Insurance

Which of these policies is considered a whole life policy?

Single premium life". A single-premium life policy is considered a type of whole life insurance.

Which one of these is NOT considered to be an element of an insurable risk?

Speculative risks (chance of both a loss and gain) are not insurable.

John received a one-time distribution of $50,000 from his modified endowment contract (MEC). Prior to that, the contract's cash value was $150,000, the contract investment amount was $100,000, and the death benefit was $500,000. What percentage of the $50,000 distribution was taxable as ordinary income?

"100%". Funds withdrawn from an MEC are subject to last-in first-out (LIFO) tax treatment, which assumes that the investment or earnings portion of the contract's values is withdrawn first (making these funds fully taxable as ordinary income).

ABC Company is attempting to minimize the severity of potential losses within its company. The company is engaged in risk

"reduction". Risk reduction can reduce the chance that a particular loss will occur, or it can reduce the amount of a potential loss if it occurs.

A hold-harmless clause is an example of risk

"transfer". A hold-harmless clause found in a contract shifts liability for loss from one party to another.

During the application process, a statement made by an applicant that becomes part of the contract is considered to be a(n)

"warranty". A warranty is a statement made by the applicant that is guaranteed to be true in every respect and becomes part of the contract.

A business becoming incorporated is an example of risk ____.

. Incorporation of a business is an example of risk transfer.

Who normally pays the premiums for group credit life insurance?

. The borrower typically pays the premiums on any credit life insurance policy.

An insurance application requires an applicant to make a full, accurate disclosure of the risk factor involved. Using this criteria, an insurance policy is considered what type of contract?

Correct. A contract of utmost good faith is a minimum standard that requires both the buyer and seller in a transaction to act honestly toward each other and to not mislead or withhold critical information from one another.

Which of these statements regarding insurance is false? One way insurers deal with catastrophic loss is through reinsurance As the number of insured units increases, the number of losses decreases Speculative risk cannot be insured Pure risk can be insured

Correct. All of these statements are true EXCEPT "As the number of insured units increases, the number of losses decreases".

What kind of life policy typically offers mortgage protection?

Decreasing term". A mortgage protection life insurance policy uses a decreasing term policy. As the outstanding loan decreases, so does the amount of term coverage.

Which term describes the elimination of a hazard?

Eliminating a hazard is an example of risk avoidance.

Greg applies for insurance and makes a false statement on the application that will influence whether or not the insurer will accept the risk. Greg's false statement is called a(n)

A false statement made by an applicant that would influence an insurer in determining whether or not to accept the risk is considered a material misrepresentation.

Taxable income may be the result from all of these modified endowment contract (MEC) transactions EXCEPT for A cash value loan is taken out Automatic premium loan provision is utilized The policy is surrendered for less than what was paid into it Dividend is issued

All of these transactions may result in taxable income EXCEPT for when an owner surrenders the policy for less than what was paid.

An agent whose actions exceed the authority granted by contract is

An agent whose actions exceed the authority granted by contract is not backed by the insurer.

An insurance company can be liable for a producer's unauthorized acts

An insurance company can be liable for a producer's unauthorized acts when the agency contract is vague concerning the authority granted.

An insurance company's failure to enforce a contract's provision is called a(n)

When an insurance company does not enforce a contract's provision, it's known as a waiver.

Which of the following is generally a form of group credit life insurance?

he correct answer is "Decreasing term insurance". Group credit life insurance is typically a form of decreasing term insurance. Submit

Ambiguities in insurance contracts are typically interpreted in favor of the insured. This rule is referred to as

he correct answer is "Reasonable expectations". "Reasonable expectations" is a legal principle that reinforces the rule that ambiguities in insurance contracts should be interpreted in favor of the policyholder.

An insurance contract may be voided if a misrepresentation found on the application is determined to be

material". An insurer can void an insurance policy if a misrepresentation on the application is found to be material.

