Finance 341 Exam 3
In Maryland, drivers who are unable to obtain auto insurance in the voluntary market are insured through a(n) - State Fund
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In addition to providing coverage in the United States, its territories and possessions, and Puerto Rico, where else does the PAP provide coverage? Canada
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In property insurance, the offer and acceptance are usually in writing but may be oral.
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In which of the following did the Court decide that insurance was interstate commerce when conducted across state lines, and therefore was subject to federal regulation? South-Eastern Underwriters Association case
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Insurers obtain data which can be used to determine rates from: insurance advisory organizations.
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The policyholdersʹ surplus of an insurer is defined as the difference between its assets and its liabilities.
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The portion of a property and liability insurance contract that contains information about the property or activity to be insured is called the A) declarations.
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The portion of an insurance premium allocated to expenses, profit, and a margin for contingencies is called the A) loading.
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The practice of buying the life insurance policy of a terminally ill insured at a discount is referred to as a viatical settlement.
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The purpose of gap insurance is to: -pay the difference between the amount the insurer pays if a car is a total loss and the amount owed on a lease or car loan.
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The purpose of the collision damage waiver when renting an auto is to: - relieve the renter of financial responsibility if the rented car is damaged or stolen.
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The regulation of insurers in areas that affect consumers, which include claims handling, underwriting, complaints, advertising, sales practices, and other trade practices is called market conduct regulation.
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The right of the states to regulate the business of insurance was first established by: Paul v. Virginia.
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The term used to describe plans in which automobile insurers participate to make insurance available to drivers unable to obtain coverage in the standard market is the residual (shared) market.
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The transfer of all ownership rights in a life insurance policy can be accomplished through a(n) : - absolute assignment.
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The underwriting process begins with the : agent.
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The voluntary relinquishment of a legal right is called: waiver
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If the value of a vehicle is increased after repairs, such as repainting an entire auto when only one fender or door is damaged, the insurer will not pay for the increase in value. Another name for the increase in value is: BETTERMENT
Betterment
Advantages of the direct response system for marketing life insurance include which of the following? I. Advertising can be specifically directed to selected markets.
I. Advertising can be specifically directed to selected markets.
Which of the following statements about methods for estimating loss reserves for property and casualty insurers is (are) true? I. The judgment method involves the use of a statutory formula to estimate the loss reserve. II. The average value method is used when the number of claims is large and the claims are settled quickly.
II only
Sarah is using the needs approach to determine how much life insurance to buy. Her cash needs are $30,000; her income needs are $140,000; and special needs are $100,000. Sarah has the following assets: $20,000 in bank accounts, $30,000 in retirement plans, and $40,000 in investment accounts. Sarah owns no individual life insurance. She is covered by a $50,000 group life insurance policy through her employer. Based on this information, how much additional life insurance should Sarah purchase? $130,000
(30,000+140,000+100,000) - (20,000+30,000+40,000+50,000) = $130,000
Sarah purchased a Personal Auto Policy with liability limits of 50/100/25. Sarah ran a stop sign and hit a van. The van sustained $15,000 in damages. The following bodily injuries were suffered by passengers in the van: Passenger #1, $15,000; Passenger #2, $60,000; and Passenger #3, $10,000. Sarah sustained $5,000 in medical expenses, and Sarahʹs car sustained $10,000 in damages. How much will Sarahʹs insurer pay under Part A: Liability Coverage? $90,000
(passenger injuries)+(sarahs medical expenses)
Beneficiaries
- The effect of a class beneficiary is to divide death proceeds equally among the members of a particular group. - A contingent beneficiary in a life insurance policy has the right to receive the policy proceeds if the primary beneficiary dies before the insured.
medical payments coverage PAP
- does cover funeral expenses
Automatic Premium Loan Provision of Life Insurance Policy
- purpose is to prevent a policy from lapsing because of nonpayment of premium. - The premium loan requires interest to be paid at a stated contractual rate. - The policy proceeds will be reduced if the premium loans are not repaid by the time of death. DOES NOT REQUIRE PROOF OF INSURABILITY BY INSURED
A vehicle is considered a constructive total loss when : - The repair cost exceeds the the actual cash value.
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A whole life insurance policy in which premiums are reduced for an initial period (e.g. 3 years) and are higher thereafter is an example of a -modified life policy.
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Alex, age 26, purchased a 20-payment whole life insurance policy. After Alex has made 20 premium payments, his life insurance policy is considered: paid-up.
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SETTLEMENT OPTIONS Death proceeds of a life policy can be paid out in five different options: lump-sum, fixed amount, fixed period, interest only, and life income.
-Lump Sum. The beneficiary takes the full amount of the death benefit as a single settlement. The money is received free of income tax. -Fixed Amt/Period - The beneficiary receives specified amount of income for a specified number of years. -Interest Only - The beneficiary leaves the death benefit on deposit with the insurer and receives interest payments. Quarterly payments are normal. The payments are taxed as ordinary income. This option is the most flexible since withdrawals can be made at any time. -Life Income - This option provides the beneficiary with guaranteed income for the rest of their life no matter how long they live. As above, a portion of each payment is taxable. The payment is determined by the beneficiary?s age and life expectancy. It provides the largest monthly payout and could result in a payout significantly greater than the original death benefit.
guaranteed purchase option
-The additional coverage can be purchased without demonstrating insurability. -The option permits the insured to purchase specified amounts of life insurance in the future even if the insured has become uninsurable.
TERM INSURANCE
-The insurance provides protection for a specified period of time. (No cash value refunds) -The insured has a temporary need for life insurance protection. -Most policies can be renewed for additional periods without evidence of insurability. -Most policies can be converted to a permanent life insurance policy.
Interest Settlement Option
-The interest can be paid monthly, quarterly, semiannually, or annually. -The beneficiary may be allowed to withdraw part or all of the proceeds. -The beneficiary may be allowed to change to another settlement option. NOT: The minimum guaranteed interest rate is usually equal to the prime rate.
Fundamental purposes of the principle of indemnity
-To prevent the insured from profiting from insurance. -To reduce Moral Hazard -
warranty
-part of insurance contract - install burglar alarms, dog fences, fire sprinklers etc
A car damaged in an auto accident may have reduced market or resale value after it is repaired. Some insureds have sought to recover this reduction in market or resale value. This loss in value is called: DIMINUTION
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A contract in which the values exchanged are not equal because chance is involved is called a(n) : - aleatory contract.
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A credit-based score that insurers claim is highly predictive of future claims costs is an individualʹs: Insurance Score
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A false statement made by an applicant for insurance is an example of a -misrepresentation.
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A few states have dual automobile insurance systems. A motorist can pay a higher premium and retain the right to sue under the tort system, or pay a lower premium and be covered under the stateʹs no-fault law. This dual system is called a(n): Choice-No-Fault Plan
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A few states have enacted laws to make minimum amounts of liability insurance available at reduced rates to individuals who cannot afford regular insurance or who have limited financial assets to protect. The coverage made available through such a plan is called: - Low Cost Auto Insurance
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A life insurance company based in Canada was licensed to operate in Massachusetts. When operating in Massachusetts, the Canadian insurer would be considered a(n) alien insurer.
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A life insurance policyowner may no longer need life insurance. Such a policyowner may sell the policy to a third party for more than its cash value. The purchaser becomes the new beneficiary and is responsible for subsequent premium payments. Such a financial transaction is called a(n) life settlement.
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A life insurer may exclude death attributable to certain activities or hobbies disclosed on the application.
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A manufacturing company just hired a new risk manager, and she has instituted several employee safety programs. She has persuaded the insurer writing the companyʹs workers compensation insurance to base the premium on the companyʹs actual loss experience during the current period rather than on the companyʹs historical performance. This type of plan is called a(n) A) retrospectively rated plan.
