General Insurance Principles Flashcards
6 cards from real P&C practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 General Insurance Principles flashcards as text
Which of the following best describes 'adverse selection' in insurance?
Answer: The tendency for higher-risk individuals to seek insurance more than lower-risk individuals
Adverse selection occurs when people with higher-than-average risk are more likely to purchase insurance, potentially skewing the insured pool toward worse risks than the insurer anticipated.
The principle of 'utmost good faith' (uberrimae fidei) in insurance requires that:
Answer: Both the insured and the insurer must disclose all material facts relevant to the policy
Utmost good faith obligates both parties to disclose all material facts relevant to the insurance contract — concealment or misrepresentation by either party can void the policy.
Which of the following statements about insurance policy 'conditions' is correct?
Answer: Conditions are the obligations the insured must fulfill to maintain coverage and collect claims
Conditions are the duties and requirements imposed on the insured (and insurer) — such as timely notice of loss, cooperation, and proof of loss — that must be met for coverage to apply.
What is the difference between a 'stock' insurance company and a 'mutual' insurance company?
Answer: Mutual companies are owned by policyholders; stock companies are owned by shareholders
A mutual insurance company is owned by its policyholders, who may receive dividends if experience is favorable; a stock company is owned by shareholders who receive dividends.
A 'warranty' in an insurance policy is a statement by the insured that is:
Answer: Absolutely true; if false, it may void the policy even if not material to the loss
A warranty is a statement that is guaranteed to be strictly true; breach of a warranty — even on an immaterial point — has traditionally been grounds to void the policy, unlike a mere representation.
The 'reasonable expectations' doctrine in insurance policy interpretation holds that:
Answer: Courts honor the insured's reasonable expectations of coverage even if the literal policy language might suggest otherwise
The reasonable expectations doctrine protects insureds by requiring courts to give effect to the coverage an ordinary, reasonable policyholder would expect the policy to provide, especially when language is ambiguous or buried in fine print.