UNIT 1 - PERSONAL LINES INSURANCE EXAM PREP -

PDF Download

UNIT 1 - PERSONAL LINES INSURANCE EXAM PREP -

ARIZONA

Actual Qs and Ans - Expert-Verified Explanation -Guaranteed passing score -34 Questions and Answers

-Format: Multiple-choice / Flashcard

Question 1: List Examples of Exposure

Answer:

Auto Accident, Lost Luggage (on a trip), Pet Bites Mailman, House Fire, etc.

Question 2: Reinsurance

Answer:

When an insurance company (the ceding company) pays another insurance company (reinsurer) to take some of the company's risk to help spread out the risk.

Question 3: Treaty

Answer:

The reinsurer accepts the transfer of risk according to the agreement.

Question 4: Mutual Insurer

Answer:

Is an insurer that is: owned by the policy holders, issues participating policies, dividends are not guaranteed but if paid they are paid to the policy holders, and the dividends are not taxable (considered to be a refund). Example USAA

Question 5: Certificate of Authority

Answer:

The state license that an insurance company must carry in order to sell insurance.

Question 6: Admitted / Authorized vs. Non-admitted/Unauthorized

Answer:

Admitted/ Authorized is when state requires insurance companies in that state to carry a certificate of authority in order to sell insurance. Non-admitted/Unauthorized is when a certificate of authority is not required.

Question 7: List and Describe the 3 Hazard Types

Answer:

Physical hazards, are visible hazard like wet floors. A moral hazard is an intentional act of dishonesty that causes a loss, for example the employee lied to their boss and said they put up the wet floor sign but did not. While a morale hazard is an act of carelessness that could cause loss, for example someone who decides to forgo wearing their seatbelt.

Question 8: Hazard

Answer:

something that increases the chances of a loss.

Question 9: Stock Insurer

Answer:

Is an insurer that is: owned by stock or shareholders, issues non-participating policies, dividends are not guaranteed but if paid they are paid to the stock or shareholders, and the dividends are taxable.Example GEICO

Question 10: Fiduciary Trust (four key points)

Answer:

Promptly sends premiums to insurer; has Product Knowledge; Complies with Laws/Regulations; and never commingles funds

Question 11: Adverse Selection

Answer:

Risks that are not wanted by insurers because they have a greater-than-average chance of loss. This is the why insurers go through the underwriting process to determine the level of risk and base the decision to accept/refuse risk as well the amount of money for the premiums.

Question 12: Contract (Policy)

Answer:

An agreement between the insured and the insurer. Property insurance the contact is a 1st party contract where the 1st party is the insured and the 2nd party is the insurer. For Casualty insurance the contract is a 3rd party contract where the previous two parties are the same and the 3rd party is the "other guy" suing you for their loss.

Question 13: Reciprocal Insurer

Answer:

These insurers are unincorporated, and the members are required to pay an assessed amount of a loss to any member in the group.

Question 14: Insurance

Answer:

transfer of risk from a person or business to an insurer

Question 15: Risk Retention Group

Answer:

Liability insurance company created for the policyholders from the same industry, an example would be ABC Auto Rental Company going to a risk retention group for car rentals for coverage.

Question 16: Types of Insurers

Answer:

Stock Insurer, Mutual Insurer, Fraternal Insurer, Reciprocal Insurer, Lloyd's Association (individual writers not a company), Risk Retention Group, Risk Purchasing Group, Self-Insurance, Federal Government Provided

Question 17: Facultative

Answer:

The reinsurer evaluated each risk before allowing the transfer.

Question 18: Federal Governments

Answer:

War Risk Insurance, Nuclear Energy Insurance, Flood Insurance, Federal Crop Insurance, Unemployment Insurance and Workers Compensation Insurance

Question 19: Lloyd's Association

Answer:

A group of underwriters that insures against unusual risks, for example Peyton Manning insuring his arm as a football quarterback.

Question 20: Type of Authority

Answer:

Expressed - a written contract where the company specifies the authority held by that agent; Implied - activities an agent knows they can do because these are typical activities that are done by insurance agents while selling insurance (nothing written out); and Apparent - activities that a reasonable person will assume an agent has the authority to do based on that agents actions and statements

Question 21: Fraternal Insurer

Answer:

Provides insurance and other benefits but, the insured must be a member of the society to get the benefits. Example Catholic Financial Life

Question 22: What are the three insurance company locations (with examples)?

Answer:

Domestic (Arizona based insurance company selling insurance in Arizona from Arizona), Foreign (Arizona based insurance company selling in Arizona from Texas), and Alien (US based insurance company selling insurance in the United States from Mexico).

Question 23: Elements of Insurable Risk (CANHAM)

Answer:

Calculable, Affordable, Non-Catastrophic, Homogeneous, Accidental, and Measurable

Question 24: Direct Loss vs. Indirect Loss

Answer:

Direct loss is a physical loss (a rental home that burns down) and the indirect loss is a consequence of the direct loss (loss of rent during the repairs, if loss made the rental uninhabitable).

Question 25: Describe Both Type of Risk

Answer:

Speculative risk has a chance for gain or loss and pure risk is 100% risk (making it insurable).