AD Banker Chapter 1 Exam Questions And Answers verified Solution

Which of the following is not a function of insurance? A To act as an investment vehicle for the insured B To exchange a small certain expense for a large uncertain loss C To transfer risk from the insured to the insurer D To protect against uncertainty and reduce anxiety - ANSWERSA) To act as an investment vehicle for the insured An insurer with capital that is divided into shares, and is owned by shareholders, is considered a: A Reciprocal insurer B Stock insurance company C Fraternal Benefit Society D Mutual insurance company - ANSWERSB) Stock insurance Company Policyowner P has just finished painting the interior walls in their home, and stores leftover paint thinner in the basement near the furnace. What kind of hazard does the stored paint thinner present? A Physical B Moral C Peril D Morale - ANSWERSA) Physical Which of the following is least likely to be a factor when determining the eligibility of a person for property insurance? A Existence of any hazards, such as a nearby gas station exposure B The nature of the risk, such as the type of building and the number of families living in the building C Whether the premium will be paid in full or billed to the insured D The claims history showing when prior claims occurred and how much was paid to settle the claim - ANSWERSC) Whether the premium will be paid in full or billed to the insured P is an agent for ABC Insurer, which has just issued an insurance policy to M. In this transaction, who is known as the principal? A M, the insured B ABC Insurer C P, the agent D M's beneficiary - ANSWERSB) ABC Insurer Which of the following is not an element of an insurable risk? A Large number of homogeneous units B Accidental loss C Catastrophic perils D The ability to set a measurable value on it - ANSWERSC) Catastrophic Perils A hazard is best defined as: A The loss itself B Something that increases the chance of a loss C A reduction in, decrease in, or disappearance of, value D The possibility of a loss - ANSWERSB) Something that increases the chance of a loss A peril is defined as which of the following? A It is an indirect loss B It is a condition that may increase a loss C It is the specific cause of loss D It is a risk of financial loss - ANSWERSC) It is the specific cause of a loss Consumers tend to seek insurance for larger risks with a higher probability of loss, which are harder to insure, rather than average risks that have a lower probability of loss, which are more favorable for insurers. This describes which insurance principle? A Residual markets B Law of Large Numbers C Adverse selection D Estoppel - ANSWERSC) Adverse Selection The Gramm-Leach-Bliley Act was responsible for which of the following? A Deregulation of the trucking industry B Regulation of investment companies C Establishment of privacy protection for consumers D Enforcement of insurance fraud regulation - ANSWERSC) Establishment of privacy protection for consumers An agent has a fiduciary responsibility, meaning the agent: A Is obligated to recommend policies to consumers only if they meet the consumer's needs B Must comply with state and federal insurance regulations C Is responsible for investigating claims to determine the insurer's liability D Handles the insurer's funds in a position of trust - ANSWERSD) Handles the insurers funds in a position of trust Rates based on the underwriter's experience describes which rating method? A Manual rating B Loss cost rating C Merit rating D Judgment rating - ANSWERSD) Judgement Rating Insurer XYZ obtains a consumer report for G, a policyholder, and the insurer increases G's premium rate because of information contained in the report. After G obtains a copy of the report, they dispute the information that led to the rate increase, arguing that the report has incorrect information. The insurer: A Must keep the original rate for 90 days, after which it can finalize the rate increase B Must investigate the report's information C Must keep the original rate until the investigation is complete D Can maintain the rate increase, but if the information is found to be inaccurate, the excess premium must be returned - ANSWERSC) Must keep the original rate until the investigation is complete The most common means of managing risk is: A Self-insuring B Purchasing insurance C Avoiding all risks D Obtaining a certificate of security - ANSWERSB) Purchasing insurance The purpose of the Fair Credit Reporting Act is to do all of the following, except: A Ensure information is accurate and used for a specific purpose B Protect the consumer from overly intrusive information collection practices C Protect the consumer's right to privacy D Allow insurers to use consumer credit reports as the only rating factor - ANSWERSD) Allow insurers to use the consumer credit reports as the only rating factor If a mutual insurer has a surplus at the end of the year after paying all covered claims and operating expenses, the surplus may be returned as dividends to the company's - ANSWERSPolicyholders An alarm system installed in a home is considered which of the following ways to manage risk? - ANSWERSReduction Consumers tend to seek insurance for larger risks with a higher probability of loss, which are harder to insure, rather than average risks that have a lower probability of loss, which are more favorable for insurers. This describes which insurance principle? A Law of Large Numbers B Adverse selection C Estoppel D Residual markets - ANSWERSB) Adverse Selection Which of the following is a type of authority producers have when they represent an insurer? A Implied authority B Strict authority C Assumed authority D Excess authority - ANSWERSA) Implied There must be a large number of homogeneous units with the same exposures B The loss must be accidental C The loss must be measurable D The loss may be catastrophic - ANSWERSD) The loss maybe catastrophic Selecting acceptable risks is the primary responsibility of the: A Actuary B Producer C Underwriter D Adjuster - ANSWERSC) Underwriter Customers of an insurer must be provided with a notice of the insurer's privacy policies and practices regarding customers' nonpublic personal information at least: A At policy delivery and annually thereafter B Prior to disclosing any nonpublic personal information and every 2 years thereafter C When the customer relationship is established and only when the privacy policy is revised D When the customer relationship is established and annually thereafter - ANSWERSD) When the customer relationship is established and annually thereafter Where can an insured find insurance coverage after being rejected by an insurer due to claims history? A Lloyd's of London B Reinsurance market C Risk retention insurer D Residual market - ANSWERSD) Residual Market Which of the following best describes a surplus lines broker? A A surplus lines broker deals with admitted carriers only B A surplus lines broker deals with direct writing companies only C A surplus lines broker places risks with non-admitted insurers when coverage cannot be placed with admitted carriers D A surplus lines broker accepts business only from non-resident agents - ANSWERSC) A surplus lines broker places risks with non-admitted insurers when coverage cannot be placed with admitted carriers L stores gas cans in the garage that are used to refill the law mower's tank. An electrical fire starts in the garage and ignites the nearby gas, which causes a partial loss to the garage. The fire is known as a: A Physical hazard B Peril C Loss exposure D Moral hazard - ANSWERSB) Peril The uncertainty of loss from fire, wind, or hail is a type of: A Risk retention B Pure risk C Speculative risk D Physical hazard - ANSWERSB) Pure Risk Which of the following powers describes the authority stated in an agent's agency contract? A Express B Apparent C Implied D Assumed - ANSWERSA) Express Policyowner P has just finished painting the interior walls in their home, and stores leftover paint thinner in the basement near the furnace. What kind of hazard does the stored paint thinner present? A Physical B Morale C Moral D Peril - ANSWERSA) Physical An underwriter chooses a rating based on how the applicant fits into a certain class of insureds who have similar exposures. This describes which rating method? A Loss cost rating B Judgment rating C Merit rating D Manual rating - ANSWERSD) Manual Which of the following is a characteristic of a mutual insurance company? A Dividends are considered a return of profit B Stockholders own the company C A policyholder is a voting member on the board of directors D Members are provided insurance by the company - ANSWERSD) Members are provided insurance by the compan y