General Insurance Concepts: Practice
Exam ACTUAL QUESTIONS AND
CORRECT ANSWERS
A producer is a representative of:
A) The general agency system
B) The insurance company
C) The insured
D) The policyholder - CORRECT ANSWERS✅✅C) The insured
Explanation:
Producers represent the insurer. Under the Doctrine of Agency, insurers are responsible for
what their producers do.
An insurance company owned by its policyholders, who receive a return of unused premiums
in the form of policy dividends, is a(n):
A) Mutual company
B) Stock company
C) Fraternal insurer
D) Assessment insurer - CORRECT ANSWERS✅✅A) Mutual Company
Explanation:
A mutual company has no stock although it is a corporation. Ownership of the company rests
with the policyholders, who might receive a dividend from accumulated surplus, if declared.
Dividends are not guaranteed. Dividends paid by mutuals are not taxable. A stock company is
owned by shareholders, who have "equity" in the company. The stockholders may also
receive dividends, which are taxable. Stock companies issue "non-participating" policies. A
fraternal insurer is non-profit with a lodge system that sells L&H insurance only to their own
members.
An insurer incorporated under the laws of the state in which it is operating is considered to be
a(n):
,A) Alien insurer
B) Domestic insurer
C) Foreign insurer
D) Reciprocal insurer - CORRECT ANSWERS✅✅B) Domestic insurer
Explanation:
A domestic company has their home office in this state. A foreign company is in another state
and an alien company is in another country.
In property and casualty and in medical-expense insurance, the principle of making someone
"whole" again after a loss by paying only for actual losses is called:
A) Indemnity
B) Warranty
C) Subrogation
D) Estoppel - CORRECT ANSWERS✅✅A) Indemnity
Explanation:
The Principle of Indemnity states you cannot make a profit from insurance. Subrogation is a
provision that allows your insurance company to stand in your place to recover moneys they
have already paid you.
Because an insurer writes the policy language and the insured has little or no control over the
content, any ambiguity in the wording is usually resolved in favor of the insured. Because the
design and wording of a policy are in the hands of the insurer, insurance policies are said to
be:
A) Unilateral contracts
B) Contracts of indemnity
C) Aleatory contracts
D) Contracts of adhesion - CORRECT ANSWERS✅✅D) Contracts of adhesion
, Explanation:
The Doctrine of Adhesion states that any ambiguity in an insurance contract is always
construed against the party who wrote it, the insurer. This is why the insured often wins in
court, since they have to buy the policy on a "take it or leave it" basis, without any
negotiation.
Which of the following contractual elements consists of the "offer" and the "acceptance":
A) Competent parties
B) Consideration
C) Mutual Agreement
D) Legal object - CORRECT ANSWERS✅✅C) Mutual Agreement
Explanation:
Mutual agreement of the parties is also known as offer and acceptance. The client makes the
offer when they sign the application and write the initial premium check. The underwriter
accepts the risk by issuing the policy.
All of the following are required elements of a legal contract, EXCEPT:
A) Waiver and Estoppel
B) Legal purpose
C) Offer and acceptance
D) Competent parties - CORRECT ANSWERS✅✅A) Waiver and Estoppel
Explanation:
Waiver and Estoppel are legal doctrines, but are not parts of the contract.
A moral hazard:
A) Is the tendency to create a loss on purpose, to collect from the insurance company
Exam ACTUAL QUESTIONS AND
CORRECT ANSWERS
A producer is a representative of:
A) The general agency system
B) The insurance company
C) The insured
D) The policyholder - CORRECT ANSWERS✅✅C) The insured
Explanation:
Producers represent the insurer. Under the Doctrine of Agency, insurers are responsible for
what their producers do.
An insurance company owned by its policyholders, who receive a return of unused premiums
in the form of policy dividends, is a(n):
A) Mutual company
B) Stock company
C) Fraternal insurer
D) Assessment insurer - CORRECT ANSWERS✅✅A) Mutual Company
Explanation:
A mutual company has no stock although it is a corporation. Ownership of the company rests
with the policyholders, who might receive a dividend from accumulated surplus, if declared.
Dividends are not guaranteed. Dividends paid by mutuals are not taxable. A stock company is
owned by shareholders, who have "equity" in the company. The stockholders may also
receive dividends, which are taxable. Stock companies issue "non-participating" policies. A
fraternal insurer is non-profit with a lodge system that sells L&H insurance only to their own
members.
An insurer incorporated under the laws of the state in which it is operating is considered to be
a(n):
,A) Alien insurer
B) Domestic insurer
C) Foreign insurer
D) Reciprocal insurer - CORRECT ANSWERS✅✅B) Domestic insurer
Explanation:
A domestic company has their home office in this state. A foreign company is in another state
and an alien company is in another country.
In property and casualty and in medical-expense insurance, the principle of making someone
"whole" again after a loss by paying only for actual losses is called:
A) Indemnity
B) Warranty
C) Subrogation
D) Estoppel - CORRECT ANSWERS✅✅A) Indemnity
Explanation:
The Principle of Indemnity states you cannot make a profit from insurance. Subrogation is a
provision that allows your insurance company to stand in your place to recover moneys they
have already paid you.
Because an insurer writes the policy language and the insured has little or no control over the
content, any ambiguity in the wording is usually resolved in favor of the insured. Because the
design and wording of a policy are in the hands of the insurer, insurance policies are said to
be:
A) Unilateral contracts
B) Contracts of indemnity
C) Aleatory contracts
D) Contracts of adhesion - CORRECT ANSWERS✅✅D) Contracts of adhesion
, Explanation:
The Doctrine of Adhesion states that any ambiguity in an insurance contract is always
construed against the party who wrote it, the insurer. This is why the insured often wins in
court, since they have to buy the policy on a "take it or leave it" basis, without any
negotiation.
Which of the following contractual elements consists of the "offer" and the "acceptance":
A) Competent parties
B) Consideration
C) Mutual Agreement
D) Legal object - CORRECT ANSWERS✅✅C) Mutual Agreement
Explanation:
Mutual agreement of the parties is also known as offer and acceptance. The client makes the
offer when they sign the application and write the initial premium check. The underwriter
accepts the risk by issuing the policy.
All of the following are required elements of a legal contract, EXCEPT:
A) Waiver and Estoppel
B) Legal purpose
C) Offer and acceptance
D) Competent parties - CORRECT ANSWERS✅✅A) Waiver and Estoppel
Explanation:
Waiver and Estoppel are legal doctrines, but are not parts of the contract.
A moral hazard:
A) Is the tendency to create a loss on purpose, to collect from the insurance company
