MICHIGAN SURPLUS LINES PRACTICE EXAM 2025/2026
QUESTIONS AND ANSWERS GUARANTEE A+
✔✔Legal purpose - ✔✔agreement is legal and enforceable only if it complies with the
law of the land and public policy.
✔✔Aleatory Contract - ✔✔a contract where the values exchanged may not be equal but
depend on an uncertain event
✔✔Unilateral Contract - ✔✔promise in exchange for an act
✔✔Conditional Contract - ✔✔A type of an agreement in which both parties must
perform certain duties and follow rules of conduct to make the contract enforceable.
✔✔Reasonable Expectations - ✔✔A concept which states that the insured is entitled to
coverage under a policy that a sensible and prudent person would expect it to provide.
Reinforces the rule that ambiguities in insurance contracts should be interpreted in favor
of the policyholder.
✔✔Ambiguities in a Contract of Adhesion - ✔✔Any doubt or ambiguity found in an
insurance policy will be found in favor of the party that did not draw up the contract-the
insured.
✔✔indemnity contract: - ✔✔An agreement to pay on behalf of another party under
specified circumstances, such as when a loss occurs.
✔✔good faith contract - ✔✔The parties involved agree to change their behavior
independently of one another.
✔✔Estoppel wavier - ✔✔waiver is relinquishment of right; estoppel may prevent party
from asserting a right
✔✔Boycott, Coercion, and Intimidation - ✔✔Using threat or force to create a monopoly
or restrict fair trade in the transaction of insurance
✔✔Rebating - ✔✔Any inducement offered in the sale of insurance products that is not
specified in the policy.
✔✔Rebating is an unfair trade practice and is regulated by law. All of the following
would be considered to be rebating EXCEPT - ✔✔an agent uses misrepresentation to
convice a person to cancel an existing policy and take a new policy from him
✔✔Unfair Claims Settlement Practices - ✔✔Failing to approve or deny coverage of a
claim within a reasonable period after a proof-of-loss statement has been completed,
, ✔✔risk - ✔✔The possibility of a financial loss
✔✔exposure - ✔✔losses that might occur
✔✔Which of these are considered to be events or conditions that increase the chances
of an insured's loss? - ✔✔Hazard
✔✔an immediate, specific event which cause loss, such as an earthquake or tornado -
✔✔Peril
✔✔An insurer may refuse to insure a vacant building for the peril of vandalism--the
probability of loss is just too high - ✔✔avoidance
✔✔When Sean applied for insurance after he bought a home, his insurer examined his
record and the value of the home and wrote Sean a policy. Maria applied for a policy for
her new car, and because of her good driving record, her insurer issued the policy -
✔✔retention
✔✔reduction - ✔✔Reduces or mitigates risk.
✔✔Risk Transfer - ✔✔A pure risk is transferred from the insured to the insurer, who
typically is in a stronger financial position
✔✔Elements of Insurable Risk - ✔✔1. Due to chance
2. Definite and measurable
3. Predictable
4. Not catastrophic
5. Loss exposure to be insured must be large
6. Insurance must not be mandatory
✔✔Adverse Selection - ✔✔the situation in which one party to a transaction takes
advantage of knowing more than the other party to the transaction
✔✔Law of Large Numbers - ✔✔the larger the number of individuals that are randomly
drawn from a population, the more representative the resulting group will be of the
entire population
✔✔Stock Insurer - ✔✔An insurer that is owned by its stockholders and formed as a
corporation for the purpose of earning a profit for the stockholders.
✔✔Mutual Insurer - ✔✔An insurer that is owned by its policyholders and formed as a
corporation for the purpose of providing insurance to them.
QUESTIONS AND ANSWERS GUARANTEE A+
✔✔Legal purpose - ✔✔agreement is legal and enforceable only if it complies with the
law of the land and public policy.
✔✔Aleatory Contract - ✔✔a contract where the values exchanged may not be equal but
depend on an uncertain event
✔✔Unilateral Contract - ✔✔promise in exchange for an act
✔✔Conditional Contract - ✔✔A type of an agreement in which both parties must
perform certain duties and follow rules of conduct to make the contract enforceable.
✔✔Reasonable Expectations - ✔✔A concept which states that the insured is entitled to
coverage under a policy that a sensible and prudent person would expect it to provide.
Reinforces the rule that ambiguities in insurance contracts should be interpreted in favor
of the policyholder.
✔✔Ambiguities in a Contract of Adhesion - ✔✔Any doubt or ambiguity found in an
insurance policy will be found in favor of the party that did not draw up the contract-the
insured.
✔✔indemnity contract: - ✔✔An agreement to pay on behalf of another party under
specified circumstances, such as when a loss occurs.
✔✔good faith contract - ✔✔The parties involved agree to change their behavior
independently of one another.
✔✔Estoppel wavier - ✔✔waiver is relinquishment of right; estoppel may prevent party
from asserting a right
✔✔Boycott, Coercion, and Intimidation - ✔✔Using threat or force to create a monopoly
or restrict fair trade in the transaction of insurance
✔✔Rebating - ✔✔Any inducement offered in the sale of insurance products that is not
specified in the policy.
✔✔Rebating is an unfair trade practice and is regulated by law. All of the following
would be considered to be rebating EXCEPT - ✔✔an agent uses misrepresentation to
convice a person to cancel an existing policy and take a new policy from him
✔✔Unfair Claims Settlement Practices - ✔✔Failing to approve or deny coverage of a
claim within a reasonable period after a proof-of-loss statement has been completed,
, ✔✔risk - ✔✔The possibility of a financial loss
✔✔exposure - ✔✔losses that might occur
✔✔Which of these are considered to be events or conditions that increase the chances
of an insured's loss? - ✔✔Hazard
✔✔an immediate, specific event which cause loss, such as an earthquake or tornado -
✔✔Peril
✔✔An insurer may refuse to insure a vacant building for the peril of vandalism--the
probability of loss is just too high - ✔✔avoidance
✔✔When Sean applied for insurance after he bought a home, his insurer examined his
record and the value of the home and wrote Sean a policy. Maria applied for a policy for
her new car, and because of her good driving record, her insurer issued the policy -
✔✔retention
✔✔reduction - ✔✔Reduces or mitigates risk.
✔✔Risk Transfer - ✔✔A pure risk is transferred from the insured to the insurer, who
typically is in a stronger financial position
✔✔Elements of Insurable Risk - ✔✔1. Due to chance
2. Definite and measurable
3. Predictable
4. Not catastrophic
5. Loss exposure to be insured must be large
6. Insurance must not be mandatory
✔✔Adverse Selection - ✔✔the situation in which one party to a transaction takes
advantage of knowing more than the other party to the transaction
✔✔Law of Large Numbers - ✔✔the larger the number of individuals that are randomly
drawn from a population, the more representative the resulting group will be of the
entire population
✔✔Stock Insurer - ✔✔An insurer that is owned by its stockholders and formed as a
corporation for the purpose of earning a profit for the stockholders.
✔✔Mutual Insurer - ✔✔An insurer that is owned by its policyholders and formed as a
corporation for the purpose of providing insurance to them.
