mortality cost, plus interest earned, less expenses of running the business When an insurance company agrees to automatically assume a portion of the risk written by another insurance company, it is known as a(n): Correct Answer: Reinsurance treaty-insurers limit their exposure to catastrophic losses by purchasing insurance from a reinsurance company. a reinsurance agreement whereby the re insurer automatically assumes the risks ceded to it is a reinsurance treaty. an individual's tendency to be dishonest would be indicative of a: Correct Answer: moral hazard-an applicant that is dishonest in completing an application for insurance or submitting fraudulent claims would be deemed a moral hazard and could be uninsurable from an underwriting standpoint insurance companies may be classified according to the legal form of their ownership. the typeof company organized to return any surplus money to their policyholders is a: Correct Answer: Mutual insurer-mutual companies are owned and controlled by their policyholders. any surplus money is returned to the policy holders as dividends. an insurer incorporated in which of the following locations would be considered a foreign insurer in Washington D.C.? a. Canada b. Washington D.C. c. Maryland d. Mexico Correct Answer: c. Maryland-foreign is a insurance company that is incorporated in another state or territorial possession. Mexico and Canada are foreign countries, so their insurers will be considered alien. Insurer that is incorporated and operates in Washington D.C. would be considered domestic. According to the Law of Agency, a principal is represented by a/an: Correct Answer: Agent-a person who acts for another person or entity known as the principal with regard to contractual arrangements with third parties an insured purchased an insurance policy 5 years ago. last year she received a dividend check from the insurance company which was not taxable. this year she did not receive a check from the insurer. from what type of insurer did the insured purchase the policy? Correct Answer: Mutual-funds not paid out after paying claims and other operating costs are returned to the policy owners in the form of a dividend. if all funds are paid out, no dividends are paid. units with the same or similar exposure to loss are referred to as: Correct Answer: homogeneous-the basis of insurance is sharing risk between a large homogeneous group with similar exposure to loss. what authorities can an agent hold? Correct Answer: express and implied What company produces evaluations of insurer financial status often used by the Insurance Department? Correct Answer: AM Best & Company- assigns ratings to life, property and casualty insurance companies based upon the financial stability of the insurer. what must an alien insurer obtain in order to transact insurance within a given state? Correct Answer: Certificate of authority- all insurers, wheter alien, foreign, or domestic, must obtain before transacting insurance within a given state what is the most common way to transfer risk? Correct Answer: purchase insurance- the transfer of loss is borne by another party all of the following actions by a person could be described as risk avoidance EXCEPT a. never flying in an airplane b. taking a flu shot each year c. investing in the stock market d. refusing to scuba dive Correct Answer: c. investing in the stock market is not an example of risk avoidance; it creates a possibility of a loss concerning insurance, the definition of a fiduciary responsibility is Correct Answer: handling insurer funds in a trust capacity what is the major difference between a stock company and a mutual company? Correct Answer: the ownership-mutual companies are owned by policyholders, while stock companies are owned by stockholders which authority is NOT stated in an agent's contract but is required for the agent to conduct business? Correct Answer: implied-it exists because not every single detail of an agent's authority can be written in a contract in insurance policies, contract ambiguities are automatically ruled in the favor of the insured. what privilege does the insurer have in order to balance this? Correct Answer: the right to determine the wording of a policy-the policyholder will receive benefits denied due to a contract ambiguity which of the following is an example of an agent's fiduciary responsibilities? Correct Answer: promptly forwarding premiums to the insurance company-fiduciary refers to a position of trust, they are acting in a fiduciary capacity when handling the premiums for the purpose of insurance, risk is defined as: Correct Answer: the uncertainty or chance of loss under what conditions would a contract between an insurer and prospective insured be legal? a. the applicant is drunk at the time of the application b. the applicant is a 12-year-old student c. the applicant is high on meth at the time of the application d. the applicant has been convicted of a felony Correct Answer: d. the applicant has been convicted of a felony-both parties must be of legal age and mentally competent. all of the following are examples of risk retention EXCEPT a. co-payments b. self-insurance c. premiums d. deductibles Correct Answer: c. premiums- retention is a planned assumption of risk, or acceptance of responsibility for the loss by an insured through the use of deductibles, co-payments, or self-insurance a morale hazard may exist due to: a. tendency toward alcoholism b. indifference to loss c. past fraudulent claims against the insurer d. past medical history Correct Answer: b. indifference to loss-morale hazards arise from a state of mind that causes indifference to loss, such as carelessness an insurance company that is formed under the laws of another state is known as which type of insurer? Correct Answer: foreign a insurer that has not applied, or has applied and has been denied a Certificate of Authority and may not transact insurance is known as which type of insurer? Correct Answer: a non admitted or unauthorized insurer an agent is acting ethically in all of the following situations EXCEPT: a. keeping customers' best interests in mind