ARKANSAS LIFE INSURANCE LATEST PRACTICE EXAM
QUESTIONS AND ANSWERS MARKED A+
✔✔Insurers - ✔✔Provide insurance coverage by issuing particular insurance policies or
contracts
✔✔Insurance Agencies - ✔✔Independent sales organizations that provide service and
distribute insurance policies to consumers
✔✔Insurance Agents or Producers - ✔✔Licensed individuals representing an insurance
company when transacting insurance business
✔✔The insurance industry is primarily regulated at the _________ level. - ✔✔State
✔✔Legislative branch - ✔✔Writes and passes state insurance laws
✔✔Judicial branch - ✔✔Responsible for interpreting and determining the
constitutionality of the laws
✔✔Executive branch - ✔✔Enforce the existing laws that have been put in place
✔✔The National Association of Insurance Commissioners (NAIC) - ✔✔The regulatory
support organization created and governed by the chief insurance regulators and
commissioners; provides resources, research, legislative and regulatory
recommendations and interpretations for state insurance regulators; primary goal is to
promote state uniformity
✔✔Stock Insurance Company - ✔✔Owned by stockholders; dividends, if declared are
taxable as profits, and are not guaranteed; traditionally stock insurers issue non-
participating policies
✔✔Mutual Insurance Company - ✔✔owned by policyholders; policyholders receive non-
taxable dividends as a return of unused premium when declared; dividends are not
guaranteed
✔✔Fraternal Insurers - ✔✔Primarily social organizations that engage in charitable and
benevolent activities that provide primarily life insurance to its members
✔✔A ________ insurance company is owned by its policyholders. - ✔✔Mutual
✔✔Domicile - ✔✔Refers to the location, or jurisdiction, where an insurer is formed or
incorporated
, ✔✔Domestic Insurer - ✔✔An insurer organized under the laws of a state in which it is
placing business; an insurer can only be domestic to the state in which it is incorporated
✔✔Foreign Insurer - ✔✔An insurer placing business anywhere within the US other than
the state in which it was organized and incorporated
✔✔Alien Insurer - ✔✔An insurer placing business within the US which was organized
under the laws of another country
✔✔Fair Credit Reporting Act - ✔✔Protects consumer's right to the privacy of credit and
financial information, ensuring that all collected data is confidential, accurate, relevant
and properly used
✔✔The Insurance Contract - ✔✔A legal contract between two parties, purchased by the
insured and stating that the insurance company promises to make payment for a loss
arising from an unexpected event; involves the exchange of a relatively small and
definite expense for the promise of payment for a large uncertain loss
✔✔Principle of Indemnity - ✔✔Insurance is designed to restore an insured tot he same
physical or financial condition which existed prior to the loss, without a profit or gain
✔✔Insurable Interest - ✔✔Requires financial or economic hardship in the event of a
loss due to an accident, sickness, or death of the insured; must exist between the
person buying the insurance and the person insured under the policy; must exist at the
time of the application
✔✔What are the four elements of a legal contract? - ✔✔Competent parties, legal
purpose, agreement, and consideration
✔✔Contract of Adhesion - ✔✔The contract is written by one party without any input
from the applicant; the insurer prepares the contract and presents it to the applicant on
a "take-it-or-leave-it" basis
✔✔Aleatory Contract - ✔✔based on an uncertain event; it is very likely there will be an
unequal exchange of consideration by either party
✔✔Unilateral Contract - ✔✔Only one party is legally bound to the contractual
obligations after the premium is paid to the insurer. Only the insurer makes a promise of
future performance, and only the insurer can be charged with breach of contract.
✔✔Conditional Contract - ✔✔Both parties must perform certain duties to make the
contract enforceable; the insured can only collect if there has been a covered loss, and
the insurer has a list of conditions stated in the contract that must be met before a claim
will be paid
QUESTIONS AND ANSWERS MARKED A+
✔✔Insurers - ✔✔Provide insurance coverage by issuing particular insurance policies or
contracts
✔✔Insurance Agencies - ✔✔Independent sales organizations that provide service and
distribute insurance policies to consumers
✔✔Insurance Agents or Producers - ✔✔Licensed individuals representing an insurance
company when transacting insurance business
✔✔The insurance industry is primarily regulated at the _________ level. - ✔✔State
✔✔Legislative branch - ✔✔Writes and passes state insurance laws
✔✔Judicial branch - ✔✔Responsible for interpreting and determining the
constitutionality of the laws
✔✔Executive branch - ✔✔Enforce the existing laws that have been put in place
✔✔The National Association of Insurance Commissioners (NAIC) - ✔✔The regulatory
support organization created and governed by the chief insurance regulators and
commissioners; provides resources, research, legislative and regulatory
recommendations and interpretations for state insurance regulators; primary goal is to
promote state uniformity
✔✔Stock Insurance Company - ✔✔Owned by stockholders; dividends, if declared are
taxable as profits, and are not guaranteed; traditionally stock insurers issue non-
participating policies
✔✔Mutual Insurance Company - ✔✔owned by policyholders; policyholders receive non-
taxable dividends as a return of unused premium when declared; dividends are not
guaranteed
✔✔Fraternal Insurers - ✔✔Primarily social organizations that engage in charitable and
benevolent activities that provide primarily life insurance to its members
✔✔A ________ insurance company is owned by its policyholders. - ✔✔Mutual
✔✔Domicile - ✔✔Refers to the location, or jurisdiction, where an insurer is formed or
incorporated
, ✔✔Domestic Insurer - ✔✔An insurer organized under the laws of a state in which it is
placing business; an insurer can only be domestic to the state in which it is incorporated
✔✔Foreign Insurer - ✔✔An insurer placing business anywhere within the US other than
the state in which it was organized and incorporated
✔✔Alien Insurer - ✔✔An insurer placing business within the US which was organized
under the laws of another country
✔✔Fair Credit Reporting Act - ✔✔Protects consumer's right to the privacy of credit and
financial information, ensuring that all collected data is confidential, accurate, relevant
and properly used
✔✔The Insurance Contract - ✔✔A legal contract between two parties, purchased by the
insured and stating that the insurance company promises to make payment for a loss
arising from an unexpected event; involves the exchange of a relatively small and
definite expense for the promise of payment for a large uncertain loss
✔✔Principle of Indemnity - ✔✔Insurance is designed to restore an insured tot he same
physical or financial condition which existed prior to the loss, without a profit or gain
✔✔Insurable Interest - ✔✔Requires financial or economic hardship in the event of a
loss due to an accident, sickness, or death of the insured; must exist between the
person buying the insurance and the person insured under the policy; must exist at the
time of the application
✔✔What are the four elements of a legal contract? - ✔✔Competent parties, legal
purpose, agreement, and consideration
✔✔Contract of Adhesion - ✔✔The contract is written by one party without any input
from the applicant; the insurer prepares the contract and presents it to the applicant on
a "take-it-or-leave-it" basis
✔✔Aleatory Contract - ✔✔based on an uncertain event; it is very likely there will be an
unequal exchange of consideration by either party
✔✔Unilateral Contract - ✔✔Only one party is legally bound to the contractual
obligations after the premium is paid to the insurer. Only the insurer makes a promise of
future performance, and only the insurer can be charged with breach of contract.
✔✔Conditional Contract - ✔✔Both parties must perform certain duties to make the
contract enforceable; the insured can only collect if there has been a covered loss, and
the insurer has a list of conditions stated in the contract that must be met before a claim
will be paid
