P&C General Insurance Principles 3

Question 1

Which of the following best describes 'adverse selection' in insurance?

Accepted Answer

The tendency for higher-risk individuals to seek insurance more than lower-risk individuals

Answer

Insurers selecting only the best risks to cover

Answer

An insurer raising premiums after a loss

Answer

A producer placing business with an insolvent insurer

Question 2

The principle of 'utmost good faith' (uberrimae fidei) in insurance requires that:

Accepted Answer

Both the insured and the insurer must disclose all material facts relevant to the policy

Answer

Only the insurer must disclose all material information

Answer

The insured may withhold information that is unfavorable

Answer

The insurer is responsible for investigating all facts independently

Question 3

Which of the following statements about insurance policy 'conditions' is correct?

Accepted Answer

Conditions are the obligations the insured must fulfill to maintain coverage and collect claims

Answer

Conditions describe what the insurer promises to pay

Answer

Conditions are the same as exclusions

Answer

Conditions set the maximum payment amount

Question 4

What is the difference between a 'stock' insurance company and a 'mutual' insurance company?

Accepted Answer

Mutual companies are owned by policyholders; stock companies are owned by shareholders

Answer

Stock companies are owned by policyholders; mutual companies are owned by shareholders

Answer

Stock companies cannot issue dividends; mutual companies can

Answer

Mutual companies are regulated by the federal government; stock companies are regulated by the states

Question 5

A 'warranty' in an insurance policy is a statement by the insured that is:

Accepted Answer

Absolutely true; if false, it may void the policy even if not material to the loss

Answer

An approximation of fact that does not affect coverage if slightly inaccurate

Answer

Required only for commercial policies

Answer

Synonymous with a representation

Question 6

The 'reasonable expectations' doctrine in insurance policy interpretation holds that:

Accepted Answer

Courts honor the insured's reasonable expectations of coverage even if the literal policy language might suggest otherwise

Answer

Courts interpret ambiguous policy language against the insured

Answer

Insurers must pay all claims regardless of policy language

Answer

Only the written policy language controls, with no exceptions