17 Free Washington Life & Health Practice Questions: Federal Laws and General Insurance Concepts (2026)

Answer: B

18 U.S.C. §§ 1033 and 1034 prohibit individuals convicted of a felony involving dishonesty or breach of trust from engaging in the business of insurance without written consent from the state insurance commissioner. In Washington, this consent must come from the Office of the Insurance Commissioner. Option B correctly states this requirement. Option A is incorrect; there is no statutory 10-year waiting period. Option C is incorrect because mere disclosure is insufficient—express written consent is required. Option D is incorrect; the statute allows for commissioner consent, so a permanent bar is not automatic.

Answer: D

For a risk to be insurable, it must meet several criteria: the loss must be due to chance (not intentional), definite and measurable (able to quantify), statistically predictable (allowing premium calculation), not catastrophic (so losses are spread), and the premium must be economically feasible for the insured. Option D correctly lists all these elements. Option A describes a certain event, which is not fortuitous and thus not insurable. Option B is incorrect; while risks should be spread across a large pool, affecting few people makes pooling ineffective. Option C describes risks from intentional acts, which are typically excluded as they violate the chance requirement and may involve moral hazard.

Answer: D

The principle of indemnity seeks to restore the insured to the same financial position they were in before the loss, no better and no worse. Paying actual cash value (replacement cost minus depreciation) is a method of applying indemnity, as it accounts for wear and tear. Option D is correct. Option A (valued policy) pays a pre-agreed amount regardless of actual loss. Option B (replacement cost) pays to replace without deducting depreciation, which exceeds indemnity if not adjusted. Option C (subrogation) is the insurer's right to recover from a third party after paying a claim, not the measure of loss.

Answer: A

An alien insurer is one incorporated under the laws of a foreign country (outside the United States). For example, a company based in Germany or Japan selling insurance in Washington is an alien insurer. Option A is correct. Option B describes a domestic insurer (if incorporated in Washington) operating elsewhere, which is not specific to alien status. Option C describes a foreign insurer (incorporated in another U.S. state). Option D describes a mutual insurer, which relates to ownership, not domicile.

Answer: D

D is correct because 18 U.S.C. §§ 1033-1034 prohibits individuals convicted of felonies involving dishonesty or breach of trust from engaging in the insurance business without written consent from the state insurance commissioner. A is incorrect because mere disclosure is insufficient; affirmative consent is required. B is incorrect because the statute allows for licensing with consent, not a permanent bar. C is incorrect because consent must be obtained by the individual seeking to engage in insurance, not granted to an employer.

Answer: D

D is correct because consideration—something of value exchanged—is required for any valid contract; in insurance, the premium is the insured's consideration and the insurer's promise to pay is theirs. A is incorrect as attorney signature is not required. B is incorrect as prior claims history is irrelevant to contract validity. C is incorrect as there is no minimum term requirement; policies can be short-term or continuous.

Answer: A

A is correct because mutual insurers are owned by policyholders who may receive dividends, while stock insurers are owned by shareholders who invest for financial return. B incorrectly describes mutual insurers as stock. C incorrectly describes stock insurers as mutual. D is incorrect as there is no state ownership requirement for private insurers in Washington.

Answer: D

D is correct because while verbal permission may suggest apparent authority, the lack of written follow-up creates a dispute over whether actual (express or implied) authority existed; apparent authority depends on the principal's manifestations to third parties, but here the issue is whether the producer had actual authority from the client. A is incorrect as verbal permission alone does not constitute express authority for such acts without clear mutual understanding. B is incorrect because beneficiary changes, while common, are not so routine as to imply authority without confirmation. C is incorrect as many insurance transactions can be valid based on verbal agreement, though documentation is strongly advised.

Answer: D

D is the answer because it is the one statement that is not an element of an insurable risk: insurers avoid catastrophic exposures that would hit many insureds at once and threaten solvency. The other three are genuine requirements: the loss must be accidental (A), definite and measurable (B), and the premium must be affordable enough that people will buy the coverage (C).

