Contracts That Are Prepared By One Party

Question: Which of the following is the correct term to describe a contract prepared by one party and submitted to the other party on a take it or leave it basis, without negotiations?

Answer: Contract of Adhesion - A Contract of Adhesion is one that is prepared by one party and presented to the other party on a take it or leave it basis.

Question: An agent has authority to do all of the following, except

Answer: Represent the insured's interest 1.Appoint a solicitor as his or her representative2.Countersign insurance contracts3.Solicit applications on insurer's behalf

Question: Self-insurance is an example of which of the following?

Answer: Retaining the risk

Question: Through whose efforts do direct writing companies normally transact insurance?

Answer: Salaried employees -Direct writing companies employ salaried representatives who are usually licensed agents. If licensed, they may also receive incentive compensation in the form of commissions or bonuses.

Question: Concealment, whether intentional or unintentional, on the part of an applicant or insured, permits the insurer to do which one of the following?

Answer: Void the contract from the time the concealment was made

Question: Under what circumstances is an insurer permitted not to communicate information which otherwise would be required?

Answer: The insured waives the right to receive communication -When a party waives its right to receive communication, the insurer is permitted not to communicate required information.

Question: All of the following are true,

Answer: 1.Under a unilateral contract, only one party is legally bound to future performance2.Proximate cause is the immediate or actual cause of a loss3.Reserves are accounting measurements of insurer's future obligations to the policyholder4.Representations are statements made by the insured that are true to the best of the insured's knowledge, but not guaranteed

Question: All of the following statements regarding materiality are correct, except:

Answer: It is determined by the event-

Question: A natural person licensed as a solicitor to transact insurance is employed by what type of agent or broker?

Answer: Property and Casualty

Question: A policy is issued for a premium of $500 per year, but a condition that would have caused the premium to be substantially more was misrepresented in the application. This information is deemed by the insurer to be:

Answer: Material-A statement is material if its disclosure or lack of disclosure would change the insurer's decision to issue a policy for the same premium.

Question: Policyowner P insured his house under a Homeowners Policy and has just finished painting the Inside. He has some

leftover paint that he stores in the basement. What kind of hazard does the does the stored paint present?

Answer: Physical hazard

Question: The idea that there are always some insureds (risks) that are less desirable than average risks, and that these insureds tend to seek or continue insurance coverage to a greater extent than better risks is termed:

Answer: Adverse selection-Adverse selection is seen in the insured's propensity to obtain coverage for risks more prone to loss than average risks. Underwriting seeks to prevent adverse selection.

Question: Which type of risk involves the possibility of loss or gain?

Answer: Speculative

Question: When the facts fail to correspond with its assertions or stipulations, a statement is referred to as:

Answer: A false representation-A representation is false when the facts fail to correspond with its assertions or stipulations.

Question: Which one of the following must be communicated in an insurance contract?

Answer: he risks insured against

Question: When both parties to a contract must perform certain duties in order to make the contract enforceable, this is known as a(n):

Answer: Conditional contract-A conditional contract requires that both parties perform certain duties or satisfy certain conditions preceding or subsequent to the issuance of the contract.

Question: Which term describes the possibility of loss?

Answer: Risk

Question: When an insured fails to disclose known facts in an application for insurance, he/she may be guilty of:

Answer: Concealment-Concealment is the failure to disclose known facts.

Question: The concept that the insured should not profit from an insurance transaction is called:

Answer: The principle of indemnity - Indemnity is restoring the insured to the same financial condition as before the loss, i.e., no profit.

Question: Which of the following states the parties to an insurance contract?

Answer: he policyowner/insured and the insurance company - The parties to a life insurance contract are the policyowner/insured and the insurance company.

Question: Which statement is true of insurable interest in property insurance?

Answer: It must be present at the time the policy is written and at the time of loss - In order for a party to receive payment for a loss, they must have an insurable interest at the time of loss. Insurable interest must always exist at policy inception, but in property and casualty insurance, it does not have to be continuous. Even though a contract may be in force, if insurable interest does not exist at the time of loss, no claim is payable.

Question: Risk is defined as:

Answer: Uncertainty or chance of loss

Question: Which of the following is the formula for determining loss ratio?

Answer: Dividing claims paid plus loss reserves for known claims not yet paid by total earned premiums-The loss ratio is determined by dividing paid losses plus loss reserves by total earned premiums.

Question: Which statement defines estoppel?

Answer: Estoppel prevents one from denying a fact, if the fact was admitted to be true by a previous action - This is the legal definition of estoppel. The intentional misrepresentation of a material fact defines Fraud. The intentional abandonment of a known right defines Waiver. The failure to disclose known facts defines Concealment.

