California Life and Health Pre-licensing Exam 40 Questions with Answers,100% CORRECT

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California Life and Health Pre-licensing Exam 40 Questions with Answers What is a participating life insurance policy? A. Contract that allows the policyowner to receive a share of surplus in th... e form of policy dividends B. Contract that gives beneficiaries the right to participate in any dividends C. Agreement that insures two or more lives D. Agreement that allows two or more beneficiaries to share in the death benefit CORRECT ANSWER A. Contract that allows the policyowner to receive a share of surplus in the form of policy dividends A participating life insurance policy is defined as a contract that allows the policyowner to receive a share of surplus in the form of policy dividends. Which of the following is a type of insurance where an insurer transfers loss exposures from policies written for its insureds? A. Reinsurance B. Mutual insurance C. Treaty insurance D. Captive insurance CORRECT ANSWER A. Reinsurance = an arrangement by which an insurance company transfers a portion of a risk it has assumed to another insurer. An insurer enters into a contract with a third party to insure itself against losses from insurance policies it issues. What is this agreement called? A. Reserves B. Mutual C. Mutli-line D. Reinsurance CORRECT ANSWER D. Reinsurance Which of the following is an insurer established by a parent company for the purpose of insuring the parent company's loss exposures? A. Mutual insurer B. Fraternal insurer C. Participating insurer D. Captive insurer CORRECT ANSWER D. Captive insurer =An insurer established and owned by a parent firm for the purpose of insuring the parent firm's loss exposures is known as a captive insurer. Which of the following is NOT a characteristic of reinsurance? A. Protects against a very large claim B. Increases the unearned premium reserve C. A specialized branch of the insurance industry D. Enables insurer to meet certain objectives CORRECT ANSWER B. Increases the unearned premium reserve A participating company is also referred to as which type of insurer? A. Mutual insurer B. Domestic insurer C. Re-insurer D. Reciprocal insurer CORRECT ANSWER A. Mutual insurer A mutual insurer is also referred to as a participating company. Which of the following is NOT a benefit of insurance? A. Makes a loss whole again B. Reduces the uncertainty of loss exposures C. Source of investment funds D. Losses due to fraud are eliminated CORRECT ANSWER D. Losses due to fraud are eliminated This is NOT a benefit of insurance. AAA Insurance company has transferred a portion of its loss exposure to BBB Insurance company. In this reinsurance transaction, what is AAA Insurance company called? A. Tertiary insurer B. Primary insurer C. Captive insurer D. Secondary insurer CORRECT ANSWER B. Primary insurer In a reinsurance agreement, the insurance company that transfers its loss exposure to another insurer is called the primary insurer. When a mutual insurer becomes a stock company, the process is called... A. Mutualization B. Demutualization C. Reinsurance D. Reorganization CORRECT ANSWER B. Demutualization The process whereby a mutual insurer becomes a stock company is called demutualization. Which of the following is a contract that involves one party which indemnifies another when a loss arises from an unknown event? A. Indemnification arrangement B. Insurance policy C. Warranty arrangment D. Loss contract CORRECT ANSWER B. Insurance policy An insurance policy is a contract where one party promises to indemnify another against loss that arises from an unknown event. Which of the following refers to a condition that may increase the chance of a loss? A. Adverse selection B. Hazard C. Risk D. Peril CORRECT ANSWER B. Hazard A hazard is a condition or situation that creates or increases a chance of a loss. Which of these statements correctly describes risk? A. Pure risk is the only insurable risk B. Speculative risk is the only insurable risk C. An example of pure risk would be a legal wager D. Pure and speculative risks are both insurable CORRECT ANSWER A. Pure risk is the only insurable risk Only pure risks are insurable. A situation in which there is ONLY a chance of loss or no loss is a ... A. Pure risk B. Particular risk C. Speculative risk D. Fundamental risk CORRECT ANSWER A. Pure risk A situation in which there is ONLY a chance of loss or no loss is a pure risk. Which of the following is NOT an element of an insurable risk? A. Loss must be due to chance B. Loss frequency must be predictable C. Loss must be measurable D. Loss must be catastrophic CORRECT ANSWER D. Loss must be catastrophic All of these are elements of an insurable risk EXCEPT "loss must be catastrophic" Which of the following is NOT considered a definition of risk? A. The potential for loss B. The cause of a loss C. Exposure to danger D. Uncertainty CORRECT ANSWER B. The cause of a loss Something that can cause a loss, such as an earthquake or