Why are some mutual insurers referred to as "assessment mutuals"?
They charge low premiums because the loss exposures of their insureds are thoroughly assessed before a policy is written.
They are noted for being very thorough in their assessment of inves
They can assess policyholders if premiums are insufficient to pay losses and expenses.
ABC Mutual offered XYZ company workers compensation coverage for $1000. The premium was calculated based on a loss ratio estimate of 0.7. XYZ company entered the contract. In the first year, the actual loss ratio was 0.95. Assuming that ABC Mutual uses th
$1357.14
When must an insurable interest legally exist in property insurance for an insured to receive payment for a loss from the insurer?
Only at the time of the loss
Only at the inception of the policy
Only at the time the loss settlement takes place
Both at th
Only at the time of the loss
Exclusions are used in insurance policies for all of the following reasons EXCEPT
to reduce moral hazard.
to waive policy conditions.
to eliminate coverage for uninsurable perils.
to eliminate coverage not needed by typical insureds.
to reduce moral hazard.
A contract in which the values exchanged are not equal because chance is involved is called a(n)
contract of adhesion.
unilateral contract.
conditional contract.
aleatory contract.
personal contract.
aleatory contract.
Sam's furniture was destroyed by a fire. The furniture cost $1200 when it was purchased, but similar new furniture now costs $1800. Assuming the furniture was 50 percent depreciated, what is the actual cash value of Sam's loss?
$600
$900
$1200
$1800
$900
Which of the following is a fundamental purpose of the principle of indemnity?
To reduce moral hazard
To minimize physical hazards
To settle property insurance losses on a replacement cost basis
To require deductibles in all property insurance policies
To
To reduce moral hazard
XYZ Insurance Company uses class rating to determine the rate to charge for insurance. For one type of insurance, the pure premium XYZ actuaries calculated is $75 per unit. If XYZ's expense loading is 25 percent, what is the gross premium per unit for thi
$100.00
Jan is employed by an insurance company. She reviews applications to determine whether her company should insure the applicant. If insurable, Jan assigns the applicant to a rating category based on the applicant's degree of risk. Jan is a(n)
underwriter
a
underwriter
All of the following statements about class rating are true EXCEPT
Exposures with similar characteristics are placed in the same underwriting class.
The rate charged for each class reflects the average loss experience for that class.
The complexity of cla
The complexity of class rating makes it inappropriate for personal lines coverages.
Beverly lives in a sparsely populated area in northern Idaho. A number of insurance companies only have a few policyholders in Idaho. Several insurance companies hire Beverly to adjust claims for their insureds. Beverly charges the companies a fee for eac
independent adjustor
All of the following statements about the independent agency system are true EXCEPT
Agents are often authorized to bind coverage.
Agents are compensated on the basis of commissions.
The insurer rather than the agent owns the renewal rights to the business
The insurer rather than the agent owns the renewal rights to the business.
From the viewpoint of the insurer, all of the following are characteristics of an ideally insurable risk EXCEPT
The loss must be accidental.
The loss must be catastrophic.
The premium must be economically feasible.
There must be a large number of exposure
The loss must be catastrophic.
Which of the following statements about stock insurers is true?
They issue assessable policies.
They are not permitted to write property and liability insurance.
Stockholders bear any losses and share in any profits.
They are owned by their policyholders.
Stockholders bear any losses and share in any profits.
With which of the following ownership structures do the owners traditionally have unlimited liability?
Stock
Mutual
Reciprocal exchange
Lloyd's of London
Fraternal
Lloyd's of London
Fundamental purposes of the principle of indemnity include which of the following?
To reduce physical hazards
To prevent the insured from profiting from insurance
A) I only
B) II only
C) both I and II
D) neither I nor II
B) II only
Which of the following is a fundamental purpose of the principle of indemnity?
A) to reduce moral hazard
B) to minimize physical hazards
C) to settle property insurance losses on a replacement cost basis
D) to require deductibles in all property insurance
A) to reduce moral hazard
The loss settlement under which of the following supports the principle of indemnity?
A) life insurance
B) valued policies
C) replacement cost property insurance
D) actual cash value property insurance
D) actual cash value property insurance
Under which of the following rules is actual cash value determined by taking into consideration all relevant factors an expert would use to determine the value of the property?
