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Alabama Insurance Exam Prep CH 13
Which of the following would be considered a
speculative risk? - .....ANSWER ...✔✔ The possibility
the painting you bought might be a long-lost
masterpiece
A speculative risk is one in which there is a chance for
either loss or gain. Example: Gambling, Casino's,
Lottery, etc. All of the other choices describe pure risk,
where there is no chance of gain, only a chance of loss
exists.
Which is the proper term for a company owned by its
policy owners? - .....ANSWER ...✔✔ A mutual
insurance company
A producer who is acting as an agent is representing: -
.....ANSWER ...✔✔ Always the insurer
All of the following are elements of a contract, except: -
.....ANSWER ...✔✔ Authority
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All enforceable contracts must include these
characteristics: offer and acceptance (agreement),
considerations, competent parties, and legal purpose.
Authority is not considered one of the elements of a
legal contract.
Each of the following would be an element in the
definition of fraud, except: - .....ANSWER ...✔✔ An
individual warrants a fact stated on the application
A warranted fact is one guaranteed to be true. Although
no statement on an application is regarded as warranty,
no fraud is involved if a statement is guaranteed to be
true.
Examples of Fraud - .....ANSWER ...✔✔ Intentional
material misrepresentation with the intent of causing
injury to another party
Withholding of known material facts
A false statement on the application that is material to
the acceptance of the risk
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A company that is licensed to sell insurance in a
particular state is: - .....ANSWER ...✔✔ An authorized
Company
In order to be valid, a contract must be between
individuals considered legally able to enter into an
agreement. This principle is known as: - .....ANSWER
...✔✔ Competent parties
An insurance contract is an aleatory contract. This means:
- .....ANSWER ...✔✔ Equal value is not given by both
parties to the contract
Aleatory: contract of unequal values exchanged
The ____________ market is a private source of
coverage of last resort for individuals or businesses that
have been rejected by voluntary market insurers. -
.....ANSWER ...✔✔ Residual
To address adverse selection what can an insurer legally
do? - .....ANSWER ...✔✔ Establish and enforce sound
underwriting practices
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Underwriting helps to protect the insurer against
adverse selection and accepting risks that are more
likely than average to suffer losses.
A contract that is drafted by an insurer and receives no
input or alteration from the insured, is considered a(n): -
.....ANSWER ...✔✔ Contract of Adhesion
_________ refers to the jurisdiction where an insurer
was formed or incorporated. - .....ANSWER ...✔✔
Domicile: Domicile refers to the jurisdiction either state or
country where an insurer was formed or incorporated.
_____________ insurance allows for insurance
coverage to be obtained when not available from
admitted carriers. - .....ANSWER ...✔✔ Surplus Lines
Insurance can be obtained through surplus lines brokers
(producers) from non-admitted insurers.
To make insurance more affordable and protect the
insurance company from paying out too much in claims,
insurers will: - .....ANSWER ...✔✔ Reinsure the risk
Alabama Insurance Exam Prep CH 13
Which of the following would be considered a
speculative risk? - .....ANSWER ...✔✔ The possibility
the painting you bought might be a long-lost
masterpiece
A speculative risk is one in which there is a chance for
either loss or gain. Example: Gambling, Casino's,
Lottery, etc. All of the other choices describe pure risk,
where there is no chance of gain, only a chance of loss
exists.
Which is the proper term for a company owned by its
policy owners? - .....ANSWER ...✔✔ A mutual
insurance company
A producer who is acting as an agent is representing: -
.....ANSWER ...✔✔ Always the insurer
All of the following are elements of a contract, except: -
.....ANSWER ...✔✔ Authority
,2|Page
All enforceable contracts must include these
characteristics: offer and acceptance (agreement),
considerations, competent parties, and legal purpose.
Authority is not considered one of the elements of a
legal contract.
Each of the following would be an element in the
definition of fraud, except: - .....ANSWER ...✔✔ An
individual warrants a fact stated on the application
A warranted fact is one guaranteed to be true. Although
no statement on an application is regarded as warranty,
no fraud is involved if a statement is guaranteed to be
true.
Examples of Fraud - .....ANSWER ...✔✔ Intentional
material misrepresentation with the intent of causing
injury to another party
Withholding of known material facts
A false statement on the application that is material to
the acceptance of the risk
,3|Page
A company that is licensed to sell insurance in a
particular state is: - .....ANSWER ...✔✔ An authorized
Company
In order to be valid, a contract must be between
individuals considered legally able to enter into an
agreement. This principle is known as: - .....ANSWER
...✔✔ Competent parties
An insurance contract is an aleatory contract. This means:
- .....ANSWER ...✔✔ Equal value is not given by both
parties to the contract
Aleatory: contract of unequal values exchanged
The ____________ market is a private source of
coverage of last resort for individuals or businesses that
have been rejected by voluntary market insurers. -
.....ANSWER ...✔✔ Residual
To address adverse selection what can an insurer legally
do? - .....ANSWER ...✔✔ Establish and enforce sound
underwriting practices
, 4|Page
Underwriting helps to protect the insurer against
adverse selection and accepting risks that are more
likely than average to suffer losses.
A contract that is drafted by an insurer and receives no
input or alteration from the insured, is considered a(n): -
.....ANSWER ...✔✔ Contract of Adhesion
_________ refers to the jurisdiction where an insurer
was formed or incorporated. - .....ANSWER ...✔✔
Domicile: Domicile refers to the jurisdiction either state or
country where an insurer was formed or incorporated.
_____________ insurance allows for insurance
coverage to be obtained when not available from
admitted carriers. - .....ANSWER ...✔✔ Surplus Lines
Insurance can be obtained through surplus lines brokers
(producers) from non-admitted insurers.
To make insurance more affordable and protect the
insurance company from paying out too much in claims,
insurers will: - .....ANSWER ...✔✔ Reinsure the risk
