PA Health Insurance - II. General Insurance
This deck covers key concepts in general insurance, including types of risks, insurer types, agent authority, and insurance principles. It is designed to help learners understand the foundational elements of insurance policies and operations.
The risk of loss may be classified as:
a. Pure risk and speculative risk
b. Certain risk and un-named risk
c. Named risk and un-named risk
d. High risk and low risk
a. Pure risk and speculative risk
Pure risks involve the probability or possibility of loss with no chance for gain. Pure risks are generally insurable. Speculative risks involve uncertainty as to whether the final outcome will be gain or loss. Speculative risks are generally uninsurable.
Key Terms
The risk of loss may be classified as:
a. Pure risk and speculative risk
b. Certain risk and un-named risk
c. Named risk and un-named risk
d. High risk and low risk
a. Pure risk and speculative risk
Pure risks involve the probability or possibility of ...
An insured purchased an insurance policy 5 years ago. Last year, she received a dividend check from the insurance company that was not taxable. This year, she did not receive a check from the insurer. From what type of insurer did the insured purchase the policy?
Mutual: Funds not paid out after paying claims and other operating costs are returned to the policyowners in the form of a dividend. If all funds a...
An individual’s tendency to be dishonest would be indicative of a
a. moral hazard
b. morale hazard
Moral hazard
What is the major difference between a Stock Company and a Mutual Company?
Ownership: Mutual companies are owned by policyholders, while stock companies are owner by stockholders.
A situation in which a person can only lose or have no change represents
a. speculative risk
b. adverse selection
c. hazard
d. pure risk
Pure risk refers to situations that can only result in a loss or no change. Pure risk is the only type insurance companies are willing to accept.
A tornado that destroys property would be an example of which of the following?
a. a loss
b. a physical hazard
c. a peril
d. a pure risk
a peril is the cause of loss insured against in an insurance policy
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| Term | Definition |
|---|---|
The risk of loss may be classified as: a. Pure risk and speculative risk | a. Pure risk and speculative risk Pure risks involve the probability or possibility of loss with no chance for gain. Pure risks are generally insurable. Speculative risks involve uncertainty as to whether the final outcome will be gain or loss. Speculative risks are generally uninsurable. |
An insured purchased an insurance policy 5 years ago. Last year, she received a dividend check from the insurance company that was not taxable. This year, she did not receive a check from the insurer. From what type of insurer did the insured purchase the policy? | Mutual: Funds not paid out after paying claims and other operating costs are returned to the policyowners in the form of a dividend. If all funds are paid out, no dividends are paid. |
An individual’s tendency to be dishonest would be indicative of a a. moral hazard | Moral hazard |
What is the major difference between a Stock Company and a Mutual Company? | Ownership: Mutual companies are owned by policyholders, while stock companies are owner by stockholders. Mutual companies are owned by policyholders and issue participating policies- policy owners are entitled to dividends, which, in the case of mutual companies, are a return of excess premiums and are therefore nontaxable. Dividends are generated when the premiums and the earnings combined exceed actual cost of providing coverage, creating a surplus. Dividends are not guaranteed. |
A situation in which a person can only lose or have no change represents a. speculative risk | Pure risk refers to situations that can only result in a loss or no change. Pure risk is the only type insurance companies are willing to accept. |
A tornado that destroys property would be an example of which of the following? a. a loss | a peril is the cause of loss insured against in an insurance policy |
for the purpose of insurance, risk is defined as a. an event that increases the amount of loss | b. the uncertainty or chance of loss |
What documentation grants express authority to an agent? a. fiduciary contract | c. Agent’s contract with the principal The principal grants authority to an agent through the agent’s contract. |
Which of the following is a statement that is guaranteed to be true, and if untrue, may breach an insurance contract? A. Indemnity | A warranty in insurance is a statement guaranteed to be true. When an applicant is applying for an insurance contract, the statements he or she makes are generally not warranties, but representations. Representations are statements that are true to the best of the applicant’s knowledge. |
Which of the following must an insurer obtain in order to transact insurance within a given state? A. Business Entity License | C. Certificate of Authority All insurers (domestic, foreign, or alien) must obtain a Certificate of Authority before transacting insurance within a given state. |
Which of the following are the authorities that an agent can hold? A. Authorized and admitted | C. Express and implied The powers and authorities that an agent holds are express and implied. Apparent authority is the appearance of, or the assumption of, authority based on the actions, words, or deeds of the principal or because of circumstances the principal created. 3 types of agent authority: express, implied, and apparent |
When an insured makes truthful statements on the application for insurance and pays the required premium, it is known as which of the following? A. Contract of adhesion | C. Consideration Consideration is something of value that each party gives to the other. The consideration on the part of the insured is the payment of premium and the representations made in the application. |
A participating insurance policy may do which of the following? A .Provide group coverage | D. Pay dividends to the policyowner A participating insurance policy will pay dividends to the owner based upon actual mortality cost, interest earned and costs. |
Which of the following is an example of apparent authority of an agent appointed by an insurer? A. The agent has business cards and stationery printed. | C. The agent accepts a premium payment after the end of the grace period. An agent who accepts a premium after the end of the grace period appears to the client to have the authority to prevent the policy from lapsing. In fact, the agent has no such power. The power to use business cards, stationery and signage may be either express (written) or implied (not written), but in either case, it is allowed. |
An insurer neglects to pay a legitimate claim that is covered under the terms of the policy. Which of the following terms best describes what the insurer has violated? A. Adhesion | A. Adhesion The binding force in any contract is consideration. Consideration on the part of the insured is the payment of premiums and the health representations made in the application. Consideration on the part of the insurer is the promise to pay in the event of loss. |
Which insurance principle states that if a policy allows for greater compensation than the financial loss incurred, the insured may only receive benefits for the amount lost? A. Indemnity | A. Indemnity The principle of indemnity stipulates that the insured can only collect the amount of their loss, in the event that their policy would allow for a greater benefit to be collected. For example, if a health insurance policy allows for $2,500 for a given surgery, and only $2,000 is spent, the insured can only collect $2,000. |
In forming an insurance contract, when does acceptance usually occur? A. When an insurer delivers the policy B. When an insurer receives an application C. When an insured submits an application D. When an insurer approves a prepaid application | D. When an insurer approves a prepaid application In insurance, the offer is usually made by the applicant, in the form of the application. Acceptance takes place when an insurer’s underwriter approves the application and issues a policy. |
Events in which a person has both the chance of winning or losing are classified as A. Speculative risk. B. Insurable. C. Pure risk. D. Retained risk. | A. Speculative risk. Speculative risk involves the chance of gain or loss and is not insurable |