A) the circumstantial evidence rule
B) the broad evidence rule
C) the property
B) the broad evidence rule
A total loss under a valued policy is settled on the basis of the
A) market value of the loss.
B) actual cash value of the loss.
C) replacement value of the loss.
D) amount of insurance covering the loss.
D) amount of insurance covering the loss.
Which of the following statements describes how losses will be settled if a property insurance policy is written on a replacement cost basis?
A) Losses are settled without the applicable deductible.
B) Losses are settled without a deduction for depreciati
B) Losses are settled without a deduction for depreciation.
Which of the following statements about the principle of insurable interest is (are) true?
It makes it difficult to measure the amount of an insured's loss.
It reduces moral hazard.
A) I only
B) II only
C) both I and II
D) neither I nor II
B) II only
All of the following will support an insurable interest for purposes of purchasing property and liability insurance EXCEPT
A) former ownership of property.
B) potential legal liability.
C) secured creditors.
D) contractual right.
A) former ownership of property.
Which of the following statements about an insurable interest in life insurance is (are) true?
It is required of any person named as beneficiary.
It may result from a pecuniary (financial) interest.
A) I only
B) II only
C) both I and II
D) neither I nor I
B) II only
Sue's office building was damaged by a fire caused by a careless tenant. After paying Sue for the loss, the insurance company sued the tenant to recover its loss. This suit is based on the principle of
A) warranty.
B) insurable interest.
C) utmost good fa
D) subrogation.
Which of the following statements about subrogation is true?
A) Subrogation eliminates adverse selection.
B) Subrogation helps to hold down the cost of insurance.
C) Subrogation results in violation of the principle of indemnity.
D) Subrogation permits a
B) Subrogation helps to hold down the cost of insurance.
Which of the following statements about subrogation is true?
A) It is used primarily for losses paid under life insurance policies.
B) It allows the insurer to sue its own insured who is negligent.
C) The insured's right to collect benefits may be forfeit
C) The insured's right to collect benefits may be forfeited if the insured interferes with the insurer's subrogation rights after a loss occurs.
The principle of utmost good faith is supported by all of the following legal doctrines EXCEPT
A) representations.
B) warranty.
C) subrogation.
D) concealment.
C) subrogation.
What is the legal significance of a material concealment by an insurance applicant?
A) The contract is automatically voided from its inception.
B) The contract is voidable at the insurer's option.
C) Loss payments are reduced by the degree of the concealm
B) The contract is voidable at the insurer's option.
What is the legal significance of a material misrepresentation in an insurance application?
A) The contract is automatically voided from its inception.
B) The contract is voidable at the insurer's option.
C) Loss payments are reduced by the degree of the
B) The contract is voidable at the insurer's option.
A false material statement made by an applicant for insurance is an example of
A) concealment.
B) breach of warranty.
C) lack of offer and acceptance.
D) misrepresentation.
D) misrepresentation.
Which of the following statements about a warranty in an insurance contract is (are) true?
It is part of the insurance contract.
Statements made by an insurance applicant are considered warranties rather than representations.
A) I only
B) II only
C) both
A) I only
David owns a liquor store in a high-crime area. In order to obtain a reduced insurance premium, David promised to have a burglar alarm operating at the store when the store was closed. This agreement, which was incorporated into the insurance contract, is
D) warranty.
Which of the following statements about offer and acceptance for insurance contracts is true?
A) In property and liability insurance, agents typically do not have the authority to bind coverage.
B) In life insurance, the agent can usually accept an offer
C) In property insurance, the offer and acceptance are usually in writing but may be oral.
Chris applied for life insurance and paid the first premium on Monday. She was given an insurability premium receipt which specified that coverage was effective on the date of the application or the date of the medical exam, whichever is later. She took t
C) on Thursday when she passed the medical exam
Which of the following statements about consideration in an insurance contract is (are) true?
The insured's total consideration is submission of a completed application.
The insurer's consideration is the promise to do those things specified in the policy
B) II only
A contract in which the values exchanged are not equal because chance is involved is called a(n)
A) contract of adhesion.
B) unilateral contract.
C) conditional contract.
D) aleatory contract.
