UTAH Health Insurance Exam Practice Test.
Insurance - CORRECT ANSWER Transfer of risk.
Types of risk - CORRECT ANSWER Pure and Speculative
Pure Risk - CORRECT ANSWER A chance of loss or no loss, but no chance of gain. The ONLY type of insurable risk.
Speculative Risk - CORRECT ANSWER...
UTAH Health Insurance Exam Practice
Test.
Insurance - CORRECT ANSWER Transfer of risk.
Types of risk - CORRECT ANSWER Pure and Speculative
Pure Risk - CORRECT ANSWER A chance of loss or no loss, but no chance of gain. The ONLY type of
insurable risk.
Speculative Risk - CORRECT ANSWER Chance of loss or gain. CANNOT be insured. (Example: Buying stock
in the stock market)
Types of Hazards - CORRECT ANSWER Physical, Moral and Morale
Physical Hazard - CORRECT ANSWER A physical condition that increases the chance of loss.
Moral Hazard - CORRECT ANSWER Dishonesty or character defects in an individual that increase the
frequency or severity of loss (Example: Applicant lies on insurance application)
Morale Hazard - CORRECT ANSWER Through carlessness or irresponsible actions an increase in the
possibilty of a loss. (Example: Not cutting down a tree branch that might fall on your house because you
have insurance if it does)
Perils - CORRECT ANSWER causes of loss insured against in an insurance policy
Avoidance - CORRECT ANSWER Eliminating exposure to a loss (not driving so you won't get in a car
accident)
retention - CORRECT ANSWER Planned assumption of risk through the use of deductibles, co-payments,
or self-insurance.
,reduction - CORRECT ANSWER Actions such as installing smoke detectors to reduce the risk of loss from
fire or getting an annual physical to help prevent/detect health problems early.
Transfer - CORRECT ANSWER Transferring the risk of loss to another company or entity. Insurance is the
most common way to transfer risk.
To be insurable, a risk must be - CORRECT ANSWER -due to chance
-Definite and measurable
-Statistically predictable
-NOT catastrophic
-Large loss exposure (large pool of randomly selected people/risks)
Adverse Selection - CORRECT ANSWER Tendency for poorer than average risks to seek insurance.
Reinsurance - CORRECT ANSWER Insurance purchased by other Insurer(s) to spread or diversify risk;
promotes industry stability.
Ceding Insurer - CORRECT ANSWER The company transferring risk in a reinsurance arrangement.
assuming insurer - CORRECT ANSWER reinsurer or company who is taking over the risk
Stock Companies - CORRECT ANSWER -Owned by stockholders
-nonparticipating (policy holders DO NOT share in profits or losses)
Mutual Companies - CORRECT ANSWER -Owned by the policyowners
-Participating (ploicyowners are entitled to dividends)
-Dividends are NOT guaranteed
,Fraternal Benefit Societies - CORRECT ANSWER Must be nonprofit, have a lodge system (ie. religious
organization), representative form of government and offer insurance to its members only.
Certificate of Authority - CORRECT ANSWER License for insurance company to do business. This allows
insurers to be considered ADMITTED or AUTHORIZED.
Domestic Insurer - CORRECT ANSWER An insurance company that conducts business in the state of
incorporation.
Foreign Insurer - CORRECT ANSWER An insurance company that is incorporated in another state.
Alien Insurer - CORRECT ANSWER An insurance company that is incorporated outside the United States.
Who does an agent represent? - CORRECT ANSWER The INSURER (insurance company) not the insured.
Express Authority - CORRECT ANSWER The authority granted to an agent by means of the agent's
written contract..
Implied Authority - CORRECT ANSWER the authority that the agent has that is not specifically listed in
their contract, but is assumed to have to conduct business. (Required to be able to conduct business).
Example: collecting premiums
Apparent Authority - CORRECT ANSWER A third party's reasonable belief that an agent has authority to
act on the principal's behalf. Based on the actions words, etc of the principal. Example: Using business
cards or brochures
Fiduciary Responsibility - CORRECT ANSWER -An ethical and legal obligation to perform a person's
duties in a trustworthy manner.
-Money related
-Must not commingle funds
-Forwarding premiums to the insurer/principal in a timely manner is an example of acting in a fiduciary
capacity
, Parts of a contract - CORRECT ANSWER Offer, acceptance, consideration, and legal purpose
Consideration - CORRECT ANSWER Exchanging something of value
Insured's Consideration - CORRECT ANSWER 1. A truthful and complete application
2. Premium Payment
Insurer's Consideration - CORRECT ANSWER Promise to pay qualifying claims
Acceptance - CORRECT ANSWER UNDERWRITER approves a prepaid application.
(An agent/producer CANNOT bind coverage, but they can accept an application)
Legal Purpose - CORRECT ANSWER Insurable interest and consent
1. Must be of age (18+)
2. Cannot be high
3. Cannot be drunk
4. Must be mentall competent
Contract of Adhesion - CORRECT ANSWER Take it or leave it agreements, where the insured has no say
in the contract terms and conditions.
Aleatory Contract - CORRECT ANSWER A contract where the values exchanged may not be equal but
depend on an uncertain event
Personal Contract - CORRECT ANSWER A contract between an individual and an insurer.
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