Question 1

A false material statement made by an applicant for insurance is an example of

Accepted Answer

A) concealment. 
B) breach of warranty. 
C) lack of offer and acceptance. 
D) misrepresentation. 
A) concealment. 
B) breach of warranty. 
C) lack of offer and acceptance. 
D) misrepresentation.

Question 2

All of the following will support an insurable interest for purposes of purchasing property and liability insurance EXCEPT

Accepted Answer

A) close family relationship. 
B) potential legal liability. 
C) secured creditors. 
D) a contract right. 
A) close family relationship. 
B) potential legal liability. 
C) secured creditors. 
D) a contract right.

Question 3

What is the practical effect of an insurance policy being a conditional contract?

Accepted Answer

A) The insurer can refuse to a pay claim unless the insured has complied with all policy provisions. 
B) The insured can assign the policy only with the insurer's consent. 
C) The insurer can sue the insured for failure to pay any premiums. 
D) The insured gets the benefit of the doubt if a policy contains any ambiguities or uncertainties. 
A) The insurer can refuse to a pay claim unless the insured has complied with all policy provisions. 
B) The insured can assign the policy only with the insurer's consent. 
C) The insurer can sue the insured for failure to pay any premiums. 
D) The insured gets the benefit of the doubt if a policy contains any ambiguities or uncertainties.

Question 4

The loss settlement under which of the following supports the principle of indemnity?

Accepted Answer

A) life insurance 
B) valued policies 
C) replacement cost property insurance 
D) actual cash value property insurance 
A) life insurance 
B) valued policies 
C) replacement cost property insurance 
D) actual cash value property insurance

Question 5

ABC Life Insurance Company insures both smokers and nonsmokers.Beth lied on her life insurance application,checking the box for "no" in response to the question of whether she smokes cigarettes or uses other tobacco products.Even though Beth smokes 10 to 15 cigarettes each day,the policy was issued at the "preferred nonsmoker rate." Beth's lie is materiel in this case because

Accepted Answer

A) it was in writing on the application. 
B) it was given with the intent to deceive. 
C) the policy would have been issued on different terms if the insurer knew the true facts. 
D) the policy would have been issued for a lower face value if the insurer knew the true facts. 
A) it was in writing on the application. 
B) it was given with the intent to deceive. 
C) the policy would have been issued on different terms if the insurer knew the true facts. 
D) the policy would have been issued for a lower face value if the insurer knew the true facts.

Question 6

Which of the following statements about the principle of insurable interest is (are)true?
I.It makes it difficult to measure the amount of an insured's loss.
II.It reduces moral hazard.

Accepted Answer

A) I only 
B) II only 
C) both I and II 
D) neither I nor II 
A) I only 
B) II only 
C) both I and II 
D) neither I nor II

Question 7

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 months after the policy is issued,upon what grounds will the insurer be able to legally deny the claim?

Accepted Answer

A) warranty 
B) misrepresentation 
C) waiver 
D) concealment 
A) warranty 
B) misrepresentation 
C) waiver 
D) concealment

Question 8

All of the following statements about the rules governing agency relationships are true EXCEPT

Accepted Answer

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 powers. 
C) The principal is responsible for the acts of agents only if the acts are criminal. 
D) Knowledge of the agent is presumed to be knowledge of the principal with respect to matters within the scope of the agency relationship. 
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 powers. 
C) The principal is responsible for the acts of agents only if the acts are criminal. 
D) Knowledge of the agent is presumed to be knowledge of the principal with respect to matters within the scope of the agency relationship.

Question 9

When must an insurable interest legally exist in life insurance?

Accepted Answer

A) only at the time of the insured's death 
B) only at the inception of the policy 
C) only at the time the beneficiary is paid 
D) both at the time of the insured's death and at the inception of the policy 
A) only at the time of the insured's death 
B) only at the inception of the policy 
C) only at the time the beneficiary is paid 
D) both at the time of the insured's death and at the inception of the policy

Question 10

Which of the following statements about a warranty in an insurance contract is (are)true?
I.It is part of the insurance contract.
II.Statements made by an insurance applicant are considered warranties rather than representations.

Accepted Answer

A) I only 
B) II only 
C) both I and II 
D) neither I nor II 
A) I only 
B) II only 
C) both I and II 
D) neither I nor II

Question 11

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 the medical exam the following Thursday.She was found to be in perfect health.On which day was her coverage effective?

Accepted Answer

A) on Monday,when she completed the application and paid the first premium 
B) on Wednesday,two days after completing the application and paying the first premium 
C) on Thursday when she passed the medical exam 
D) on Saturday,two days after passing the medical exam 
A) on Monday,when she completed the application and paid the first premium 
B) on Wednesday,two days after completing the application and paying the first premium 
C) on Thursday when she passed the medical exam 
D) on Saturday,two days after passing the medical exam

Question 12

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 provide,and exclusions must be conspicuous,plain,and clear.This principle is known as

Accepted Answer

A) the principle of utmost good faith. 
B) the principle of reasonable expectations . 
C) the principle of subrogation. 
D) the principle of indemnity. 
A) the principle of utmost good faith. 
B) the principle of reasonable expectations . 
C) the principle of subrogation. 
D) the principle of indemnity.