D) aleatory contract.
Why are insurance contracts said to be contracts of adhesion?
A) The values exchanged by the parties to the contract are not equal.
B) One party writes the contract, and the other party must accept the entire contract as written.
C) Only one party makes a
B) One party writes the contract, and the other party must accept the entire contract as written.
Why does the insured get the benefit of the doubt if an insurance policy contains any ambiguities or uncertainties?
A) because insurance contracts are aleatory
B) because insurance contracts are unilateral
C) because insurance contracts are conditional
D)
D) because insurance contracts are contracts of adhesion
Why can an insurer refuse to pay a claim if an insured fails to abide by the policy provisions?
A) because insurance contracts are aleatory
B) because insurance contracts are unilateral
C) because insurance contracts are conditional
D) because insurance c
C) because insurance contracts are conditional
Which of the following types of insurance policies can usually be assigned without the insurer's consent?
Life insurance
Property insurance
A) I only
B) II only
C) both I and II
D) neither I nor II
A) I only
What is the practical effect of an insurance policy being a conditional contract?
A) The insurer can refuse to a pay claim if the insured has not complied with all policy provisions.
B) The insured can assign the policy only with the insurer's consent.
C)
A) The insurer can refuse to a pay claim if the insured has not complied with all policy provisions.
What is the practical effect of an insurance contract being a contract of adhesion?
A) The insurer can refuse to pay claims if the insured has not complied with all policy provisions.
B) The insured can assign the policy only with the insurer's consent.
C
D) The policy is interpreted in the insured's favor if the policy contains any ambiguities or uncertainties.
All of the following statements about the rules governing agency relationships are true EXCEPT
A) An agent must be authorized to act on behalf of a principal.
B) An agency agreement may grant certain powers to the agent as well as denying the agent other
C) The principal is responsible for the acts of agents only if the acts are criminal.
Jacob sold his house to Shelia for $140,000 in cash. Jacob "threw in" insurance on the house as part of the deal and did not bother telling the insurer that there was a new owner. Four months after Shelia purchased the home, a windstorm damaged the roof.
D) Insurance contracts are personal contracts.
Melody's car was damaged when another driver ran a stop sign and hit her car. Melody decided to collect from her own insurer and to let her insurer recoup the loss payment from the negligent driver who hit her. What fundamental legal principle is illustra
C) the principle of subrogation
When Ben applied for life insurance, he was asked on the application if he smoked or used tobacco products. Ben answered "No." In reality, Ben smokes two packs of cigarettes a day. The policy was issued at the "preferred, nonsmoker rate." If Ben dies 6 mo
B) misrepresentation
Robin plans to open a bar in a high-crime area. She had difficulty obtaining insurance for the business. She found an insurer willing to write the coverage, but only if Robin agreed to have a security alarm system in operation at all times when the busine
B) warranty.
Dave is an agent for Easy Pay Insurance. Easy Pay insures only high-quality applicants. Dave wanted to earn more commissions, so he sold some policies to applicants he knew were below-average risks. When these policyowners started filing claims, Easy Pay
C) A principal is responsible for the acts of its agents who are acting within the scope of their authority.
Ted's insurance claim was denied by XYZ Insurance Company. When Ted inquired why the claim was denied, he was told to, "Read the exclusion on page 5 of the policy." Ted read the exclusion. In his opinion, the exclusion was poorly worded and vague. If a co
D) contracts of adhesion.
Mark owns a bar. The bar has a back room where Mark has some slot machines. Mark lets some of his patrons play the machines, and Mark keeps any profits. This type of gambling is illegal where Mark lives. Mark wanted to purchase insurance in case his slot
C) legal purpose
Which distinct legal characteristic of insurance contracts states that only the insurer's promise to perform is legally enforceable?
A) contracts of adhesion
B) unilateral contracts
C) aleatory contracts
D) personal contracts
B) unilateral contracts
Some states have a law that requires payment of the face amount of insurance to the insured if a total loss to real property occurs from a peril specified in the law. These laws are called
A) agreed amount laws.
B) replacement cost laws.
C) homestead laws
D) valued policy laws.
The general rule that ambiguity in insurance contracts is construed against the insurer is reinforced by an important legal principle. This principle states the insured is entitled to coverage under a policy that he or she would assume the policy would pr
B) the principle of reasonable expectations.