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A no-fault law under which benefits are paid to an accident victim without regard to fault and the accident victim can still sue the negligent driver who caused the accident is referred to as a(n) add-on no-fault law.
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A number of benefits are payable under no-fault plans. Under one provision, benefits are paid for tasks normally performed by the insured, including such things as lawn care, housework, and home repairs. These tasks are called essential services expenses.
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A policyowner can designate a new owner by filing an appropriate form with the insurance company.
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A principal is responsible for the acts of its agents who are acting within the scope of their authority.
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A score derived from an individualʹs credit history and other factors that is used by many auto and homeowners insurers for underwriting and rating purposes is called a(n) insurance score.
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A systemic risk is a risk that - can be the cause of the collapse of an entire system.
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A total loss under a valued policy is settled on the basis of the - amount of insurance covering the loss.
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Amy purchased a life insurance policy with the intent of committing suicide to pay all the debts that were burdening her family. If she commits suicide 9 months after the policy is purchased, and the insurer is able to prove that her death was a suicide, how much will be paid by the insurance company? - the premiums paid for the policy
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An Econodeath Insurance Company actuary calculated the present value of the expected death claim the company will pay if it sells whole life insurance to a 30-year-old woman. This value is called the net single premium.
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An insurance company chartered in another country has been licensed to operate in your state. In your state, the insurer would be considered a(n): alien insurer.
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An insurance company incorporated in another state has been licensed to operate in your state. In your state, the insurer would be considered a(n) foreign insurer.
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Assignment of Life Insurance Policy (LI) - The insurer must be notified of any assignment or the death proceeds will be paid to the named beneficiary.
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Bert purchased a life insurance policy 4 years ago. He inadvertently stated that he was 1 year younger than his actual age. If Bert dies today, how much will the insurance company pay? - less than the policy face value
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Bill is attempting to determine how much life insurance to purchase. He has two dependent children and his wife does not work outside of the home. An advisor suggested that Bill should consider Social Security benefits when doing his life insurance planning. One concern in this regard is the period after Social Security benefits to a widow terminate until they resume again. This period is called the A) blackout period.
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Bill was severely injured by an uninsured driver. Bill did not purchase uninsured motorists coverage, and the other driver, although held liable, could not pay the damages awarded. After exhausting all sources of recovery, Bill obtained some relief from a state fund designed to compensate individuals like Bill. These state funds are called: unsatisfied judgment funds.
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Bruce lied about his health history when he purchased a life insurance policy. He died 3 years after the policy was issued. Which life insurance policy provision will require the life insurer to pay the beneficiary even though Bruce lied on the application? incontestable clause
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By misrepresenting the true facts, Gretchen was able to convince a client to drop a life insurance policy with another company and to purchase a policy from the company that Gretchen represents. Gretchen has engaged in an illegal sales practice called twisting.
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Cal purchased a whole life policy 6 years ago. The policy requires annual premium payments. Cal forgot to pay the premium that was due 2 weeks ago. He wonders if his life insurance is still in force. Which life insurance policy provision is designed to keep the policy in force for a short time even if the premium payment is late? grace period
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Carl would like to purchase life insurance. He would also like to invest in a mutual fund. An agent told Carl about a form of life insurance in which Carl could select where the saving component is invested. This form of life insurance has fixed premiums and the cash value is not guaranteed. This type of life insurance is called: Variable Life Insurance
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Collateral Assignment - the policyowner assigns a life insurance policy to secure a loan. (policy is collateral on loan?)
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Dave and Meagan Philips borrowed $150,000 from Fifth National Bank to help fund the purchase of a new home. The home serves as collateral for the loan. Fifth National has an insurable interest in the home based on: - being a secured creditor.
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Dave purchased a life insurance policy. The policy is nonparticipating and the cash values are based on the insurerʹs present mortality, investment, and expense experience. After 2 years, the insurer will recalculate the premium based on the mortality, investment, and expense experience at that time. Dave purchased - current assumption whole life.
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Defects of financial responsibility laws include which of the following? I. Accident victims may not be fully compensated for their injuries.
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Disadvantages of automobile insurance plans include which of the following? I. High premiums may cause many high-risk drivers to go uninsured.
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Duties of an insured after a collision loss covered under the PAP include which of the following? I. Take reasonable steps to protect the vehicle from further damage.
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Endowment Insurance Policies I. The face amount is paid if the insured dies during the policy period or at the end of the policy period if the insured is still alive.
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Jane purchased a life insurance policy on her own life and named her daughter, Cheryl, the beneficiary. Cheryl has a history of not managing money well. Jane wants the death benefit paid to Cheryl in monthly installments over 20 years. Which settlement option should Jane pre-select for Cheryl? fixed period
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Janice purchased a living room set for $1,000 and insured this furniture on an actual cash value basis. Two years later the living room set was destroyed by a covered peril. At the time of loss, the property had depreciated in value by 25 percent. The replacement cost of the furniture at the time of loss was $1,200. Assuming no deductible, how much will Janice receive from her insurer? $900
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Julian, age 45, would like to determine how much life insurance to purchase using the human life value approach. He assumes his average annual earnings over the next 20 years will be $40,000. Of this amount, $20,000 is available annually for the support of his family. Julian will generate this income for 20 more years and he believes that 5 percent is the appropriate interest (discount) rate. The present value of one dollar payable for 20 years at a discount rate of 5 percent is $12.46. What is Julianʹs human life value? $249,200
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Larry has $25,000 of bodily injury liability coverage under his PAP. This limit is the minimum amount required by his state to be considered financially responsible. While on a vacation, Larry visited a neighboring state which has a minimum financial responsibility limit of $50,000 for bodily injury. Which of the following statements describes the situation for Larry while he was in the neighboring state? - Larryʹs policy automatically provided $50,000 of liability coverage.
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Lionel purchased a $200,000 ordinary life insurance policy when he was 25 years old and had significant life insurance needs. Now Lionel is 50. His mortgage is almost paid-off and his children have left home and are financially independent. Lionel no longer wants to pay premiums, but he would like to have some permanent life insurance in force. Which nonforfeiture option could Lionel employ to meet these objectives? reduced paid-up insurance
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Melodyʹs car was damaged when another driver ran a stop sign and hit her car. Melody decided to collect from her own insurer and to let her insurer recoup the loss payment from the negligent driver who hit her. What fundamental legal principle is illustrated in this scenario? principle of subrogation
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Metro City has six different zip codes. XYZ Insurance Company markets coverages in Metro City. Any applicant who lists one particular zip code is automatically quoted a premium that is twenty percent more than the average premium for applicants from the other five zip codes, even if the loss exposure is identical. Which regulatory objective is not being met given XYZʹs premium structure? Rates must not unfairly discriminate.
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Michael wants to make sure that life insurance proceeds are available to pay his outstanding mortgage balance if he dies. He purchased a type of life insurance in which the amount of coverage gradually declines, just as his outstanding mortgage balance gradually declines. This type of life insurance is called - decreasing term insurance.
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Most INDUSTRIAL LIFE INSURANCE policies are CASH VALUE coverage.
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Mutual Property Insurance Company has a surplus of $2 million. According to a conservative rule of thumb, how much new net premiums can Mutual Property Insurance Company safely write? $2 million
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Nathan was hired as an actuary with ABC Insurance. Nathan was asked to calculate the annual premium for a new product and to explain his calculations to ABCʹs director of ratemaking. Nathan calculated the pure premium and presented this value as the final premium. After Nathanʹs presentation, the director of ratemaking said, ʺYou left out something very important. If we sell coverage at the pure premium rate, weʹll be out of business soon.ʺ What did Nathan overlook in his calculations? A) loadings
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New Jerseyʹs dollar-a-day auto insurance coverage is limited to: Medicaid recipients.
