Question 1

What is the legal significance of a material misrepresentation in an insurance application?

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

Question 2

Frank asked his company's employee benefits director if his group health coverage could be converted to individual coverage.The benefits director said,"Yes,you can convert to an individual policy,and the coverage is identical to your group coverage." Frank quit his job and converted to an individual policy.Six months later he filed a claim.He was dismayed to learn the conversion policy was more limited compared to the group coverage,and his claim was denied.What legal doctrine will allow Frank to bring a successful legal action against his former employer because he was financially harmed due to his reasonable reliance upon a representation of fact?

Accepted Answer

A) adhesion 
B) waiver 
C) estoppel 
D) subrogation 
A) adhesion 
B) waiver 
C) estoppel 
D) subrogation C

Question 3

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 contracts are

Accepted Answer

A) unilateral contracts. 
B) contracts of adhesion. 
C) personal contracts. 
D) aleatory contracts. 
A) unilateral contracts. 
B) contracts of adhesion. 
C) personal contracts. 
D) aleatory contracts. A

Question 4

Which of the following statements about consideration in an insurance contract is (are)true?
I.The insured's total consideration is submission of a completed application.
II.The insurer's consideration is the promise to do those things specified in the policy.

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 5

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 6

A contract in which the values exchanged are not equal because chance is involved is called a(n)

Accepted Answer

A) contract of adhesion. 
B) unilateral contract. 
C) conditional contract. 
D) aleatory contract. 
A) contract of adhesion. 
B) unilateral contract. 
C) conditional contract. 
D) aleatory contract.

Question 7

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?

Accepted Answer

A) $600 
B) $900 
C) $1200 
D) $1800 
A) $600 
B) $900 
C) $1200 
D) $1800

Question 8

Why are insurance contracts said to be contracts of adhesion?

Accepted Answer

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 legally enforceable promise. 
D) Conditions are placed on the insurer's promise to perform. 
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 legally enforceable promise. 
D) Conditions are placed on the insurer's promise to perform.

Question 9

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

Accepted Answer

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) The insurer can sue the insured for failure to pay any premiums. 
D) The insurer gets the benefit of the doubt if a policy contains any ambiguities or uncertainties. 
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) The insurer can sue the insured for failure to pay any premiums. 
D) The insurer gets the benefit of the doubt if a policy contains any ambiguities or uncertainties.

Question 10

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 11

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 12

Which of the following is a fundamental purpose of the principle of indemnity?

Accepted Answer

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 policies 
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 policies

Question 13

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?

Accepted Answer

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

Question 14

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 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 takes place 
D) both at the time of the loss and at the inception of the policy

Question 15

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 illustrated in this scenario?

Accepted Answer

A) the principle of utmost good faith 
B) the principle of insurable interest 
C) the principle of subrogation 
D) the principle of reasonable expectations 
A) the principle of utmost good faith 
B) the principle of insurable interest 
C) the principle of subrogation 
D) the principle of reasonable expectations

Question 16

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?

Accepted Answer

A) the circumstantial evidence rule 
B) the broad evidence rule 
C) the property indemnity rule 
D) the objective value rule 
A) the circumstantial evidence rule 
B) the broad evidence rule 
C) the property indemnity rule 
D) the objective value rule

Question 17

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 18

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 court of law agrees with Ted's assessment of the exclusion,Ted may still be able to have his claim paid by the insurer because insurance contracts are

Accepted Answer

A) personal contracts. 
B) unilateral contracts. 
C) aleatory contracts. 
D) contracts of adhesion. 
A) personal contracts. 
B) unilateral contracts. 
C) aleatory contracts. 
D) contracts of adhesion.

Question 19

All of the following statements are true about insurance agents and agency EXCEPT

Accepted Answer

A) the principal is never responsible for the acts of its agents. 
B) there is no presumption of an agency relationship. 
C) limitations can be placed on the powers of agents. 
D) knowledge of the agent is assumed to be knowledge of the principal. 
A) the principal is never responsible for the acts of its agents. 
B) there is no presumption of an agency relationship. 
C) limitations can be placed on the powers of agents. 
D) knowledge of the agent is assumed to be knowledge of the principal.

Question 20

Which of the following statements about offer and acceptance for insurance contracts is true?

Accepted Answer

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 by immediately binding coverage. 
C) In property insurance,the offer and acceptance are usually in writing but may be oral. 
D) In life insurance,completing the application and paying the first premium constitute acceptance of the offer from the insurer. 
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 by immediately binding coverage. 
C) In property insurance,the offer and acceptance are usually in writing but may be oral. 
D) In life insurance,completing the application and paying the first premium constitute acceptance of the offer from the insurer.

Exam 9: Fundamental Legal Principles

What is the legal significance of a material misrepresentation in an insurance application?

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 contracts are

Which of the following statements about consideration in an insurance contract is (are)true? I.The insured's total consideration is submission of a completed application. II.The insurer's consideration is the promise to do those things specified in the policy.

A contract in which the values exchanged are not equal because chance is involved is called a(n)

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?

Why are insurance contracts said to be contracts of adhesion?

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

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

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

Which of the following is a fundamental purpose of the principle of indemnity?

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?

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

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 illustrated in this scenario?

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?

When must an insurable interest legally exist in life insurance?

All of the following statements are true about insurance agents and agency EXCEPT

Which of the following statements about offer and acceptance for insurance contracts is true?

Risk and Its Treatment

Insurance and Risk

Introduction to Risk Management

Enterprise 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 and 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

Auto Insurance

Auto Insurance Continued

Homeowners Insurance,section I

Homeowners Insurance,section II

Other Property and Liability Insurance Coverages

Commercial Property Insurance

Commercial Liability Insurance

Crime Insurance and Surety Bonds

Filters