All of the following statements about subrogation are true EXCEPT
A) The general rule allows the insurer to recover up to the amount paid to its insured under the policy.
B) Subrogation does not apply in life insurance.
C) Interfering with the insurer's s
D) The insurer reserves the right to subrogate against its own insureds.
Powers specifically conferred on an agent to act on behalf of a principal are
A) incidental authority.
B) apparent authority.
C) implied authority.
D) express authority.
D) express authority.
If a third party is led to reasonably believe that an agent is acting within the scope of his/her authority, even though the agent is exceeding his/her authority, the principal may still be bound by the agent's actions. In this case, the agent has bound t
B) apparent authority.
The authority of an agent to perform all incidental acts necessary to fulfill the purposes of the agency agreement is called
A) implied authority.
B) declared authority.
C) apparent authority.
D) express authority.
A) implied authority.
Bob purchased insurance on his home with an insurer that was not licensed to do business in the state. In this case, which requirement to form a binding insurance contract is lacking?
A) exchange of consideration
B) offer and acceptance
C) legal purpose
D
D) competent parties
A pharmaceutical company employs a young chemist who is responsible for three new patents last year and for the development of the company's two best-selling drugs. The company purchased a large life insurance policy on the chemist. In this case, the insu
C) pecuniary interest.
Hank bought a farm that had an old barn. He noticed one day that the roof of the barn was swaying in the wind. Hank went to see his insurance agent and he insured the barn for $20,000. The agent didn't ask if the roof might collapse, and Hank didn't say a
B) concealment
Kim purchased a one-year property insurance policy. She agreed to pay half the premium when she bought the coverage, and the other half six months later. If Kim fails to pay the second premium, the insurer cannot sue her for the premium because insurance
A) unilateral contracts.
Charles Blake told Wendy that he was an agent for Easy Pay Life Insurance Company. He presented no credentials. He asked Wendy some questions about her health and activities, and recorded the answers on scrap paper. He collected a $250 cash premium from W
B) there is no presumption of an agency relationship.
Why are some mutual insurers referred to as "assessment mutuals"?
They charge low premiums because the loss exposures of their insureds are thoroughly assessed before a policy is written.
They are noted for being very thorough in their assessment of inves
They can assess policyholders if premiums are insufficient to pay losses and expenses.
ABC Mutual offered XYZ company workers compensation coverage for $1000. The premium was calculated based on a loss ratio estimate of 0.7. XYZ company entered the contract. In the first year, the actual loss ratio was 0.95. Assuming that ABC Mutual uses th
$1357.14
When must an insurable interest legally exist in property insurance for an insured to receive payment for a loss from the insurer?
Only at the time of the loss
Only at the inception of the policy
Only at the time the loss settlement takes place
Both at th
Only at the time of the loss
Exclusions are used in insurance policies for all of the following reasons EXCEPT
to reduce moral hazard.
to waive policy conditions.
to eliminate coverage for uninsurable perils.
to eliminate coverage not needed by typical insureds.
to reduce moral hazard.
A contract in which the values exchanged are not equal because chance is involved is called a(n)
contract of adhesion.
unilateral contract.
conditional contract.
aleatory contract.
personal contract.
aleatory contract.
Sam's furniture was destroyed by a fire. The furniture cost $1200 when it was purchased, but similar new furniture now costs $1800. Assuming the furniture was 50 percent depreciated, what is the actual cash value of Sam's loss?
$600
$900
$1200
$1800
$900
Which of the following is a fundamental purpose of the principle of indemnity?
To reduce moral hazard
To minimize physical hazards
To settle property insurance losses on a replacement cost basis
To require deductibles in all property insurance policies
To
To reduce moral hazard
XYZ Insurance Company uses class rating to determine the rate to charge for insurance. For one type of insurance, the pure premium XYZ actuaries calculated is $75 per unit. If XYZ's expense loading is 25 percent, what is the gross premium per unit for thi
$100.00
Jan is employed by an insurance company. She reviews applications to determine whether her company should insure the applicant. If insurable, Jan assigns the applicant to a rating category based on the applicant's degree of risk. Jan is a(n)
underwriter
a
underwriter
All of the following statements about class rating are true EXCEPT
Exposures with similar characteristics are placed in the same underwriting class.