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Paid-up additions are additional units of whole life insurance.
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People who drive a car to and from work tend to be charged higher rates than those who use a car for pleasure purposes.
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Robin plans to open a bar in a high-crime area. She had difficulty obtaining insurance for the business. She found an insurer willing to write the coverage, but only if Robin agreed to have a security alarm system in operation at all times when the business is closed. Robinʹs promise to have a security alarm system operational as a condition of having the insurance coverage in force is a warranty.
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Samʹs furniture was destroyed by a fire. The furniture cost $1200 when it was purchased, but similar new furniture now costs $1800. Assuming the furniture was 50 percent depreciated, what is the actual cash value of Samʹs loss? $900
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Scott had trouble obtaining auto insurance. After three companies refused to insure him, he called the state insurance department. A representative suggested he obtain coverage through Last Chance Insurance Company because ʺthatʹs all they insurehigh-risk drivers.ʺ Scott contacted Last Chance. He was not refused coverage; however, the premium Scott was required to pay was three times greater than the average premium in the market. Last Chance Insurance Company is a(n): specialty auto insurer.
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Sharon lives in a state that has a no-fault automobile insurance law. Under the law, an injured person has the right to sue the negligent driver only if the bodily injury claim exceeds a dollar or verbal threshold. The no-fault law in Sharonʹs state is a(n) - modified no-fault plan.
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Some courts have ruled that an alternative to ʺreplacement cost less depreciationʺ should be used to determine the actual cash value of a property loss. Under this alternative, the value of property lost is determined by the price a willing buyer would pay a willing seller for the property in a free market. This method of determining actual cash value is called the - fair market value method.
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Some states have enacted laws which prohibit uninsured drivers from suing a negligent driver for noneconomic damages, such as pain and suffering. These laws are called: "No Pay No Play" Laws
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State Xʹs premium tax rate is 2 percent. State Yʹs premium tax rate is 3 percent. State X insurers are required to pay the 3 percent rate on business written in State Y. State X requires insurers from State Y to pay a 3 percent premium tax on business written in State X, even though the premium tax rate is only 2 percent in State X. This practice is known as a retaliatory tax law.
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Sueʹs office building was damaged by a fire caused by a careless tenant. After paying Sue for her loss, the insurance company sued the tenant to recover its loss. This suit is based on the principle of subrogation.
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Temporary evidence of insurance until a policy is actually issued is provided by a(n) A) binder.
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The National Association of Insurance Commissioners (NAIC) administers an ʺearly warning systemʺ to help ensure insurance company solvency. This system uses data provided in the annual statement to identify companies that may pose a solvency risk. This early warning system is called Insurance Regulatory Information System (IRIS)
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The average household is significantly underinsured against the risk of premature death.
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The basic purpose of an automatic premium loan is to prevent a life insurance policy from lapsing.
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The basis for current state regulation of insurance is the: McCarran-Ferguson Act.
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The cost-of-living rider typically bases increases in the policy face value on changes in the: - consumer price index.
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The general rule that ambiguity in insurance contracts is construed against the insurer is reinforced by an important legal principle. This principle states the insured is entitled to coverage under a policy that he or she would assume the policy would provide, and exclusions must be conspicuous, plain, and clear. This principle is known as the principle of reasonable expectations .
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The multi-car discount is based on the assumption that: - two cars owned by the same person will not be driven as frequently as one car.
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The net amount at risk for an ordinary life insurance policy is the difference between the: - face amount of the policy and the legal reserve.
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Tim purchased a 10-payment whole life insurance policy 15 years ago. Tim would like to donate this paid-up policy to a charity. Under which policy provision can Tim transfer all ownership rights in the policy to the charity? absolute assignment
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To calculate a human life value, it is necessary to deduct certain costs from a personʹs average annual earnings. These costs are: - income taxes.
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Tony has a PAP which provides medical payments coverage. Under which of the following circumstances would the injured person be eligible for benefits under Tonyʹs policy? I. A friend in the car is injured while Tony is driving a covered auto.
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Under one type of merit rating, the class or manual rate is adjusted upward or downward based on past loss history. This type of merit rating is called experience rating.
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Under one type of rate regulation, insurers are not required to file their rates with the state insurance department. However, insurers may be required to furnish rate schedules and supporting data to state officials. A fundamental assumption underlying this type of rating law is that market forces will determine the price and availability of insurance, rather than discretionary acts of regulators. This type of rate regulation is called no filing required.
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Under one type of rating law, insurers are free to change rates and to use modified rates immediately. However, the new rate must be filed with regulators within a specified period, such as 60 days after the modified rate is employed. This type of rating law is called use-and-file.
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Under the needs approach, when is the dependency period of a surviving spouse assumed to end? - when the youngest child reaches age 18
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Under the pure premium method of determining class rates, the gross rate is determined by which of the following formulas? pure premium/(1 - expense ratio)
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Under the reduced paid-up option, no additional premiums must be paid.
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Under what type of rate regulation are insurers required to obtain approval of rates before using them if the rate change exceeds a specified predetermined range? flex-rating law
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Under which of the following rules is actual cash value determined by taking into consideration all relevant factors an expert would use to determine the value of the property? the broad evidence rule
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Under which type of automobile insurance arrangement are all automobile insurers in a state assigned their proportionate share of high-risk drivers based on the total volume of automobile business written in the state? automobile insurance plan
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Variable universal life insurance allows the policyowner to decide where the premiums are invested.
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What happens to the premiums for yearly renewable term insurance as an insured gets older? They increase at an increasing rate.
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What information is contained in the insuring agreement of an insurance policy? - a summary of the major promises of the insurer
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What is the legal significance of a material concealment by an insurance applicant? - The contract is voidable at the insurerʹs option.
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What is the legal significance of a material misrepresentation in an insurance application? -The contract is voidable at the insurerʹs option.
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What is the length of the readjustment period which is considered when the needs approach is used to determine the amount of life insurance to own? 1 to 2 years
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What legal doctrine will allow an employee to bring a successful legal action against his former employer because he was financially harmed due to his reasonable reliance upon a representation of fact? - estoppel
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When Ben applied for life insurance, he was asked on the application if he smoked or used tobacco products. Ben answered ʺNo.ʺ In reality, Ben smokes two packs of cigarettes a day. The policy was issued at the ʺpreferred, nonsmoker rate.ʺ If Ben dies 6 months after the policy is issued, upon what grounds will the insurer be able to legally deny the claim? misrepresentation
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When must an insurable interest legally exist in life insurance? only at the inception of the policy
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When must an insurable interest legally exist in property insurance for an insured to receive payment for a loss from the insurer? -only at the time of the loss
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When using the needs approach, several ʺspecial needsʺ should be considered. One special need is money to cover unexpected events, such as major car repairs, dental bills, or home repairs. Money set aside for this purpose is called a(n) -emergency fund.
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Which PAP provision is designed to handle disputes between the insurer and the insured over the amount of the loss? appraisal provision
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Which of the following is considered to be a collision loss under Part D (coverage for damage to your auto) of the PAP? -The covered auto is damaged when it slid off an icy road and hit a fence.
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Which of the following statements about accelerated death benefits riders is (are) true? I. Under a terminal illness rider, after a partial payment is made to the insured, there is a reduction in the face amount of insurance, cash value, and premiums.
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Which of the following statements about adjustment bureaus is (are) true? I. They are frequently used to settle claims when a large number of losses occur in a given geographic location as a result of a catastrophic event.
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Which of the following statements about experience rating is (are) true? I. The insuredʹs past loss experience is used to determine the premium for the next policy period.
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Which of the following statements about life insurance cash values is (are) true? I. Cash values are a result of the level premium method of purchasing life insurance.