tornado, is referred to as a peril, not a risk. Which of the following is NOT considered to be a definition of the term "loss"? A. Probability that an event will occur B. An insurable event that takes place which results in a payment made by the insurance company C. Unintentional decrease in the value of an asset due to a peril D. The amount an insurance company must pay because of an insurable event CORRECT ANSWER A. Probability that an event will occur The term "loss" can be defined as all of these EXCEPT "probability that an event will occur" Which of the following best describes the statement "The more times an event is repeated, the more predictable the outcome becomes"? A. Law of large numbers B. Adverse selection C. Average variance D. Speculative retention CORRECT ANSWER A. Law of large numbers "The more times an event is repeated, the more predictable the outcome becomes" is an example of the law of large numbers. Which type of risk is gambling? A. Pure risk B. Risk transfer C. Risk pooling D. Speculative risk CORRECT ANSWER D. Speculative risk Gambling is considered to be speculative risk. Restoring an insured to the same condition as before a loss is known as... A. Law of large numbers B. Fiduciary retention C. Adverse selection D. Principle of indemnity CORRECT ANSWER D. Principle of Indemnity The principle of indemnity involves making an insured whole by restoring them to the same condition as before a loss. Which of the following is considered to be any situation that has the potential for loss? A. Law of large numbers B. Adverse Selection C. Loss exposure D. Risk transfer CORRECT ANSWER C. Loss exposure Loss exposures are situations which have the potential for loss. Which of the following is any situation that presents the possibility of a loss? A. Adverse selection B. Risk pooling C. Loss exposure D. Insured loss CORRECT ANSWER C. Loss exposure Any situation that presents the possibility of a loss is known as a loss exposure. An insurer having a large number of similar exposure units is considered important because... A. the insurer can decrease its reserves B. the greater the number insured, the more accurately the insurer can predict losses and set appropriate premiums C. its financial rating will improve D. the greater the number insured, the more premiums it collects CORRECT ANSWER B. the greater the number insured, the more accurately the insurer can predict losses and set appropriate premiums. A hazard can be best described as... A. the potential for loss B. the tendency for poorer than average risks to seek out insurance C. a condition that may increase the likelihood of a loss occurring D. a risk that has the potential for both loss and gain CORRECT ANSWER C. a condition that may increase the likelihood of a loss occurring A condition or situation that creates or increases a chance of loss is called a Hazard. Examples include icy roads, driving while intoxicated, and improperly stored toxic waste. A. = risk B. = adverse selection D. = Speculative risk Which of the following is a situation where there is a possibility of either a loss or a gain? A. Hazard B. Pure risk C. Speculative risk D. Peril CORRECT ANSWER C. Speculative risk A situation in which there is a possibility of a loss or a gain is a speculative risk. Which of the following describes the increase in the probability of a loss due to an insured's dishonest tendencies? A. Morale hazard B. Physical hazard C. Moral hazard D. Speculative hazard CORRECT ANSWER C. Moral hazard The increase in the probability of a loss resulting from an insured's dishonest tendencies is known as moral hazard. Which of the following statements correctly describes a contract of indemnity? A. One party is restored to the same financial position the party was in before the loss occurred B. The unequal exchange of value or consideration for both parties C. One party (the insurance company) prepares the contract with no negotiation between the applicant and insurer D. Only one party (the insurer) makes any kind of enforceable promise CORRECT ANSWER A. One party is restored to the same financial position the party was in before the loss occurred A contract of indemnity is a contract in which one party is restored to the same financial position the party was in before the loss occurred. Which of the following is NOT required in the content of a policy? A. Parties involved in the contract B. Period to which the coverage exists C. Probability of loss D. Risk insured against CORRECT ANSWER C. Probability of loss The probability of loss is not required in the content of a policy. When handling premiums for an insured, an agent is acting in which capacity? A. Adhesion B. Fiduciary C. Conditional D. Aleatory CORRECT ANSWER B. Fiduciary An agent who is acting as an insurance agent, broker, solicitor, life agent accident and health, or bail agent acts in fiduciary capacity when handling premiums or return premiums for an insured. Which of the following is NOT a requirement of a contract? A. Parties involved must be competent B. Equal