The rate charged for each class reflects the average loss experience for that class.
The complexity of cla
The complexity of class rating makes it inappropriate for personal lines coverages.
Beverly lives in a sparsely populated area in northern Idaho. A number of insurance companies only have a few policyholders in Idaho. Several insurance companies hire Beverly to adjust claims for their insureds. Beverly charges the companies a fee for eac
independent adjustor
All of the following statements about the independent agency system are true EXCEPT
Agents are often authorized to bind coverage.
Agents are compensated on the basis of commissions.
The insurer rather than the agent owns the renewal rights to the business
The insurer rather than the agent owns the renewal rights to the business.
From the viewpoint of the insurer, all of the following are characteristics of an ideally insurable risk EXCEPT
The loss must be accidental.
The loss must be catastrophic.
The premium must be economically feasible.
There must be a large number of exposure
The loss must be catastrophic.
Which of the following statements about stock insurers is true?
They issue assessable policies.
They are not permitted to write property and liability insurance.
Stockholders bear any losses and share in any profits.
They are owned by their policyholders.
Stockholders bear any losses and share in any profits.
With which of the following ownership structures do the owners traditionally have unlimited liability?
Stock
Mutual
Reciprocal exchange
Lloyd's of London
Fraternal
Lloyd's of London
Fundamental purposes of the principle of indemnity include which of the following?
To reduce physical hazards
To prevent the insured from profiting from insurance
A) I only
B) II only
C) both I and II
D) neither I nor II
B) II only
Which of the following is a fundamental purpose of the principle of indemnity?
A) to reduce moral hazard
B) to minimize physical hazards
C) to settle property insurance losses on a replacement cost basis
D) to require deductibles in all property insurance
A) to reduce moral hazard
The loss settlement under which of the following supports the principle of indemnity?
A) life insurance
B) valued policies
C) replacement cost property insurance
D) actual cash value property insurance
D) actual cash value property insurance
Under which of the following rules is actual cash value determined by taking into consideration all relevant factors an expert would use to determine the value of the property?
A) the circumstantial evidence rule
B) the broad evidence rule
C) the property
B) the broad evidence rule
A total loss under a valued policy is settled on the basis of the
A) market value of the loss.
B) actual cash value of the loss.
C) replacement value of the loss.
D) amount of insurance covering the loss.
D) amount of insurance covering the loss.
Which of the following statements describes how losses will be settled if a property insurance policy is written on a replacement cost basis?
A) Losses are settled without the applicable deductible.
B) Losses are settled without a deduction for depreciati
B) Losses are settled without a deduction for depreciation.
Which of the following statements about the principle of insurable interest is (are) true?
It makes it difficult to measure the amount of an insured's loss.
It reduces moral hazard.
A) I only
B) II only
C) both I and II
D) neither I nor II
B) II only
All of the following will support an insurable interest for purposes of purchasing property and liability insurance EXCEPT
A) former ownership of property.
B) potential legal liability.
C) secured creditors.
D) contractual right.
A) former ownership of property.
Which of the following statements about an insurable interest in life insurance is (are) true?
It is required of any person named as beneficiary.
It may result from a pecuniary (financial) interest.
A) I only
B) II only
C) both I and II
D) neither I nor I
B) II only
Sue's office building was damaged by a fire caused by a careless tenant. After paying Sue for the loss, the insurance company sued the tenant to recover its loss. This suit is based on the principle of
A) warranty.
B) insurable interest.
C) utmost good fa
D) subrogation.
Which of the following statements about subrogation is true?
A) Subrogation eliminates adverse selection.
B) Subrogation helps to hold down the cost of insurance.
C) Subrogation results in violation of the principle of indemnity.
D) Subrogation permits a
B) Subrogation helps to hold down the cost of insurance.
Which of the following statements about subrogation is true?
A) It is used primarily for losses paid under life insurance policies.
B) It allows the insurer to sue its own insured who is negligent.
C) The insured's right to collect benefits may be forfeit
C) The insured's right to collect benefits may be forfeited if the insured interferes with the insurer's subrogation rights after a loss occurs.
