Personal Lines Insurance Terminology
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Questions and Answers

Which of the following best describes the role of the 'named insured' in an insurance policy?

  • The insurer who receives payments from all parties on the policy.
  • The customer who is provided the broadest coverage by the insurer. (correct)
  • The individual or entity that receives the most limited coverage under the policy.
  • The person added to the policy after it has been initiated.

    • What is the primary purpose of the principle of indemnity in insurance?

  • To provide fair compensation to the insured for damages incurred. (correct)
  • To allow the insured to receive compensation greater than their actual loss.
  • To encourage the insured to create events that can be claimed on the policy.
  • To ensure the insured profits from an insured event.

    • Which term describes a temporary proof of insurance, often used before the official policy is issued?

  • Certificate of Insurance
  • Non-renewal
  • Endorsement
  • Binder (correct)

    • What does 'underwriting' primarily involve in the context of insurance?

    <p>Assessing the ability of the insurer to pay potential claims. (D)</p> Signup and view all the answers

    What distinguishes an 'accident' from an 'occurrence' in insurance terminology?

    <p>An accident is a sudden, unexpected event, while an occurrence can happen over time. (C)</p> Signup and view all the answers

    If an insurance policy is 'non-renewed', what is most likely the cause?

    <p>The insurer views the risk associated with policy to be too high. (B)</p> Signup and view all the answers

    What is the main role of the 'Commissioner of Insurance'?

    <p>To establish and enforce fair regulations for insurance companies. (A)</p> Signup and view all the answers

    An 'additional insured' is best described by which of the following?

    <p>An individual or company added to a policy after the initial policyholder. (B)</p> Signup and view all the answers

    What is the function of a Limited Lines Agent license?

    <p>To permit agents to focus on specific types of insurance, such as prepaid legal services or minimum auto insurance. (A)</p> Signup and view all the answers

    Under what circumstances is an Emergency License granted?

    <p>When an agent dies, becomes disabled, or is facing insolvency. (C)</p> Signup and view all the answers

    What is the primary purpose of a Surplus Lines license?

    <p>To enable agents to place insurance with non-admitted insurers. (C)</p> Signup and view all the answers

    What is the role of a Managing General Agent (MGA)?

    <p>To oversee insurer field operations with underwriting authority. (C)</p> Signup and view all the answers

    Why would an individual need a Risk Manager license?

    <p>To provide loss prevention advice and evaluate risks. (B)</p> Signup and view all the answers

    What is the consequence for a producer who misses an insurer appointment?

    <p>The relationship with the insurer is immediately terminated. (A)</p> Signup and view all the answers

    How often do Texas insurance licenses expire, and what is the required continuing education?

    <p>Every 24 months with 24 hours of CE, with specific classroom and ethics requirements. (B)</p> Signup and view all the answers

    What are the potential penalties for failing to complete required continuing education hours?

    <p>A fine of $50 per missing hour, with a maximum penalty of $500 per license. (D)</p> Signup and view all the answers

    How long must a licensee maintain evidence of course completion?

    <p>For a minimum of four years. (D)</p> Signup and view all the answers

    What is a key fiduciary responsibility of an insurance producer?

    <p>To maintain the separation of funds and promptly forward premiums. (C)</p> Signup and view all the answers

    What is the primary purpose of a 'Cease and Desist' order?

    <p>To prevent further violation of a policy. (A)</p> Signup and view all the answers

    What is the maximum administrative penalty for each violation of a 'Cease and Desist' Order?

    <p>$1,000 (D)</p> Signup and view all the answers

    What does a 'civil penalty' for violation of a 'Cease and Desist' order indicate?

    <p>A penalty that starts at $50 and can exceed to $500. (A)</p> Signup and view all the answers

    What is the main function of reinsurance reserves?

    <p>To cover an insurer's potential liabilities in case of bankruptcy. (A)</p> Signup and view all the answers

    An insurer whose home office is located in Texas is classified as what type of insurer?

    <p>Domestic (A)</p> Signup and view all the answers

    What is the primary difference between an ‘admitted’ and a ‘non-admitted’ insurer?

    <p>Admitted insurers are authorized to sell insurance in a specific state. (B)</p> Signup and view all the answers

    What is the '10/30 rule' in the context of insurer sanctions and penalties?

    <p>The commissioner gives 10 days notice and hearing must be held with 30 days (B)</p> Signup and view all the answers

    What does Surplus Lines insurance primarily cater to?

    <p>High-risk scenarios and those unable to obtain coverage through admitted insurers (D)</p> Signup and view all the answers

    What is the main function of the Texas Property and Casualty Guaranty Association?

    <p>It pays the claims of bankrupt insurers (B)</p> Signup and view all the answers

    Who owns a 'Stock Insurer'?

    <p>Shareholders (D)</p> Signup and view all the answers

    Which type of insurer returns non-taxable dividends to policyholders?

