MONTANA PROPERTY & CASUALTY EXAM
What is insurance? – Precise Answer ✔✔Transfer of risk to protect from
financial loss.
Types of Risk – Precise Answer ✔✔Pure and Speculative
Pure Risk – Precise Answer ✔✔Insurable risk. There is only loss.
Speculative Risk – Precise Answer ✔✔Not insurable. Could loss or gain
financially. EX: gambling/stock market. Could win or lose money.
Hazard – Precise Answer ✔✔Conditions that increase the probability for
loss.
Types of Hazards – Precise Answer ✔✔Physical: Structural defects
Moral: Lying about the type of dog you have
Morale: Speeding in unsafe conditions. or Im not gonna pay to fix the
brakes on my car, ill wait for them to break and have insurance pay for
it.
Peril – Precise Answer ✔✔Cause of the Loss
Property: EX: Hail damage to my car
Casualty: EX: Dog bite from my neighbors dog.
Indemnity – Precise Answer ✔✔Equals reimbursement!
Only collect to extent of financial loss, no gain.
5 ways to handle risk – Precise Answer ✔✔Avoidance: Not driving to
work to avoid car accident.
Retention: Not buying insurance and being self insured.
Sharing: Group of people pool their money to share loss.
Reduction: Being safer. Perform routine maintenance.
Transfer: Insurance
Types of Insurers – Ownership – Precise Answer ✔✔Stock owned
company: Issues nonparticipating policies, owned by stockholders
(allstate), pay dividends to stockholders.
Mutual: Issue participating policies, owned by policy owners, pay to
policy owners. (state farm)
Types of Insurers – Authority – Precise Answer
✔✔Admitted/authorized: Certified, approved to transact insurance in a
state
Nonadmitted/unauthorized: Not certified, prohibited from transacting
Types of Insurers – Domicile – Precise Answer ✔✔Domestic:
Incorporated in this state
Foreign: Incorporated in another state
Alien: Incorporated outside of the US
Laws of Agency – Precise Answer ✔✔- Agents represent the insurer
- Knowledge of the agents = Knowledge of the insurer
- The insurer is responsible for agents action
- Payment to the agent = payment to the insurer
Agent Authority – Precise Answer ✔✔Express: Written in the contract
Implied: Not written into the contract, but is assumed
Apparent: Based on the principals actions or words (customers
perception is reality)
Elements of a Legal Contract – Precise Answer ✔✔- Agreement - Consideration
- Competent parties
- Legal purpose
Insurance Contract – Consideration – Precise Answer ✔✔Two sided!
The insurance company – promising to pay a claim
The policy owner – statements on the application, paying premium
Insurance Contract term – Aleatory – Precise Answer ✔✔Unequal
Exchange
Insurance Contract term – Adhesion – Precise Answer ✔✔Take it or
leave it
Insurance Contract term – Unilateral – Precise Answer ✔✔One sided
promise
Application Statements – Precise Answer ✔✔Warranties: Absolutely
true statements. Breach of warranties can void a policy. (saying you dont
have a trampoline in your backyard, when you do.)
Representations: Statements that are true to the best of knowledge – not
guaranteed to be true (saying you havent had a ticket in 5 years to your
knowledge, but you had one 4 years, 6 months ago)
Fraud – Precise Answer ✔✔Intentional misrepresentation of a material
fact made with intent to deceive.
Material Fact – Precise Answer ✔✔Fact that would lead to a different
underwriting decision had the insurer known about it
Quiz 1 – A situation in which a person can only lose or have no chance
of gain represents? – Precise Answer ✔✔Pure Risk
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