The principle of utmost good faith is supported by all of the following legal doctrines EXCEPT
A) representations.
B) warranty.
C) subrogation.
D) concealment.
C) subrogation.
What is the legal significance of a material concealment by an insurance applicant?
A) The contract is automatically voided from its inception.
B) The contract is voidable at the insurer's option.
C) Loss payments are reduced by the degree of the concealm
B) The contract is voidable at the insurer's option.
What is the legal significance of a material misrepresentation in an insurance application?
A) The contract is automatically voided from its inception.
B) The contract is voidable at the insurer's option.
C) Loss payments are reduced by the degree of the
B) The contract is voidable at the insurer's option.
A false material statement made by an applicant for insurance is an example of
A) concealment.
B) breach of warranty.
C) lack of offer and acceptance.
D) misrepresentation.
D) misrepresentation.
Which of the following statements about a warranty in an insurance contract is (are) true?
It is part of the insurance contract.
Statements made by an insurance applicant are considered warranties rather than representations.
A) I only
B) II only
C) both
A) I only
David owns a liquor store in a high-crime area. In order to obtain a reduced insurance premium, David promised to have a burglar alarm operating at the store when the store was closed. This agreement, which was incorporated into the insurance contract, is
D) warranty.
Which of the following statements about offer and acceptance for insurance contracts is true?
A) In property and liability insurance, agents typically do not have the authority to bind coverage.
B) In life insurance, the agent can usually accept an offer
C) In property insurance, the offer and acceptance are usually in writing but may be oral.
Chris applied for life insurance and paid the first premium on Monday. She was given an insurability premium receipt which specified that coverage was effective on the date of the application or the date of the medical exam, whichever is later. She took t
C) on Thursday when she passed the medical exam
Which of the following statements about consideration in an insurance contract is (are) true?
The insured's total consideration is submission of a completed application.
The insurer's consideration is the promise to do those things specified in the policy
B) II only
A contract in which the values exchanged are not equal because chance is involved is called a(n)
A) contract of adhesion.
B) unilateral contract.
C) conditional contract.
D) aleatory contract.
D) aleatory contract.
Why are insurance contracts said to be contracts of adhesion?
A) The values exchanged by the parties to the contract are not equal.
B) One party writes the contract, and the other party must accept the entire contract as written.
C) Only one party makes a
B) One party writes the contract, and the other party must accept the entire contract as written.
Why does the insured get the benefit of the doubt if an insurance policy contains any ambiguities or uncertainties?
A) because insurance contracts are aleatory
B) because insurance contracts are unilateral
C) because insurance contracts are conditional
D)
D) because insurance contracts are contracts of adhesion
Why can an insurer refuse to pay a claim if an insured fails to abide by the policy provisions?
A) because insurance contracts are aleatory
B) because insurance contracts are unilateral
C) because insurance contracts are conditional
D) because insurance c
C) because insurance contracts are conditional
Which of the following types of insurance policies can usually be assigned without the insurer's consent?
Life insurance
Property insurance
A) I only
B) II only
C) both I and II
D) neither I nor II
A) I only
What is the practical effect of an insurance policy being a conditional contract?
A) The insurer can refuse to a pay claim if the insured has not complied with all policy provisions.
B) The insured can assign the policy only with the insurer's consent.
C)
A) The insurer can refuse to a pay claim if the insured has not complied with all policy provisions.
What is the practical effect of an insurance contract being a contract of adhesion?
A) The insurer can refuse to pay claims if the insured has not complied with all policy provisions.
B) The insured can assign the policy only with the insurer's consent.
C
D) The policy is interpreted in the insured's favor if the policy contains any ambiguities or uncertainties.
All of the following statements about the rules governing agency relationships are true EXCEPT
A) An agent must be authorized to act on behalf of a principal.
B) An agency agreement may grant certain powers to the agent as well as denying the agent other
C) The principal is responsible for the acts of agents only if the acts are criminal.
Jacob sold his house to Shelia for $140,000 in cash. Jacob "threw in" insurance on the house as part of the deal and did not bother telling the insurer that there was a new owner. Four months after Shelia purchased the home, a windstorm damaged the roof.
D) Insurance contracts are personal contracts.
