An insurance binder is best described as:
A) a temporary agreement to pay a claim pending final settlement.
B) temporary, short-term evidence of coverage.
C) a bound collection of rules, rates, and forms.
D) a rate manual supplied by one of the rating org
Answer: B
An insurance binder is an agreement, usually issued in writing but occasionally issued orally, by an agent or an insurer providing temporary, short-term coverage until a policy can be issued. The binder is accepted by the insured with the unders
Which one of the following requires that insurance applicants be advised that a consumer report may be requested on them and the scope of any investigation resulting from the application?
A) Financial Freedom Act.
B) Fair Credit Reporting Act.
C) Fair Dis
Answer: B
The federal Fair Credit Reporting Act requires that insurance applicants be advised that a consumer report may be requested on them and the scope of any investigation resulting from the application. If coverage is denied or restricted based sole
All of the following consumer characteristics are considered in a consumer report regulated by the Fair Credit Reporting Act EXCEPT:
A) creditworthiness.
B) credit standing.
C) character.
D) occupation.
Answer: D
A consumer report is any written, oral, or other communication of information by a consumer reporting agency regulated under the federal Fair Credit Reporting Act that bears on a consumer's creditworthiness, credit standing, credit capacity, cha
Which of the following is an example of adverse selection?
A) An individual buys a new house and the mortgage company requires homeowner insurance.
B) An individual with a new car purchases collision coverage.
C) An individual, who has a new, healthy baby
Answer: D
Adverse selection is the tendency of individuals whose exposure to loss is higher than average to purchase or continue insurance to a greater extent than those whose exposure is less than average. An individual with a terminal illness is more li
What is the cost of a unit of insurance?
A) Premium.
B) Loss.
C) Reserve.
D) Rate.
Answer: D
The rate is the amount of dollars and cents charged for a particular amount of insurance. For example, the rate charged for a fire policy might be $.50 per $100 of value. If the insured wishes to cover property valued at $100,000, the annual pre
Joan and Steven have applied for automobile insurance with ABC Auto Insurers. When the agent asks if anyone else drives the car, they do not tell him that their neighbor, George, who lost his drivers license due to drunk driving, uses one of their cars on
Answer: C
Fraud is an intentional misrepresentation of material facts. Joan and Steve intentionally lied that no one else used the car. The normal use of an insured car would be considered material to the application facts, and therefore fraud was committ
Knowingly lying on an application in order to obtain coverage would be an example of:
A) misrepresentation.
B) recession.
C) fraud.
D) concealment.
Answer: C
Fraud is an act of deceit or misrepresentation of a material fact made knowingly, with the intention of having another person rely on that fact and consequently suffer a financial hardship. Concealment is the nondisclosure of a material fact by
Which of the following terms describes an insured's oral or written statement that becomes part of an insurance contract?
A) Misrepresentation.
B) Warranty.
C) Representation.
D) Waiver.
Answer: B
A warranty is a specific agreement between the insured and the insurer that becomes a part of the insurance policy. A breach of warranty can void the policy.
Statements made on an application that are guaranteed to be true are:
A) representations.
B) promises.
C) misrepresentations.
D) warranties.
Answer: D
A warranty is a statement guaranteed to be true. A warranty may also include a promise by the insured that is stated in the insurance policy. A breach of a warranty, meaning that the statement is not correct, may give grounds for voidance of a p
Joan and Steven have applied for automobile insurance with ABC Auto Insurers. The ABC agent asked Joan and Steven if their resident 18-year-old son, Henry, has had any moving traffic violations in the past 2 years. Both answer no. The fact is, Henry had 4
Answer: D
Joan and Steve made statements that they believed to be true. This was a representation, a factual statement on an application that is made to the best of one's knowledge.
Question ID: 196351
Joan and Steven have applied for automobile insurance with ABC Auto Insurers. The ABC agent asked Joan and Steven if their resident 18-year-old son, Henry, has had any moving traffic violations in the past 2 years. Both answer no. The
Answer: D
Joan and Steve made statements that they believed to be true. However, voidable misrepresentations involve a material fact that turns out to be false. A material fact is a statement that may have caused the insurance company to reject the applic
Joan and Steven have applied for automobile insurance with ABC Auto Insurers. They do not tell the agent that their neighbor, George, who lost his drivers license due to drunk driving, uses one of their cars on a regular basis to drive to work. Once the c
Answer: C
Concealment is the failure to disclose accurate information voluntarily. This includes material facts that may adversely affect the underwriting of the application. The agent would not normally ask if a neighbor regularly uses the car, so this m
In insurance, a waiver is best considered as:
A) a material representation.
B) the suspension of a policy right.
C) the voluntary surrender of a known right.
D) a warranty.
Answer: C
A waiver is the voluntary relinquishment of a known right. It may be intentional or unintentional. An unintentional waiver, when relied upon by another party, can result in the waiving party being estopped from reasserting a right it previously
In legal terms, voluntary relinquishment of a known right is called:
A) a withdrawal.
B) a waiver.
C) a concealment.
D) a warranty.
Answer: B
A waiver is a voluntary relinquishment of a known right. If an insurer waives a legal right under an insurance policy, it cannot deny a future claim on the basis of a violation of that right. This is known as estoppel, because the insurer is est
A warranty is a statement made by the applicant regarding the risk to be insured. Which of the following statements is NOT true about warranties?
A) A warranty is guaranteed to be true.
B) A warranty must refer to a material fact.
C) A policy can be cance
Answer: B
A warranty is an answer to a specific question and literally becomes part of the insurance contract. A breach of warranty, meaning that the answer is not correct, may be grounds for cancellation by the company. However, the materiality of the st
When an insurance company cancels a policy, what is the method used to determine the premium due?
A) Short rate.
B) Premature.
C) Flat.
D) Pro rata.
Answer: D
When the insurer cancels a policy, the premium refund is determined on a pro rata basis. Under this method, the premium refund equals the premium paid for the unexpired term of the policy. A short rate method is used when the insured cancels the