ABC Company is attempting to minimize the severity of potential losses within its company. The company is engaged in risk

reduction". Risk reduction can reduce the chance that a particular loss will occur, or it can reduce the amount of a potential loss if it occurs.

Which of these do NOT indicate the presence of insurable interest in a life insurance contract?

Maintaining a lifelong friendship with another person does not typically indicate the presence of insurable interest.

How can an insurance company minimize exposure to loss?

Many insurers are able to minimize exposure to loss by reinsuring risks.

Which of these is true regarding the exchange of consideration among parties involved in an insurance contract?

Insurance contracts are aleatory. This means there is an element of chance and potential for unequal exchange of value for both parties.

In what way are insurance policies said to be aleatory?

Involves the potential for the unequal exchange of value

Which of the following combinations best describe a universal life insurance policy?

"A flexible premium deposit fund and a monthly renewable term insurance policy". A universal life insurance policy can be described most accurately as a combination of a flexible premium deposit fund and a monthly renewable term insurance policy.

Which statement regarding a single premium life insurance policy is NOT correct? No further premiums are necessary Policy loans are permitted Cash value is immediately created Additional premiums may be required under certain conditions

"Additional premiums may be required under certain conditions". Only one premium payment is required with a single premium life insurance policy.

Which is an accurate description of the premium in a graded premium life insurance policy?

"Annual increases in premium for a stated number of years then levels off for the remainder of the contract". With a graded premium life insurance policy, the premium increases yearly for a stated number of years then remains level.

Which of the following types of insurers limits the exposures it writes to those of its owners?

"Captive insurer". An insurer that confines or largely limits the exposures it writes to those of its owners is called a captive insurer.

Which statement concerning an adjustable life insurance policy is FALSE? Cash surrender is possible Evidence of insurability is required when there is a change in premium Combines term and permanent insurance into a single plan An extra premium paid is allowable

"Evidence of insurability is required when there is a change in premium". All of these statements about an adjustable life insurance policy are true EXCEPT "Evidence of insurability is required when there is a change in premium".

For insurance purposes, similar objects which are exposed to the same group of perils are referred to as

"Homogeneous exposure units". Similar objects of insurance that are exposed to the same group of perils are called homogeneous exposure units.

XYZ Insurance Company gives direct authority to its producers to sell insurance through an agency contract, but nothing is stated regarding the collection of premiums. Which authority grants the producer the right to collect premiums?

"Implied authority". Implied authority is authority not specifically granted to the agent in the agency contract.

What type of life insurance policy covers two or more persons and pays the face amount upon the death of the first insured?

"Joint life". A joint life insurance policy covers two or more individuals with the face amount payable upon the death of the first insured.

These are all accurate statements regarding universal life insurance EXCEPT Mortality charge is deducted from the policy's cash value each month Policy loans are not permitted Flexible premiums as long as the cost of insurance protection is covered Policy states what percentage of the premium is contributed to the cash value and which pays for the cost of insurance

"Policy loans are not permitted". This is incorrect. Policy loans are allowed in universal life insurance policies.

How are level term policies able to provide level premiums?

"Premiums are averaged over the term of the policy". Level term policies are able to offer level premiums because the premiums are averaged over the term of the policy.

An insurer has a contractual agreement which transfers a portion of its risk exposure to another insurer. What type of contractual arrangement is this?

"Reinsurance contract". Reinsurance contracts accept a portion of the risk underwritten by another insurer who has contracted for the entire coverage amount.

How can an insurance company minimize exposure to loss?

"Reinsuring risks". Many insurers are able to minimize exposure to loss by reinsuring risks.

Assets that back the non-guaranteed values of variable life insurance products are held in which account?

"Separate account set up by the insurer". Assets that back the non-guaranteed values of variable life insurance products are held in a separate account set up by the insurer.

Who regulates an insurer's claim settlement practices?

"State insurance departments". State insurance departments regulate claim settlement practices.