consideration is required between the involved parties C. Contract must have a legal purpose D. Offer and acceptance must be involved CORRECT ANSWER B. Equal consideration is required between the involved parties Equal consideration between parties is NOT a requirement of a contract. The importance of a representation is demonstrated in what rule? A. Insurable interest B. Law of adhesion C. Materiality of concealment D. Consideration clause CORRECT ANSWER C. Materiality of concealment The materiality of concealment is used to determine the importance of a representation. Which of the following statements about aleatory contracts is NOT true? A. Insurance contracts are considered aleatory B. The insured and the insurer have the potential for unequal contributions C. The insured and the insurer contribute equally to the contract D. Aleatory contracts are conditioned upon the occurrence of an event CORRECT ANSWER C. The insured and the insurer contribute equally to the contract This statement is NOT true. An aleatory contract has the potential for the unequal exchange of value or consideration for both parties. For example, an individual who is covered under a disability insurance policy will collect benefits upon disability. However, if no disability occurs, benefits are not paid. The unilateral contract is one in which... A. there is an element of chance and potential for unequal exchange of value or consideration for both parties B. only one party (the insurer) makes any kind of legally enforceable promise C. the contract has been prepared by one party (the insurance company) with no negotiation between the applicant and insurer D. both the policyowner and the insurer must know all material facts and relevant information CORRECT ANSWER B. only one party (the insurer) makes any kind of legally enforceable promise Insurance contracts are unilateral. This means that only one party (the insurer) makes any kind of enforceable promise. Restoring an insured to the same condition as before a loss is an example of the principle of... A. Utmost good faith B. Adhesion C. Legal purpose D. Indemnity CORRECT ANSWER D. Indemnity Making an insured whole restoring them to the same condition as before a loss is an example of the principle of indemnity. Express power given to an agent in an agency agreement is... A. the appearance of authority an insurer gives to its agent B. the unwritten authority that the agent is assumed to have C. the authority to represent the insurer D. the authority to add provisions to a contract CORRECT ANSWER C. the authority to represent the insurer Express authority is granted by means of the agent's contract, which is the insurer's appointment of the agent to act on its behalf. Which principle is accurately described with the statement "Insureds are entitled to recover an amount NOT greater than the amount of their loss"? A. Unilateral B. Indemnity C. Aleatory D. Utmost good faith CORRECT ANSWER B. Indemnity Insureds are entitled to recover an amount NOT greater than the amount of their loss under the principle of indemnity. Which course of action is the insurer entitled to when deliberate concealment is committed by the insured? A. Rescinding the contract B. Charge a higher premium C. Charge a penalty D. Nothing CORRECT ANSWER A. Rescinding the contract Intentional concealment committed by the insured entitles the insurance company to void the policy. If a material warranty violation on the part of the insured is found, what recourse does an insurer have? A. Sue the insured B. Rescind the policy C. Charge more premium D. Terminate the agent CORRECT ANSWER B. Rescind the policy A warranty in insurance is a statement made by the applicant that is guaranteed to be true in every respect. It becomes part of the contract and, if found to be untrue, can be grounds for revoking the contract. A contract requires... A. implied authority B. only an offer C. negotiation between the involved parties D. an offer and acceptance of the contract terms CORRECT ANSWER D. an offer and acceptance of the contract terms A contract requires an offer and acceptance of the contract terms. Which of the following contracts is defined as " one that restores an injured party to the condition that was present before the loss"? A. Unilateral contract B. Contract of adhesion C. Indemnity contract D. Personal contract CORRECT ANSWER C. Indemnity contract A contract that restores an injured party to the condition that was present before the loss is an indemnity contract. Which statement is CORRECT when describing a contract of adhesion? A. Contract may be accepted or rejected by the insured B. Contract involves negotiation between insurer and insured C. Any confusing language in the contract would be interpreted in favor of the insurer D. Contract cannot be modified by the insurer CORRECT ANSWER A. Contract may be accepted or rejected by the insured With a contract of adhesion, a contract may be accepted or rejected by the insured. [Show More]

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