Question: All of the following are considered 'incompetent' persons in the formulation of an insurance contract, except:

Answer: Retired persons

Question: restricted persons

Answer: Minors,People under the influence of drugs or alcohol,Mentally incompetent persons

Question: All of the following are true of insurance, except:

Answer: Eliminates risk

Question: true of insurance

Answer: Transfers risk,Protects against uncertainty,Means sharing of loss

Question: Insurance Agents or Producers are licensed individuals appointed to transact insurance through a(n):

Answer: Insurance company-Insurance Agents or Producers are licensed individuals appointed, by and on behalf of an insurer, to transact insurance through an admitted insurance company.

Question: All of the following are recognized classes of insurance in California, except:

Answer: Medicare Supplement

Question: recognized classes of insurance in California

Answer: These classes are: Life, Fire, Marine, Title, Surety, Disability, Plate glass, Liability, Workers' Compensation, Common Carrier Liability, Equipment Breakdown, Burglary, Credit, Sprinkler, Team and Vehicle, Automobile, Aircraft, Mortgage Guaranty, Insolvency, Legal Insurance, and Miscellaneous. Medicare Supplement is a subsection of Disability.

Question: A contract in which both parties bargain in good faith is an example of the:

Answer: Concept of utmost good faith-The concept of utmost good faith says that both parties will make no attempt to deceive, conceal, disguise, or misrepresent in the negotiations leading to formation of the contract.

Question: An insurer authorized to transact insurance in a particular state by that state's insurance department is known as:

Answer: An admitted insurer-An Admitted Insurer is an insurer authorized to transact insurance in a particular state by that state's Department or Division of Insurance. An insurer who has a Certificate of Authority to transact business.

Question: Which statement is true of the Law of Large Numbers?

Answer: As the number of insured units increases, predictability of losses improves - The larger the sample is, the more accurate the prediction is.

Question: All of the following are considered part of the consideration of an insurance contract, except:

Answer: Issuance of a policy or binder-Although the insurer's promise to indemnify is stated on or in it, issuance of a policy or binder is not truly the consideration element of an insurance contract. It is, more correctly, the agreement element (acceptance).

Question: All of the following are true of a Reciprocal Insurance Company, except:

Answer: It is an incorporated entity, with a Board of Directors elected by policyholders - A reciprocal insurance company is not incorporated, which is why it must be managed by an 'attorney-in-fact'.

Question: Reciprocal Insurance Company

Answer: If funds are insufficient to pay claims, the subscribers can be assessed for additional premium,Each subscriber assumes part of the risk of all other subscribersIt is managed bｙ ａｎ ａｔｔｏｒｎｅｙ－ｉｎ－ｆａｃｔ

Question: All of the following are risk management techniques, except:

Answer: Enhancement

Question: risk management techniques,

Answer: Retention,Transfer,Avoidance

Question: If an individual faces the risk of economic loss in the event of property damage, this represents the principle of:

Answer: Insurable interest

Question: Which of the following is the correct term to describe a contract prepared by one party and submitted to the other party on a take it or leave it basis, without negotiations?

Answer: Contract of Adhesion-A Contract of Adhesion is one that is prepared by one party and presented to the other party on a take it or leave it basis.

Question: Under what circumstances is an insurer permitted not to communicate information which otherwise would be required?

Answer: The insured waives the right to receive communication-When a party waives its right to receive communication, the insurer is permitted not to communicate required information.

Question: materiality

Answer: Materiality is not determined by the event but rather by the facts that a party failed to communicate or miscommunicate and is judged by the importance or relevance to the contract.-Disclosure or lack of disclosure would change the insurer's decision to issue a policy-It is determined by the facts that a party failed to communicate or miscommunicated-It is judged by the importance or relevance to the contract

Question: A condition in an insurance policy or certain statements made in an application to which the policyholder is bound under penalty of the policy being declared void is called:

Answer: A warranty-The insured must abide by the warranty or coverage will be void.

Question: A policy is issued for a premium of $500 per year, but a condition that would have caused the premium to be substantially more was misrepresented in the application. This information is deemed by the insurer to be:

Answer: Material-A statement is material if its disclosure or lack of disclosure would change the insurer's decision to issue a policy for the same premium.

Question: Policyowner P insured his house under a Homeowners Policy and has just finished painting the Inside. He has some leftover paint that he stores in the basement. What kind of hazard does the does the stored paint present?

Answer: Physical-The storing of paint would be a physical hazard.

Question: Which statement is true of insurable interest in property insurance?

Answer: It must be present at the time the policy is written and at the time of loss

Question: Self-insurance

Answer: Retaining the risk