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Which of the following statements about retrospective rating is true? The premium for the current period is determined by the loss experience during the current period.
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Which of the following statements about state insurance guaranty funds is (are) true? I. They limit the amount that policyowners can collect if an insurer becomes insolvent.
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Which of the following statements about the change of plan provision in a life insurance contract is (are) true? I. A change to a lower premium policy results in a refund of the difference in the cash values of the two policies.
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Which of the following statements about the characteristics of current no-fault laws is true? - Most laws permit payment of survivor benefits to a surviving spouse and children.
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Which of the following statements about the needs approach for estimating the amount of life insurance to purchase is (are) true? I. It involves an analysis of various family needs which must be met if a family breadwinner dies.
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Which of the following statements about the payment of defense costs by the PAP is (are) true? I. They are paid in addition to the policy limits.
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Which of the following statements about the uninsured motorists coverage of the PAP is true? - The coverage applies only if the uninsured motorist is legally liable.
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Which of the following statements about uninsured motorists coverage is true? A) An innocent motorist must establish that the uninsured motorist is legally liable.
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Which of the following statements about unsatisfied judgment funds is (are) true? I. An accident victim must obtain a judgment against the motorist who caused an accident and must show the judgment cannot be collected.
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Which of the following statements describes how losses will be settled if a property insurance policy is written on a replacement cost basis? - Losses are settled without a deduction for depreciation.
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Why are insurance contracts said to be contracts of adhesion? - One party writes the contract, and the other party must accept the entire contract as written.
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Why can an insurer refuse to pay a claim if an insured fails to abide by the policy provisions? -because insurance contracts are conditional
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Why does the insured get the benefit of the doubt if an insurance policy contains any ambiguities or uncertainties? - because insurance contracts are contracts of adhesion
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XYZ Insurance Company expects $500,000 in claims and loss adjustment expenses for each 1,000 properties that it insures in a certain category of business insurance. What pure premium should XYZ charge for each property insured? $500.00
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XYZ Mutual Insurance Company has total assets of $10 million. The policyholdersʹ surplus is $2 million. What are XYZ Mutualʹs total liabilities? $8.0 million
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oyce was injured by an uninsured drunk driver while she was riding in a friendʹs car. Joyce and her friend each have a PAP with an uninsured motorists limit of $50,000. How much will be paid by each policy if it is determined that Joyce has $70,000 of bodily injuries? - The friendʹs policy will pay $50,000, and Joyceʹs policy will pay $20,000.
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Fifth Dividend Option
A dividend option that allows the policyowner to purchase 1-year term insurance
What must Amber do to Reduce Auto Insurance Premiums?
A) Amber could increase her physical damage deductible. B) Amber could move from the city where she lives to a rural area outside the city. D) Amber could improve her driving record. NOT - Amber could increase the amount of liability insurance that she carries.
Which of the following statements about the regulation of insurance company investments is (are) true? I. The purpose of regulating insurance company investments is to prevent insurers from making unsound investments which could threaten their solvency. II. Life insurers can invest an unlimited amount of their assets in common stocks. A) I only B) II only C) both I and II D) neither I nor II
A) I only
All of the following statements describe the flexibility available to the owner of a universal life insurance policy EXCEPT A) Policy loans are permitted on an interest-free basis. B) The frequency of premium payments can be varied. C) The death benefit can be increased with evidence of insurability. D) Premium payments can be any amount provided there is sufficient cash value to keep the policy in force.
A) Policy loans are permitted on an interest-free basis.
The principal methods of ensuring insurer solvency include all of the following EXCEPT A) Security and Exchange Commission oversight of investments. B) risk-based capital standards. C) field examinations. D) review of required annual financial statements.
A) Security and Exchange Commission oversight of investments.
All of the following are covered autos under the liability section of the PAP EXCEPT A) a nonowned van which is driven by the insured on a regular basis. B) a trailer owned by the named insured. C) a borrowed auto used by the insured as a substitute for a stolen covered auto. D) a newly acquired auto which replaces a vehicle previously described in the policy.
A) a nonowned van which is driven by the insured on a regular basis. PAP - personal auto policy nonowned van is not personal auto of insured
All of the following will support an insurable interest for purposes of purchasing property and liability insurance EXCEPT A) close family relationship. B) potential legal liability. C) secured creditors. D) a contract right.
A) close family relationship.
All of the following are methods helping to insure the solvency of insurers EXCEPT A) commercial lines deregulation B) risk-based capital standards. C) the NAICʹs early warning system. D) the NAICʹs FAST screening system.
A) commercial lines deregulation
Fly-By-Night Insurance Company had much larger losses than forecast. The company did not charge adequate premiums nor did the company purchase reinsurance. If Fly-By-Night becomes insolvent, which of the following will help pay the unpaid claims of the insurer? A) guaranty fund
A) guaranty fund
When the capital retention approach is used to determine how much life insurance to purchase, all of the following are subtracted from total assets to calculate the capital available to produce income EXCEPT A) investments in stocks and bonds. B) non-income producing capital such as autos and the value of the home. C) the amount of money needed to payoff the mortgage. D) auto loans and credit card debt.
A) investments in stocks and bonds.
Under financial responsibility laws, proof of financial responsibility is generally required under all of the following circumstances EXCEPT A) the use of an auto by any driver with fewer than 3 years of driving experience. B) an auto accident involving property damage over a specified amount. C) failure to pay a final judgment resulting from an auto accident. D) conviction for certain serious traffic offenses, such as driving while intoxicated.
A) the use of an auto by any driver with fewer than 3 years of driving experience.
All of the following are basic purposes of subrogation EXCEPT A) to eliminate adverse selection. B) to hold down the cost of insurance. C) to prevent an insured from collecting twice for the same loss. D) to hold the negligent person responsible for a loss.
A) to eliminate adverse selection.
"All-Risks" Coverage
All losses are covered except those losses specifically excluded. -
Which of the following statements about a variable universal life insurance policy is (are) true? I. There is a minimum guaranteed interest rate for the cash value. II. The policyowner has a variety of investment options for the investment of premiums. A) I only B) II only C) both I and II D) neither I nor II
B) II only
Which of the following statements about an insurable interest in life insurance is (are) true? I. It is required of any person named as beneficiary. II. It may result from a pecuniary (financial) interest. A) I only B) II only C) both I and II D) neither I nor II
B) II only
Which of the following statements about automobile insurers that specialize in insuring high-risk motorists with poor driving records is (are) true? I. The actual premium paid by an applicant is set by the federal government and is independent of an applicantʹs driving record. II. The coverages available may be more limited than those written by insurers in the standard market. A) I only B) II only C) both I and II D) neither I nor II
B) II only
Which of the following statements about the capital retention approach for determining life insurance needs is (are) true? I. It assumes that life insurance proceeds will be liquidated to provide income to survivors. II. It requires the preparation of a personal balance sheet. A) I only B) II only C) both I and II D) neither I nor II
B) II only
Which of the following statements about the managerial system of marketing life insurance is (are) true? I. It uses branch offices run by independent agents who represent several companies. II. The branch manager is an employee of the insurer who has the responsibility for hiring and training new agents. A) I only B) II only C) both I and II D) neither I nor II
B) II only
Which of the following statements about universal life insurance is (are) true? I. The interest rate credited to the cash value at the time the policy is issued remains fixed for the life of the policy. II. A monthly deduction is made from the policyʹs cash value for the cost of insurance protection. A) I only B) II only C) both I and II D) neither I nor II
B) II only
Which of the following statements is (are) true about savings bank life insurance (SBLI)? I. Each depositor at the savings bank receives life insurance equal to his or her savings account balance. II. The goal of SBLI is to provide low-cost life insurance to consumers. A) I only B) II only
B) II only
Which of the following situations would be covered under the liability section of the PAP? I. A mechanic is sued by a pedestrian who is injured when the mechanic has an accident while road testing the insuredʹs auto. II. The daughter of the named insured is sued after she has an accident when a new friend she just met at a campus hangout lets her drive his car. A) I only B) II only C) both I and II D) neither I nor II
B) II only daughter of insured is covered under insureds PAP
All of the following statements about the methods of regulating insurance are true EXCEPT A) All states have insurance laws that regulate the operations of insurers. B) Insurers are totally exempt from regulation by federal agencies and laws. C) The courts regulate insurance in many ways, including the interpretation of policy clauses and provisions. D) State insurance commissioners, through administrative rulings, have considerable power over insurers doing business in their states.