    <p>Mutual insurer (C)</p> Signup and view all the answers

    What is a key characteristic of a 'Lloyds of Texas' organization?

    <p>They have an attorney-in-fact and must be admitted. (D)</p> Signup and view all the answers

    What is the main purpose of a Joint Underwriting Association (JUA)?

    <p>To provide coverage for high risk exposures. (A)</p> Signup and view all the answers

    What is required for a corporation to obtain a license to sell insurance in Texas?

    <p>At least one officer of the corporation must hold a valid license. (B)</p> Signup and view all the answers

    How long is a temporary agent license valid for in Texas?

    <p>180 days, and can only be renewed once in any 6-month period. (C)</p> Signup and view all the answers

    Study Notes

    Personal Lines Insurance

    • Insurer: The company providing insurance coverage.
    • Insured: The person or entity protected by the insurance (customer).
    • Named Insured: The primary insured; typically holds the broadest coverage.
    • Additional Insured: An individual or entity added to the policy after the named insured.
    • Principle of Indemnity: Compensation for damages at a fair market value.
    • Underwriting: Assessing the insurer's ability to pay potential claims.
    • Insurable Interest: Ensuring the insured isn't benefiting from the insurance.
    • Accident: Unexpected event causing damage.
    • Occurrence: Ongoing damages over time, such as from a leak.
    • Cancellation: Discontinuing a policy before its expiration without renewal.
    • Non-renewal: Policy not renewed due to high risk. Typically tied to factors like a poor driving record, or frequent claims.
    • Binder: Temporary proof of insurance; details the coverage and payment terms.
    • Certificate of Insurance: Official proof of insurance; includes coverage types, start dates, and payments.
    • Endorsement: Modifying the existing policy.
    • Arbitration: Settling disputes outside of court.
    • Appraisal: Determining the value of property, often involving a vehicle.
    • Commissioner of Insurance (Texas): Oversees the insurance industry, creating rules, and ensuring fairness.

    Insurance Regulations and Compliance

    • Examination of Records (Insurers): Periodic financial evaluations every five years.
    • Investigation/Notice of Hearing: Examining suspicious insurer activities (unfair competition).
    • Cease and Desist Order: Preventing policy violations. Maximum penalty: $1,000/violation.
    • Penalties: Financial consequences for policy violations.
    • Civil Penalty Details: Can range from $50 to $500 per violation.
    • Reinsurance Reserves: Funds held by insurers to cover potential liabilities (bankruptcy).
    • Domicile of Insurer: Classifies insurer locations as domestic, foreign, or alien.
    • Admitted Insurer: Licensed to sell insurance within a state (authorized).
    • Non-admitted Insurer: Unlicensed insurer. This may use surplus lines.
    • Surplus Lines Insurance: Provides coverage unavailable through admitted insurers.
    • Texas Property and Casualty Guaranty Association: Non-profit to handle bankrupt insurer claims.
    • Certificate of Authority: Insurance license for the insurer.
    • Stock Insurer: Owned by shareholders, returning dividends.
    • Mutual Insurer: Owned by policyholders, returning refunds.
    • Lloyds of Texas: Group of underwriters forming syndicates to spread risks.
    • Joint Underwriting Association (JUA): Insurer collaboration for specific needs.

    Licensing and Agents

    • General Lines Property & Casualty Agent: Standard insurance license, requiring specific qualifications and background checks.
    • Agent Licensing as a Corporation: At least one licensed officer/partner required. Restrictions on suspensions and disciplinary actions.
    • Temporary Agent: Limited-time license, valid for 180 days. Maximum one renewal within any six months. Mandatory training required.
    • Non-Resident Agent: Agent residing outside of Texas, licensed to sell insurance in Texas. Requires a reciprocal licensing agreement with the home state.
    • Limited Lines Agent: Specific license for certain insurance types.
    • Emergency License: Emergency license for circumstances of agent death or disability, limited to 90 days within a 12-month period.
    • Surplus Lines License: License to place insurance with non-admitted insurers.
    • Managing General Agent (MGA) License: Covers oversight of insurer field operations.
    • Risk Manager License: Exams risks associated with property and casualty insurance.
    • Adjuster: Settling insurance claims for insurers.
    • Appointment: Producers need an appointment with insurers to sell insurance in Texas.

    Additional Requirements

    • Continuing Education: License renewal requires specific continuing education hours. (24 total hours; including ethics). 20 consecutive-year license holders are exempt.
    • Records Maintenance: Keeping records of continuing education completion.
    • Notification to the Department: Reporting changes of address, felony convictions, or administrative actions.
    • Producer Responsibilities: Agents act as fiduciaries, separating funds, promptly forwarding premiums, and reporting all relevant facts.

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    Description

    Test your knowledge of personal lines insurance terminology. This quiz covers key concepts such as insurable interest, underwriting, and the principle of indemnity. Perfect for insurance professionals and students alike!

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