Answer: C

Fraud requires: (1) a false representation of material fact, (2) knowledge of its falsity or reckless disregard for the truth, (3) intent to deceive, (4) justifiable reliance by the victim, and (5) resulting damage. Beyond the false representation, the client must prove the producer intended to deceive and that the client relied on the false statement. Option A describes negligence, not fraud. Option B would negate the falsity element. Option D is incorrect because resulting damage (or loss) is required for fraud.

Answer: A

Under the FCRA, a user of consumer reports (including insurance producers) must have a permissible purpose to obtain a report, such as for underwriting insurance, and must certify that purpose to the consumer reporting agency. Option B is incorrect because a general authorization does not override the need for a permissible purpose under FCRA. Option C is false; FCRA restricts redisclosure of consumer reports and does not permit sharing with marketers based on an opt-out model. Option D is incorrect because adverse action notices are required whenever denial or adverse action is based in whole or in part on information in a consumer report, regardless of the specific type of information.

Answer: B

When an insurance producer collects premiums from clients, they hold those funds in a fiduciary capacity for the insurer (or sometimes the client, depending on the stage of transmission). Misappropriating premiums for personal use constitutes a breach of fiduciary duty and, in many cases, embezzlement. The producer is personally liable for the loss, and the insurer may pursue legal action to recover the funds. The client has typically fulfilled their obligation by paying the producer and is not liable for the producer's theft. Washington does not have a guaranty fund that covers losses due to producer misconduct; guaranty funds protect policyholders against insurer insolvency, not producer fraud. Therefore, the producer bears the loss.

Answer: C

C is correct. A single-parent captive insures only the risks of its parent and affiliates, so the group keeps its own losses rather than transferring them to an outside insurer: that is risk retention in a formal, funded form. A would mean not offering the benefit at all, B describes transferring part of the risk to others outside the group, and D describes loss-control measures that lower frequency or severity.

Answer: D

ACA metallic plans are categorized by actuarial value: Bronze (~60%), Silver (~70%), Gold (~80%), Platinum (~90%). Silver covers about 70% of average costs, which is more than Bronze (60%) but less than Gold (80%). Option D correctly describes this. Option A reverses the values (Bronze is lowest, not highest). Option B is incorrect because Platinum has the highest actuarial value and thus the highest premiums, not lower. Option C confuses metallic levels with network types (HMO/PPO); metallic levels relate to cost-sharing, not network structure.

Answer: D

Risk avoidance involves eliminating the risk by not engaging in the activity that creates it. By choosing not to build in a floodplain, the homeowner avoids the risk of flood damage entirely. Option D is correct. Option A (transfer) would involve shifting the risk to another party, such as buying flood insurance. Option B (retention) means accepting the risk and paying for losses oneself. Option C (reduction) involves taking steps to lower the likelihood or severity of loss, such as elevating the house, but not avoiding the location altogether.

Answer: C

The ACA metallic plans are defined by their actuarial value, which is the percentage of total average costs for benefits that the plan covers. Silver plans have an actuarial value of approximately 70%, and Gold plans have an actuarial value of approximately 80%. Therefore, the Silver plan covers about 70% of costs, and the Gold plan covers about 80%. Option A is incorrect because higher actuarial value (Gold) typically results in higher premiums, not lower. Option B is incorrect because Silver plans are available to all individuals in the individual market, not just those eligible for cost-sharing reductions (though CSRs enhance Silver plans). Option D is incorrect because the metallic levels do not determine network structure; plans of any metal level can have various network types (HMO, PPO, etc.).

Answer: B

Apparent authority arises when a principal (the insurer) leads a third party (the client) to reasonably believe that an agent (the producer) has authority to act, based on the agent's manifestations or the principal's conduct. In this scenario, the producer told the client that verbal requests were sufficient to change the beneficiary, which may have led the client to reasonably believe the producer had the authority to accept and act on such requests. If the insurer did not actually grant this authority (e.g., if the policy requires written changes), the producer may have acted beyond their actual authority, but the client may have reasonably relied on the producer's representation. Thus, apparent authority is the key concept in determining whether the producer's actions could bind the insurer. Express authority is explicitly granted; implied authority is what is necessary to carry out express authority; ratification occurs when the principal accepts the agent's unauthorized act after the fact.