B) Insurers are totally exempt from regulation by federal agencies and laws.
All of the following statements about ordinary life insurance are true EXCEPT A) Premiums are level throughout the policy period. B) The face amount of the policy is paid if the insured lives to age 65. C) There is a build-up of cash value that can be borrowed by the policyholder. D) It offers the policyholder the flexibility to meet a wide variety of financial objectives.
B) The face amount of the policy is paid if the insured lives to age 65.
Which of the following situations would be covered by the liability section of an unendorsed PAP if the insured is legally liable? A) The insured injures a pedestrian while operating a friendʹs new motorcycle. B) The insured backs into and damages the garage door of his rented house. C) A friendʹs suitcase and laptop computer were damaged in an auto accident while the insured and the friend were vacationing together. D) The insured damages a parked car while driving a dump truck for his or her employer.
B) The insured backs into and damages the garage door of his rented house.
All of the following are covered persons under the medical payments coverage of the PAP EXCEPT A) a family member of the named insured if struck by an auto while crossing the street. B) a pedestrian struck by the named insuredʹs auto. C) the named insured who is injured while occupying a friendʹs auto. D) a friend who is injured while occupying the named insuredʹs auto.
B) a pedestrian struck by the named insuredʹs auto. -pedestrian is a stranger and is not covered under insureds PAP med pay
Advantages cited by proponents of federal regulation of insurance include all of the following EXCEPT A) greater efficiency. B) greater opportunity for innovation. C) uniformity of laws. D) more competent regulators.
B) greater opportunity for innovation.
All of the following are nonforfeiture options found in cash value life insurance policies EXCEPT A) cash value. B) reduction of premiums. C) reduced paid-up insurance. D) extended term insurance.
B) reduction of premiums.
All of the following are covered as supplementary payments under the liability section of the PAP EXCEPT A) the cost of an appeal bond in a lawsuit stemming from an auto accident. B) the cost of a bail bond for a traffic violation when no accident is involved. C) interest which accrues on a liability judgment covered by the policy. D) reasonable expenses incurred by the insured to testify at a trial involving a lawsuit covered by the policy.
B) the cost of a bail bond for a traffic violation when no accident is involved.
All of the following information is needed to calculate a personʹs human life value EXCEPT A) the personʹs average annual earnings over his or her productive lifetime. B) the personʹs estimated annual Social Security benefits after retirement. C) the personʹs cost of self-maintenance. D) the number of years from the personʹs present age to the expected retirement age.
B) the personʹs estimated annual Social Security benefits after retirement.
All of the following losses are excluded under Part D (coverage for damage to your auto) of an unendorsed PAP EXCEPT A) vandals damaged a portable cell phone kept in the car. B) theft of a compact disc player which was permanently installed in the auto. C) damage caused to a carʹs engine because the named insured never changed the oil. D) destruction of a radar detector which overheated and caught on fire.
B) theft of a compact disc player which was permanently installed in the auto. COVERED not EXCLUDED
Exclusions are used in insurance policies for all of the following reasons EXCEPT A) to reduce moral hazard. B) to waive policy conditions. C) to eliminate coverage for uninsurable perils. D) to eliminate coverage not needed by typical insureds.
B) to waive policy conditions.
Advantages of selecting the paid-up additions dividend option in a life insurance policy include which of the following? I. Evidence of insurability is not required to purchase additional insurance. II. The additions are purchased at net rates without loading for expenses.
Both
Criticisms of compulsory insurance laws include which of the following? I. They provide less than complete protection since they require only a minimum amount of liability insurance. II. Even with compulsory insurance laws, a substantial number of motorists continue to operate vehicles without insurance.
Both
Disadvantages of life insurance settlement options include which of the following? I. Higher yields can often be obtained elsewhere. II. Life income options have limited usefulness at younger ages.
Both
Reasons for NOT purchasing an accidental death benefit rider include which of the following? I. Most people die as a result of a disease rather than from an accident. II. The economic value of a human life is not increased if death occurs because of an accident.
Both
Reasons for regulation of insurance include which of the following? I. Maintaining insurer solvency. II. Ensuring reasonable rates.
Both
Sources of life insurance dividends include which of the following? I. Excess interest earned on the assets necessary to maintain legal reserves II. Favorable mortality experience
Both
The major reasons for insurer insolvency include which of the following? I. Inadequate pricing and loss reserves. II. Rapid growth and inadequate surplus.
Both
Which of the following persons is (are) covered for liability insurance under the PAP? I. A family member who drives a covered auto. II. A family member who occasionally drives a friendʹs auto.
Both
Which of the following statements about policies sold to preferred risks is (are) true? I. Preferred risks are people whose mortality experience (deaths per thousand at a given age) is expected to be more favorable than average. II. Insurers require preferred risks to purchase at least a minimum amount of life insurance, such as $250,000.
Both
Which of the following statements about the liability limits of the PAP is (are) true? I. The policy is written with split limits of liability. II. Prejudgment interest is considered part of the damage award and is subject to the policy limit of liability.
Both
Which of the following statements is (are) true with respect to the use of credit-based insurance scores as an auto insurance rating factor? I. Insurers claim that drivers who have poor insurance scores are expected to have relatively more accidents. II. The use of insurance scores in personal lines underwriting is controversial.
Both
Which of the following $100,000 whole life insurance policies, issued by the same company to a man age 32, would require the highest first-year premium? A) continuous premium (ordinary) life B) whole life paid-up at 65 C) 10-payment whole life D) 20-payment whole life
C) 10-payment whole life
Rob purchased a Personal Auto Policy (PAP) with collision and other-than-collision coverage. All of the following losses are excluded under this physical damage coverage EXCEPT A) Rob wrecked his car while using it as a taxi cab. B) Thieves took Robʹs radar detector from his car. C) A flash flood washed Robʹs car off the road and damaged it. D) The new tires Rob had on the car were defective and wore out after 2 months.
C) A flash flood washed Robʹs car off the road and damaged it.
Monopoly Insurance is the only company marketing a certain line of insurance in a state. After complaints from several consumers, the State Insurance Department investigated Monopolyʹs rates. The regulators determined that Monopoly was taking advantage of being the only insurer offering the line by charging more than double the actuarial cost of the coverage. Which regulatory rating objective was Monopoly violating? A) Rates must be adequate. B) Rates should encourage loss control. C) Rates must not be excessive. D) Rates must not unfairly discriminate.
C) Rates must not be excessive.
All of the following statements about insurance regulation are true EXCEPT A) Insurance commissioners are appointed in some states and elected in some states. B) Insurers are subject to regulation by certain federal agencies and laws. C) The National Association of Insurance Commissioners (NAIC) can force states to adopt the model laws that it drafts. D) An insurance commissioner can revoke or suspend an insurerʹs license to do business in his or her state.
C) The National Association of Insurance Commissioners (NAIC) can force states to adopt the model laws that it drafts.
