Insurance MCQ

The McCarran-Ferguson Act is responsible for: A) enacting legislations that stated the federal government had the right to regulate insurance if the state does not. B) requiring written consent before personal information can be released. C) requiring fair and accurate reporting of information about consumers including applicants for insurance. D) prohibiting the use of sex discrimination in the pricing of insurance. Answer: A

An insurer wants to increase its rates, but the Department of Insurance requires that all rates be filed and approved before they can be used. This best describes which kind of rate regulation? A) Prior approval. B) Mandatory. C) File and use. D) Approval. Answer: A

What is the definition of a fiduciary? A) A person in a position of trust and confidence who handles the affairs and funds of others. B) A person who determines policy rates at an insurance company. C) An institution that handles trust accounts for the wealthy. D) An insurance agent who sells policies worth more than $1 million in death benefits. Answer: A

Twisting is a form of: A) misrepresentation. B) coercion. C) defamation. D) rebating. Answer: A

A person who stands in a special relationship of trust to another person is a (an): A) surety. B) bailee. C) obligee. D) fiduciary. Answer: D

What is the term for an individual who occupies a position of trust when handling the financial affairs of another? A) Trustee. B) Superior. C) Consultant. D) Fiduciary. Answer: D

Guides to insurance companies' financial integrity and claims-paying ability are published regularly by rating services. All of the following are rating services EXCEPT: A) Lloyd's. B) AM Best. C) Standard & Poor's. D) Fitch's. Answer: A

An insurance company organized in Pennsylvania, with its home office in Philadelphia, is licensed to conduct business in New York. In New York, this company is classified as a(n) A) domestic company. B) alien company. C) regional company. D) foreign company. Answer: D

Which term correctly describes an insurance company that has been organized outside the United States or its possessions? A) Alien. B) Foreign. C) Remote. D) Domestic. Answer: A

If an insurance company is organized in Detroit, where it maintains its home office, the company is classified in Michigan as what kind of company? A) Preferred. B) Domestic. C) Local. D) Foreign. Answer: B

Which of the following insurance carriers is a typical nonadmitted insurance company? A) Reciprocal. B) Foreign. C) Surplus lines. D) Fraternal. Answer: C

Which of the following is NOT a principal form of reinsurance? A) Generic. B) Facultative. C) Automatic. D) Treaty. Answer: A

John and Gina met with their insurance agent who asked a series of questions that identified what they owned, what coverage they needed, how much money they wanted to spend on this coverage, and all possible sources of paying for this coverage. What analysis is the insurance agent completing? A) Needs. B) Risk transference. C) Hazard. D) Loss. Answer: A

In general, insurance regulators require insurance rates to be adequate, not excessive, and not unfairly discriminatory. The best reason for such regulation is to keep rates: A) stable over short periods of time. B) responsive to changing economic conditions. C) adequate enough to assure company profits. D) high enough to cover loss costs. Answer: D

An insurance company may measure its underwriting profitability by using which of the following ratios? A) Investment ratio. B) Return on equity ratio. C) Loss ratio. D) Capacity ratio. Answer: C

The goal of underwriting is to produce a profitable volume of business by following all of the following underwriting principles EXCEPT: A) selecting insureds according to the company's underwriting standards. B) balancing insureds within each rate classification. C) charging equitable rates among each group of insureds. D) reviewing available sources of underwriting information. Answer: D

A contract in which one insurer cedes all or part of a risk to another insurer is known as: A) a participating policy. B) reinsurance. C) assuming insurance. D) retro insurance. Answer: B

What is an insurer of an insurer known as a: A) Mixed group. B) Reciprocal. C) Service organization. D) Reinsurer. Answer: D

State Insurance Company has agents who are under a contract that allows them to sell only State Insurance Company policies. Which distribution system describes State Insurance Company's organization? A) Independent. B) Direct. C) Group. D) Exclusive. Answer: D

Ralph asks his insurance agent to explain how the homeowners policy covers stolen jewelry. The agent spends some time explaining how, when, where, and what jewelry theft coverage exists in the policy. As a result, Ralph believes that his $5,000 watch is covered in full under the basic policy. After the watch is stolen, Ralph is surprised to learn that he has only limited coverage. What legal doctrine might Ralph rely upon to get full coverage for his loss? A) Adhesion. B) Reasonable expectation. C) Utmost good faith. D) Estoppel. Answer: B