Melody's car was damaged when another driver ran a stop sign and hit her car. Melody decided to collect from her own insurer and to let her insurer recoup the loss payment from the negligent driver who hit her. What fundamental legal principle is illustra
C) the principle of subrogation
When Ben applied for life insurance, he was asked on the application if he smoked or used tobacco products. Ben answered "No." In reality, Ben smokes two packs of cigarettes a day. The policy was issued at the "preferred, nonsmoker rate." If Ben dies 6 mo
B) misrepresentation
Robin plans to open a bar in a high-crime area. She had difficulty obtaining insurance for the business. She found an insurer willing to write the coverage, but only if Robin agreed to have a security alarm system in operation at all times when the busine
B) warranty.
Dave is an agent for Easy Pay Insurance. Easy Pay insures only high-quality applicants. Dave wanted to earn more commissions, so he sold some policies to applicants he knew were below-average risks. When these policyowners started filing claims, Easy Pay
C) A principal is responsible for the acts of its agents who are acting within the scope of their authority.
Ted's insurance claim was denied by XYZ Insurance Company. When Ted inquired why the claim was denied, he was told to, "Read the exclusion on page 5 of the policy." Ted read the exclusion. In his opinion, the exclusion was poorly worded and vague. If a co
D) contracts of adhesion.
Mark owns a bar. The bar has a back room where Mark has some slot machines. Mark lets some of his patrons play the machines, and Mark keeps any profits. This type of gambling is illegal where Mark lives. Mark wanted to purchase insurance in case his slot
C) legal purpose
Which distinct legal characteristic of insurance contracts states that only the insurer's promise to perform is legally enforceable?
A) contracts of adhesion
B) unilateral contracts
C) aleatory contracts
D) personal contracts
B) unilateral contracts
Some states have a law that requires payment of the face amount of insurance to the insured if a total loss to real property occurs from a peril specified in the law. These laws are called
A) agreed amount laws.
B) replacement cost laws.
C) homestead laws
D) valued policy laws.
The general rule that ambiguity in insurance contracts is construed against the insurer is reinforced by an important legal principle. This principle states the insured is entitled to coverage under a policy that he or she would assume the policy would pr
B) the principle of reasonable expectations.
All of the following statements about subrogation are true EXCEPT
A) The general rule allows the insurer to recover up to the amount paid to its insured under the policy.
B) Subrogation does not apply in life insurance.
C) Interfering with the insurer's s
D) The insurer reserves the right to subrogate against its own insureds.
Powers specifically conferred on an agent to act on behalf of a principal are
A) incidental authority.
B) apparent authority.
C) implied authority.
D) express authority.
D) express authority.
If a third party is led to reasonably believe that an agent is acting within the scope of his/her authority, even though the agent is exceeding his/her authority, the principal may still be bound by the agent's actions. In this case, the agent has bound t
B) apparent authority.
The authority of an agent to perform all incidental acts necessary to fulfill the purposes of the agency agreement is called
A) implied authority.
B) declared authority.
C) apparent authority.
D) express authority.
A) implied authority.
Bob purchased insurance on his home with an insurer that was not licensed to do business in the state. In this case, which requirement to form a binding insurance contract is lacking?
A) exchange of consideration
B) offer and acceptance
C) legal purpose
D
D) competent parties
A pharmaceutical company employs a young chemist who is responsible for three new patents last year and for the development of the company's two best-selling drugs. The company purchased a large life insurance policy on the chemist. In this case, the insu
C) pecuniary interest.
Hank bought a farm that had an old barn. He noticed one day that the roof of the barn was swaying in the wind. Hank went to see his insurance agent and he insured the barn for $20,000. The agent didn't ask if the roof might collapse, and Hank didn't say a
B) concealment
Kim purchased a one-year property insurance policy. She agreed to pay half the premium when she bought the coverage, and the other half six months later. If Kim fails to pay the second premium, the insurer cannot sue her for the premium because insurance
A) unilateral contracts.
Charles Blake told Wendy that he was an agent for Easy Pay Life Insurance Company. He presented no credentials. He asked Wendy some questions about her health and activities, and recorded the answers on scrap paper. He collected a $250 cash premium from W
B) there is no presumption of an agency relationship.