All of the following statements about the rules governing agency relationships are true EXCEPT A) An agent must be authorized to act on behalf of a principal. B) An agency agreement may grant certain powers to the agent as well as denying the agent other powers. C) The principal is responsible for the acts of agents only if the acts are criminal. D) Knowledge of the agent is presumed to be knowledge of the principal with respect to matters within the scope of the agency relationship.
C) The principal is responsible for the acts of agents only if the acts are criminal.
Life insurance policy proceeds can be paid to a trustee upon the death of the insured. All of the following statements about having the proceeds paid to a trustee are true EXCEPT A) Use of a trustee provides flexibility with regard to the timing and amount of the payments. B) Trustees are often used when the beneficiary is a minor child or an adult with diminished mental capacity. C) The trustee is not permitted to accept a fee for rendering services. D) The trustee does not guarantee investment results.
C) The trustee is not permitted to accept a fee for rendering services. TRUSTEES CAN ACCEPT FEE FOR SERVICES
Which of the following types of families is likely to have the least need for a large amount of life insurance? A) a blended family B) a traditional family C) a single person family D) a sandwiched family
C) a single person family
All of the following are considered to be uninsured vehicles for purposes of the uninsured motorists coverage of the PAP EXCEPT A) a vehicle owned by an individual who is insured, but for less than the amount required by the stateʹs financial responsibility law. B) a hit-and-run vehicle, the ownership of which cannot be determined. C) a vehicle owned by an individual who purchased enough enough liability insurance to satisfy the stateʹs financial responsibility law. D) a vehicle insured by a company which becomes insolvent before a claim can be paid.
C) a vehicle owned by an individual who purchased enough enough liability insurance to satisfy the stateʹs financial responsibility law.
Tamara purchased a term insurance policy when she had high life insurance needs and limited income. Now Tamara can afford whole life insurance. What term life insurance provision will permit Tamara to switch her term insurance to whole life insurance without having to show that she is still insurable? A) renewal provision B) tax-free exchange provision C) conversion provision D) free look provision
C) conversion provision
The purpose of an estate clearance fund is to pay all of the following EXCEPT A) burial expenses. B) estate administration expenses. C) education costs. D) installment debts.
C) education costs.
All of the following are exclusions under the medical payments coverage of the PAP EXCEPT A) injuries incurred while riding a motorcycle. B) injuries incurred while an auto is being used without the presumption that permission would have been granted to use the auto. C) injuries incurred in an auto while it is used in a share-the-expense car pool. D) injuries incurred during the course of employment if workers compensation benefits are available.
C) injuries incurred in an auto while it is used in a share-the-expense car pool.
Mark owns a bar. The bar has a back room where Mark has some slot machines. Mark lets some of his patrons play the machines, and Mark keeps any profits. This type of gambling is illegal where Mark lives. Mark wanted to purchase insurance in case his slot machines were confiscated by the police. Such an insurance contract would not be enforceable. Which requirement needed to form a valid insurance contract is missing? A) consideration B) offer and acceptance C) legal purpose D) competent parties
C) legal purpose
The human life value is defined as the A) present value of a deceased breadwinnerʹs future gross income. B) future value of a deceased breadwinnerʹs past earnings. C) present value of the familyʹs share of a deceased breadwinnerʹs future earnings.
C) present value of the familyʹs share of a deceased breadwinnerʹs future earnings.
All of the following are major rating factors for determining private passenger automobile insurance premiums EXCEPT A) gender. B) age. C) race. D) marital status.
C) race.
Small Town used to be just thata small town 6 miles from Large City. Over the years, the area between Small Town and Large City has developed, and now Small Town is part of the suburbs surrounding Large City. An auto insurer that operated in the area had a large increase in auto claims from Small Town insureds. The insurer did not adjust its rates, and this year will lose money because of claims attributable to higher population density. Which business rating objective did this insurer fail to meet? A) simplicity B) stability C) responsiveness
C) responsiveness
The Miscellaneous-Type Vehicle Endorsement to the PAP can be used to insure all of the following vehicles EXCEPT A) motor homes. B) golf carts. C) snowmobiles. D) motorcycles.
C) snowmobiles. -for motorcycles, To lower premiums when a motorcycle is insured, bodily injury to passengers can be excluded.
The principle of utmost good faith is supported by all of the following legal doctrines EXCEPT A) representations. B) warranty. C) subrogation. D) concealment.
C) subrogation
All of the following are insured persons under the liability coverage of the PAP EXCEPT A) a friend to whom the named insured loans a covered auto. B) the employer of the named insured for actions resulting from the named insuredʹs use of a covered auto. C) the former spouse of the named insured who moved out of the home 2 years ago when the divorce was finalized. D) a relative of the named insured if a member of the same household.
C) the former spouse of the named insured who moved out of the home 2 years ago when the divorce was finalized.
What major feature distinguishes a participating policy from a nonparticipating policy? the payment of dividends
C) the payment of dividends
All of the following statements about the combined ratio are true EXCEPT: A) It is equal to the loss ratio plus the expense ratio. B) A combined ratio greater than 1 (or 100 percent) means an underwriting loss has occurred. C) The combined ratio does not consider investment income. D) A combined ratio less than 1 (or 100 percent) indicates that an underwriting loss has occurred.
D) A combined ratio less than 1 (or 100 percent) indicates that an underwriting loss has occurred.
All of the following statements about variable life insurance are true EXCEPT A) The premium is level and guaranteed not to increase. B) The death benefit varies according to investment experience. C) The policyowner has the option of investing the cash value in several investment accounts. D) Cash surrender values are guaranteed.
D) Cash surrender values are guaranteed.
All of the following are defects which limit the usefulness of the human life value approach in determining the correct amount of life insurance to purchase EXCEPT A) The effects of inflation are ignored. B) Other sources of income for survivors are ignored. C) Earnings are assumed to remain constant. D) Earnings during the individualʹs productive lifetime are ignored.
D) Earnings during the individualʹs productive lifetime are ignored.
Which of the following is an argument for repealing the McCarran-Ferguson Act? A) It would make it easier for small insurers to compete. B) It would encourage sharing of information. C) It would make it easier to develop common coverage forms. D) It would correct for defects in state regulation.
D) It would correct for defects in state regulation.
Some states have a law that requires payment of the face amount of insurance to the insured if a total loss to real property occurs from a peril specified in the law. These laws are called A) agreed amount laws. B) replacement cost laws. C) homestead laws. D) valued policy laws.
D) valued policy laws.
Which of the following statements about limited-payment life insurance is true? A) It is a form of term insurance. B) It matures at the end of the premium-payment period. C) The premium decreases each year during the premium-payment period. D) Its use may be appropriate if a person wants paid-up life insurance during retirement.
D) Its use may be appropriate if a person wants paid-up life insurance during retirement.
All of the following statements about Part D (coverage for damage to your auto) of the PAP are true EXCEPT A) Coverage may be purchased with or without collision insurance. B) Losses are paid regardless of fault. C) Coverage applies to a nonowned auto occasionally driven by an insured. D) No coverage is provided for newly-acquired vehicles.
D) No coverage is provided for newly-acquired vehicles.
All of the following statements about shopping for auto insurance are true EXCEPT A) Adequate liability insurance is the most important consideration. B) Consideration should be given to dropping physical damage insurance on an older car with a low market value. C) To obtain the lowest premium, an applicant should review his or her eligibility for all discounts offered. D) Price comparisons are of little value since auto insurers tend to charge the same premiums.
D) Price comparisons are of little value since auto insurers tend to charge the same premiums.
All of the following are arguments for no-fault automobile insurance laws EXCEPT A) No-fault is unnecessary as itʹs easy to determine which driver was negligent when a multiple-vehicle accident occurs. B) A large portion of each premium dollar is used for purposes other than compensating accident victims for their losses. C) There are delays in compensating accident victims under the tort system. D) Seriously injured accident victims tend to be overcompensated, while those with small economic losses are inadequately indemnified.