Which of the following statements about universal life insurance is NOT true? Death benefit can be increased Premiums are flexible Universal life insurance normally has a minimum guaranteed cash value for duration of the policy The cash value interest rate must equal or exceed a guaranteed minimum value

"Universal life insurance normally has a minimum guaranteed cash value for duration of the policy". All of these statements about universal life insurance are true EXCEPT "Universal life insurance normally has a minimum guaranteed cash value for duration of the policy".

An agent's authority to bind an insurer to an insurance contract may be granted in the

"agent's contract and the insurance company's appointment". The agent's contract and appointment with the insurance company grants the authority to bind an insurer to an insurance contract.

The courts will normally interpret a policy in favor of the insured when the meaning of the policy is not clear. This is because an insurance policy is a(n)

"contract of adhesion". In a case where the meaning of an insurance policy is not clear, a court of law will usually interpret the policy in favor of the insured because an insurance contract is a contract of adhesion.

A group-owned insurance company that is formed to assume and spread the liability risks of its members is known as a

A group-owned insurer whose primary activity consists of assuming and spreading the liability risks of its members is called a risk retention group.

Which of the following accurately describes a participating insurance policy?

A participating insurance policy is one in which the policyowner receives dividends deriving from the company's divisible surplus.

Which of the following can be defined as a cause of a loss?

A peril may be defined as the cause of a loss.

A producer working for an insurance company may be personally liable for

A producer of an insurer would be personally liable when the producer performs an act which is prohibited in the agency contract.

Which of the following can be defined as "the potential for loss"?

A risk can be described as "the potential for loss"

All of these statements concerning universal life insurance are false EXCEPT Death benefits are normally taxable Policy loans are not permitted Premiums or face amount cannot be changed Policy indicates how much of the premium is used toward company expenses

Policy states how much of the premium is used toward company expenses". Premium payments are separated and paid toward the insurance protection. The loading cost and the remaining balance is used to build the cash value.

Dividends from a mutual insurance company are paid to whom?

Policyholders". Mutual insurance companies are owned by policyowners, to whom dividends are paid.

Purchasing insurance is an example of risk

Purchasing insurance is an example of risk transference.

What type of risk involves the potential for loss with no possibility for gain?

Pure risk involves the potential for loss with no possibility for gain.

Which of the following is a syndicate established by a group of insurers to share underwriting duties?

The Lloyd's organization is a syndicate of individuals and companies that individually underwrite insurance.

Which of the following outlines the authority given to the Producer on behalf of the insurer?

The Producer (or Agent) contract outlines the authority given to the Producer on behalf of the insurer.

What type of reinsurance contract between two insurers involves an automatic sharing of the risks assumed?

The correct answer is "Treaty reinsurance". Under treaty reinsurance, each party automatically accepts specific percentages of the insurer's business.

What typically changes at the re-entry option date found in some term life policies?

The correct answer is "premium". A re-entry option gives the insured the opportunity to provide evidence of insurability at the end of the term to qualify to renew the policy at a lower premium.

Dividends from a stock insurance company are normally sent to

The correct answer is "shareholders". Shareholders normally receive dividends in a stock insurance company.

A hold-harmless clause is an example of risk

The correct answer is "transfer". A hold-harmless clause found in a contract shifts liability for loss from one party to another.

All of these are considered features of whole life insurance EXCEPT Cash value accumulation Permanent coverage Initial premium is lower than for an equivalent amount of term insurance Policy loans are allowed

The initial cost of whole life insurance is actually HIGHER than an equivalent amount of term insurance.

Risk ____ is the process of analyzing exposures that create risk and designing programs to handle them.

The process of analyzing exposures that create risk and designing programs to handle them is called risk management.

What is the face amount of a $50,000 graded death benefit life insurance policy when the policy is issued?

Under $50,000, but increases annually until fully insured". The initial face amount of a $50,000 graded death benefit life insurance policy is under $50,000, but increases annually until fully insured.