Question 13

The authority of an agent to perform all incidental acts necessary to fulfill the purposes of the agency agreement is called

Accepted Answer

A) implied authority. 
B) declared authority. 
C) apparent authority. 
D) express authority. 
A) implied authority. 
B) declared authority. 
C) apparent authority. 
D) express authority.

Question 14

What is the legal significance of a material concealment by an insurance applicant?

Accepted Answer

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 concealment. 
D) The insurer is immediately entitled to a higher premium. 
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 concealment. 
D) The insurer is immediately entitled to a higher premium.

Question 15

The principle of utmost good faith is supported by all of the following legal doctrines EXCEPT

Accepted Answer

A) representations. 
B) warranty. 
C) subrogation. 
D) concealment. 
A) representations. 
B) warranty. 
C) subrogation. 
D) concealment.

Question 16

If a third party is led to reasonably believe that an agent is acting with 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 the principal by

Accepted Answer

A) implied authority. 
B) apparent authority. 
C) incidental authority. 
D) express authority. 
A) implied authority. 
B) apparent authority. 
C) incidental authority. 
D) express authority.

Question 17

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 machines were confiscated by the police.Such an insurance contract would not be enforceable.Which requirement needed to form a valid insurance contract is missing?

Accepted Answer

A) consideration 
B) offer and acceptance 
C) legal purpose 
D) competent parties 
A) consideration 
B) offer and acceptance 
C) legal purpose 
D) competent parties

Question 18

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 insurable interest requirement was met because of a(n)

Accepted Answer

A) ownership interest. 
B) close family relationship. 
C) pecuniary interest. 
D) economic family relationship. 
A) ownership interest. 
B) close family relationship. 
C) pecuniary interest. 
D) economic family relationship.

Question 19

When must an insurable interest legally exist in property insurance for an insured to receive payment for a loss from the insurer?

Accepted Answer

A) only at the time of the loss 
B) only at the inception of the policy 
C) only at the time the loss settlement process takes place 
D) both at the time of the loss and at the inception of the policy 
A) only at the time of the loss 
B) only at the inception of the policy 
C) only at the time the loss settlement process takes place 
D) both at the time of the loss and at the inception of the policy

Question 20

Which of the following statements about subrogation is true?

Accepted Answer

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 forfeited if the insured interferes with the insurer's subrogation rights after a loss occurs. 
D) The insurer is required to exercise its subrogation rights. 
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 forfeited if the insured interferes with the insurer's subrogation rights after a loss occurs. 
D) The insurer is required to exercise its subrogation rights.

Exam 9: Fundamental Legal Principles

A false material statement made by an applicant for insurance is an example of

All of the following will support an insurable interest for purposes of purchasing property and liability insurance EXCEPT

What is the practical effect of an insurance policy being a conditional contract?

The loss settlement under which of the following supports the principle of indemnity?

Which of the following statements about the principle of insurable interest is (are)true? I.It makes it difficult to measure the amount of an insured's loss. II.It reduces moral hazard.

All of the following statements about the rules governing agency relationships are true EXCEPT

When must an insurable interest legally exist in life insurance?

Which of the following statements about a warranty in an insurance contract is (are)true? I.It is part of the insurance contract. II.Statements made by an insurance applicant are considered warranties rather than representations.

The authority of an agent to perform all incidental acts necessary to fulfill the purposes of the agency agreement is called

What is the legal significance of a material concealment by an insurance applicant?

The principle of utmost good faith is supported by all of the following legal doctrines EXCEPT

If a third party is led to reasonably believe that an agent is acting with 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 the principal by

When must an insurable interest legally exist in property insurance for an insured to receive payment for a loss from the insurer?

Which of the following statements about subrogation is true?

Risk and Its Treatment

Insurance and Risk

Introduction to Risk Management

Advanced Topics in Risk Management

Types of Insurers and Marketing Systems

Insurance Company Operations

Financial Operations of Insurers

Government Regulation of Insurance

Analysis of Insurance Contracts

Life Insurance

Life Insurance Contractual Provisions

Buying Life Insurance

Annuities and Individual Retirement Accounts

Health-Care Reform; Individual Health Insurance Coverages

Employee Benefits: Group Life and Health Insurance

Employee Benefits: Retirement Plans

Social Insurance

The Liability Risk

Homeowners Insurance,section I

Homeowners Insurance,section II

Auto Insurance

Auto Insurance and Society

Other Property and Liability Insurance Coverages

Commercial Property Insurance

Commercial Liability Insurance

Crime Insurance and Surety Bonds

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