D) Seriously injured accident victims tend to be overcompensated, while those with small economic losses are inadequately indemnified.
Which of the following statements about the waiver-of-premium provision is true? A) Because the probability of becoming disabled exceeds the probability of premature death, the cost to include this provision is usually prohibitive at younger ages. B) Premiums are usually waived if the insured becomes partially disabled. C) Life insurance protection continues in force during a period of disability, but dividends cease and cash values are reduced. D) The disability must occur before a stated age, such as 65, for premiums to be waived.
D) The disability must occur before a stated age, such as 65, for premiums to be waived.
All of the following are requirements that must be satisfied before premiums are waived under a waiver-of-premium provision EXCEPT A) The insured must furnish proof of disability to the insurer. B) The insured must be disabled before some specified age, such as age 60 or 65. C) The insured must satisfy the definition of disability. D) The insured must satisfy a 2-year waiting period.
D) The insured must satisfy a 2-year waiting period.
All of the following statements about the requirements to reinstate a lapsed life insurance policy are true EXCEPT A) Evidence of insurability is required. B) The lapse must have resulted from other than the surrender of the policy for its cash value. C) All overdue premiums must be paid along with interest from the premium due dates. D) The policy must be reinstated within 1 year.
D) The policy must be reinstated within 1 year.
All of the following are reasons an insurer can contest a policy after the contestable period has ended EXCEPT A) The beneficiary purchased the policy with the intent of murdering the insured. B) An insurable interest did not exist at the inception of the policy. C) The applicant had someone else take the medical examination required for policy approval for her. D) The policyowner concealed a material fact at the time of application.
D) The policyowner concealed a material fact at the time of application. - insurer can terminate policy based on concealment.
Contracts of Adhesion
The policy is interpreted in the insuredʹs favor if the policy contains any ambiguities or uncertainties.
All of the following statements about endorsements and riders are true EXCEPT A) They are usually written. B) They can be used to add or delete policy provisions. C) They normally take precedence over other conflicting policy provisions. D) They are primarily used to circumvent legislation requiring specific policy provisions.
D) They are primarily used to circumvent legislation requiring specific policy provisions.
All of the following are exceptions to the principle of indemnity EXCEPT A) life insurance. B) valued policies. C) replacement cost property insurance. D) actual cash value property insurance.
D) actual cash value property insurance.
The period during which a surviving spouse is ineligible for Social Security benefits is referred to as the A) emergency period. B) readjustment period. C) dependency period. D) blackout period.
D) blackout period.
Advantages cited by proponents of state regulation of insurance include all of the following EXCEPT A) uniformity of laws by the NAIC. B) greater opportunity for innovation. C) greater responsiveness to local needs. D) centralization of political power.
D) centralization of political power.
Tedʹs insurance claim was denied by XYZ Insurance Company. When Ted inquired why the claim was denied, he was told to, ʺRead the exclusion on page 5 of the policy.ʺ Ted read the exclusion. In his opinion, the exclusion was poorly worded and vague. If a court of law agrees with Tedʹs assessment of the exclusion, Ted may still be able to have his claim paid by the insurer because insurance contracts are A) personal contracts. B) unilateral contracts. C) aleatory contracts. D) contracts of adhesion.
D) contracts of adhesion.
A legal reserve in life insurance is a result of: A) premium taxes payable by life insurance companies being postponed during the early policy years. B) dividends being paid to policyowners. C) inadequate premiums in the early policy years being subsidized by investment earnings. D) excess premiums in the early policy years being invested at compound interest.
D) excess premiums in the early policy years being invested at compound interest.
The exclusion of flood in a homeowners policy is an example of an A) excluded activity. B) excluded condition. C) excluded property. D) excluded peril.
D) excluded peril.
In schedule rating, each building is individually evaluated based on several rating factors. One factor refers to the possibility that the building will be damaged or destroyed by a fire that starts at an adjacent property and spreads to the building. This rating factor is known as A) occupancy. B) protection. C) maintenance. D) exposure.
D) exposure.
Disadvantages of the capital retention approach include which of the following? I. Assets are often liquidated too quickly. II. It underestimates the amount of life insurance needed. A) I only B) II only C) both I and II D) neither I nor II
D) neither I nor II
A strip-mall includes eight identical-sized retail units. All of the units were built at the same time and each has an identical sprinkler system. Unit number two is a dry cleaning business. Unit number three is a bar and grill. Unit number four is a dress shop. The owners of these three units are all insured by the same insurance company, but the property insurance premiums vary significantly. Which of the following rating factors best explains the difference in premiums? A) exposure B) protection C) construction D) occupancy
D) occupancy
Which of the following is considered a nonadmitted asset for an insurer? A) cash B) preferred stocks C) real estate D) office furniture
D) office furniture
All of the following are common dividend options found in participating whole life insurance policies EXCEPT: A) reduction of premiums. B) dividend accumulations. C) purchase of paid-up insurance. D) purchase of insurance company stock.
D) purchase of insurance company stock.
Jessica is an agent for LMN Life Insurance Company. She met with Brad, who was interested in purchasing life insurance. Jessica explained the various uses of life insurance, including income for Bradʹs wife during the 1- or 2-year period following Bradʹs death. This period is known as the A) dependency period. B) estate clearance period. C) blackout period. D) readjustment period.
D) readjustment period.
Tom and Nancy Boyle provide financial support for their two children. In addition, they provide financial support for Tomʹs aged father and Nancyʹs aged mother. The Boyle family can be described as a A) blended family. B) single-parent family. C) two-income earner family. D) sandwiched family.
D) sandwiched family.
All of the following statements about subrogation are true EXCEPT A) the insurer is only entitled to recover the amount it has paid its insured under the policy. B) subrogation does not apply in life insurance. C) interfering with the insurerʹs subrogation rights can jeopardize indemnification of the insured. D) the insurer reserves the right to subrogate against its own insureds.
D) the insurer reserves the right to subrogate against its own insureds. = NOT TRUE
All of the following are purposes of deductibles EXCEPT A) to eliminate small claims. B) to reduce premiums. C) to reduce attitudinal hazard. D) to exclude uninsurable perils.
D) to exclude uninsurable perils.
Life Insurance Settlement Option
Fixed Amt. Option: the beneficiary can be given the right to increase or decrease the fixed amount.
Entire Contract Clause
It specifies that the life insurance policy and the attached application constitute the complete agreement between the parties.
Which of the following types of insurance policies can usually be assigned without the insurerʹs consent? I. Life insurance II. Property insurance
Life Insurance
Deductibles are used in all of the following types of insurance EXCEPT A) life insurance. B) health insurance. C) property insurance. D) automobile insurance.
Life Insurance - NO DEDUCTIBLES
Alan has been involved in three accidents and has been ticketed for a number of driving violations. He tried to purchase auto insurance, but three insurers refused to sell him coverage. The generic name for state plans designed to insure drivers like Alan is the:
Residual Market
Life Insurance Policy Loans
The policyowner must pay interest on a life insurance policy loan.
Which life insurance policy provision specifies that it is the policyowner, and not the insured or beneficiary, who possesses all contractual rights while the policy is in force?
Ownership Clause
accidental death benefit rider
The accidental death must occur prior to some specified age.
Decreasing Term Insurance
The face amount of the policy decreases during the policy period, but the premium remains level.
Contracts are Conditional
The insurer can refuse to a pay claim unless the insured has complied with all policy provisions.
consideration
The insurerʹs consideration is the promise to do those things specified in the policy.
subrogation
The substitution of one person in the place of another with reference to a lawful claim, demand, or right, so that he or she who is substituted succeeds to the rights of the other in relation to the debt or claim, and its rights, remedies, or Securities. -The insuredʹs right to collect benefits may be forfeited if the insured interferes with the insurerʹs rights after a loss occurs.
