Question 1

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

Accepted Answer

A)  The insurer can refuse to pay claims 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 policy is interpreted in the insured's favor if the policy contains any ambiguities or uncertainties. 
A)  The insurer can refuse to pay claims 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 policy is interpreted in the insured's favor if the policy contains any ambiguities or uncertainties.

Question 2

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 3

All of the following statements about subrogation are true EXCEPT

Accepted Answer

A)  The general rule allows the insurer to recover up to the amount paid to its insured under the policy. 
B)  Subrogation does not apply in life insurance. 
C)  Interfering with the insurer's subrogation rights can jeopardize indemnification of the insured. 
D)  The insurer reserves the right to subrogate against its own insureds. 
A)  The general rule allows the insurer to recover up to the amount paid to its insured under the policy. 
B)  Subrogation does not apply in life insurance. 
C)  Interfering with the insurer's subrogation rights can jeopardize indemnification of the insured. 
D)  The insurer reserves the right to subrogate against its own insureds.

Question 4

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 5

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 6

Which of the following types of insurance policies can usually be assigned without the insurer's consent?
I.Life insurance
II.Property insurance

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

Charles Blake told Wendy that he was an agent for Easy Pay Life Insurance Company. He presented no credentials. He asked Wendy some questions about her health and activities, and recorded the answers on scrap paper. He collected a $250 cash premium from Wendy. When Wendy did not receive a policy from Easy Pay, she contacted the company. Easy Pay said they do not have an agent named Charles Blake. Easy Pay is not responsible for Wendy's loss of $250 because

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 8

Why can an insurer refuse to pay a claim if an insured fails to abide by the policy provisions?

Accepted Answer

A)  because insurance contracts are aleatory 
B)  because insurance contracts are unilateral 
C)  because insurance contracts are conditional 
D)  because insurance contracts are contracts of adhesion 
A)  because insurance contracts are aleatory 
B)  because insurance contracts are unilateral 
C)  because insurance contracts are conditional 
D)  because insurance contracts are contracts of adhesion

Question 9

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 10

David owns a liquor store in a high-crime area. In order to obtain a reduced insurance premium, David promised to have a burglar alarm operating at the store when the store was closed. This agreement, which was incorporated into the insurance contract, is an example of a

Accepted Answer

A)  representation. 
B)  binder. 
C)  rider. 
D)  warranty. 
A)  representation. 
B)  binder. 
C)  rider. 
D)  warranty.

Question 11

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 12

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.

Question 13

Some states have a law that requires payment of the face amount of insurance to the insured if a total loss to real property occurs from a peril specified in the law. These laws are called

Accepted Answer

A)  agreed amount laws. 
B)  replacement cost laws. 
C)  homestead laws. 
D)  valued policy laws. 
A)  agreed amount laws. 
B)  replacement cost laws. 
C)  homestead laws. 
D)  valued policy laws.

Question 14

Which of the following statements about subrogation is true?

Accepted Answer

A)  Subrogation eliminates adverse selection. 
B)  Subrogation helps to hold down the cost of insurance. 
C)  Subrogation results in violation of the principle of indemnity. 
D)  Subrogation permits a party who caused a loss to avoid responsibility for the loss. 
A)  Subrogation eliminates adverse selection. 
B)  Subrogation helps to hold down the cost of insurance. 
C)  Subrogation results in violation of the principle of indemnity. 
D)  Subrogation permits a party who caused a loss to avoid responsibility for the loss.

Question 15

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 16

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 17

Why does the insured get the benefit of the doubt if an insurance policy contains any ambiguities or uncertainties?

Accepted Answer

A)  because insurance contracts are aleatory 
B)  because insurance contracts are unilateral 
C)  because insurance contracts are conditional 
D)  because insurance contracts are contracts of adhesion 
A)  because insurance contracts are aleatory 
B)  because insurance contracts are unilateral 
C)  because insurance contracts are conditional 
D)  because insurance contracts are contracts of adhesion

Exam 9: Fundamental Legal Principles

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

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

All of the following statements about subrogation are true EXCEPT

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.

Which of the following types of insurance policies can usually be assigned without the insurer's consent? I.Life insurance II.Property insurance

Why can an insurer refuse to pay a claim if an insured fails to abide by the policy provisions?

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

David owns a liquor store in a high-crime area. In order to obtain a reduced insurance premium, David promised to have a burglar alarm operating at the store when the store was closed. This agreement, which was incorporated into the insurance contract, is an example of a

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

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

Some states have a law that requires payment of the face amount of insurance to the insured if a total loss to real property occurs from a peril specified in the law. These laws are called

Which of the following statements about subrogation is true?

When must an insurable interest legally exist in life insurance?

Why are insurance contracts said to be contracts of adhesion?

Why does the insured get the benefit of the doubt if an insurance policy contains any ambiguities or uncertainties?

Risk and Its Treatment

Insurance and Risk

Introduction to Risk Management

Enterprise Risk Management and Related Topics

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

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

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