Pure No-Fault Auto Insurance Plan
Under such a plan, an accident victim cannot sue the other party, and no payments are made for pain and suffering.
The policy provision requiring the filing of proof of loss with the insurer is an example of a(n) : condition.
condition
Reasons why a peril may be considered uninsurable and therefore excluded from insurance contracts include which of the following? I. The losses from the occurrence of the peril may be due to a predictable decline in value. II. The losses from the occurrence of the peril may be incalculable and catastrophic.
both
The insurance companyʹs options for settling a collision loss to a covered auto under the PAP include which of the following? I. Pay the loss in money. II. Repair or replace the damaged auto.
both
Which of the following statements about reinsurance facilities for insuring high-risk drivers is (are) true? I. Underwriting losses in the reinsurance facility are shared by all auto insurers in the state. II. An insurer must accept all applicants for insurance, but the insurer has the option of placing high-risk drivers in the reinsurance pool.
both
Universal Life Insurance
characteristics: flexible premium payments, the insurance and savings components are separate, the interest rate credited to the savings is tied to a market interest rate but a minimum rate is guaranteed, and a monthly administrative fee is charged.
A state law that requires individuals who have been involved in an auto accident or who have been convicted for certain vehicle-related offenses to demonstrate the ability to pay liability claims up to a specified dollar amount is called a(n): financial responsibility law.
financial responsibility law.
Grace is a life insurance agent. She is attempting to sell a large life insurance policy, but the prospective purchaser is having second thoughts. To persuade the prospective purchaser, Grace said, ʺI will earn a $1,000 commission if you buy this policy. Iʹll give you $500 of my commission if you buy the policy.ʺ In most states, what illegal sales practice will Grace be guilty of if she splits her commission with the purchaser? rebating
rebating
Principle of Insurable Interest
reduces moral hazard
Extended Nonowned Liability Coverage Endorsement
to provide liability coverage for an insured who operates a nonowned auto on a regular basis
Which distinct legal characteristic of insurance contracts states that only the insurerʹs promise to perform is legally enforceable? unilateral contracts
unilateral contracts
A loss reserve established for each individual claim when it is reported to a property and casualty insurance company is call a(n) case reserve.
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A personal lines insurance company initiating banking and investment services for its policyowners demonstrates which financial services industry trend? A) convergence
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A reinsurance contract that is entered into on a case-by-case basis after an application for insurance is received by a primary insurer is called facultative reinsurance.
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Beverly lives in a sparsely populated area in northern Idaho. Some insurance companies marketing coverage in northern Idaho cannot afford to have full-time adjustors there. Several insurers hire Beverly to adjust claims for their insureds. Beverly charges the insurers a fee for each claim that she settles. Beverly is a(n) independent adjustor.
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Catastrophe bonds are made available to institutional investors in the capital markets through an entity that is specially created for that purpose. This is entity is called a special purpose reinsurance vehicle.
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David has always been successful in sales. Recently, he was approached by a life insurer interested in hiring him. Initially, David was not interested in the job because he feared it would require a lot of administrative work. ʺYouʹre a super salesperson, David,ʺ he was told, ʺWeʹre hiring you to do one thing and one thing onlySELL!ʺ David accepted the position. David is a(n) B) personal-producing general agent.
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Easy Pay Insurance Company may require insureds who suffer a loss to submit a sworn statement to substantiate that a loss occurred and to describe the conditions under which the loss occurred. This sworn statement is called a proof of loss.
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Huge Insurance Company is a property insurer that is interested in protecting itself against cumulative losses that exceed $200 million during the year. This protection can best be obtained using an excess-of-loss reinsurance treaty.
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If an underwriter suspects moral hazard, the underwriter may ask an outside firm to investigate the applicant and make a detailed report to the insurer. This report is called a(n) A) inspection report.
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In 2008, Liberty Mutual Insurance Company acquired Safeco Insurance Company. This acquisition demonstrates which financial services industry trend? consolidation
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Jan is employed by an insurance company. She reviews applications to determine whether her company should insure the applicant. If insurable, Jan assigns the applicant to a rating category based on the applicantʹs degree of risk. Jan is a(n) A) underwriter.
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Liability Insurance Company (LIC) was approached by a regional airline to see if LIC would write the airlineʹs liability coverage. LIC agreed to write the coverage and entered into an agreement with a reinsurer. Under the agreement, LIC retains 25 percent of the premium and pays 25 percent of the losses, and the reinsurer receives 75 percent of the premium and pays 75 percent of the losses. This reinsurance arrangement is best described as quota-share reinsurance.
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Life insurance policyowners may borrow the cash value from their life insurance policies. Where are life insurance policy loans shown on a life insurance companyʹs financial statements? A) as an asset
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Most insurance companies require their marketing representatives to submit an evaluation of the prospective insured. This important source of underwriting information is called the agentʹs report.
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Neil needs insurance that is unavailable in the state where he lives. To obtain insurance from a nonadmitted insurer, Neil should contact a A) surplus lines broker.
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New Liability Insurance Company began operations last year and has been very successful. The companyʹs ability to grow is being restricted by an accounting rule that requires insurers to realize acquisition expenses immediately, while not realizing premiums received as income until some time has passed. Reinsurance is often used in such cases for which of the following purposes? to reduce the unearned premium reserve
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One item that appears on an insurance companyʹs financial statements is a liability that represents an estimate of the claims reported and adjusted but not yet paid, claims reported and filed but not yet adjusted, and claims incurred but not yet reported to the company. This liability is called the insurerʹs loss reserve.
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One method through which reinsurance is provided is through an organization of insurers that underwrites insurance on a joint basis. Through the organization, financial capacity is available for large commercial risks. This reinsurance arrangement is a(n) reinsurance pool.
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Pac-Coast Insurance (PCI) concentrates its underwriting activities in California. The company is concerned that if a catastrophic earthquake occurs, it might threaten the solvency of the company. To address this risk, PCI issued some debt securities. If a catastrophic earthquake occurs, PCI does not have to repay the borrowed funds or pay interest. The securities PCI issued are called catastrophe bonds.
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Ross studied engineering in college. After graduation, he went to work for an insurance company. Ross visits properties insured by his company. He conducts inspections and makes recommendations about alarm systems, sprinkler systems, and building construction. In what functional area does Ross work? loss control
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Sarah owns a property and liability insurance agency. She is authorized to represent several insurance companies and she is compensated by commissions. Sarahʹs agency owns the expiration rights to the business she sells. Sarah is a(n) A) independent agent.
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Sue double-majored in mathematics and statistics in college. She also enrolled in a number of finance courses. After graduation, she was hired by Econodeath Insurance Company. Her job is to calculate premium rates for life insurance coverages. Sue is a(n) A) actuary.
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The financial services field is currently experiencing consolidation and convergence. If both of these trends continue, in the future we should observe: - fewer financial institutions offering a wider range of financial services products.
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The function of an actuary is to determine premium rates.
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The process of transferring risk to the capital markets through the use of financial instruments such as bonds, futures contracts, and options is knows as securitization of risk.
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The unearned premium reserve of an insurer is a liability representing the unearned portion of gross premiums on outstanding policies.
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The unit of measurement used in property and casualty insurance pricing is called the exposure unit.
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To protect policyholders, state laws place limitations on a life insurance companyʹs investments. The assets backing interest-sensitive products, such as variable life insurance and variable annuities, are not subject to these restrictions. Assets backing interest-sensitive products are placed in a special account called the life insurerʹs separate account.
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Under one life insurance marketing system, an insurer sells its products through established agents who are already engaged in life insurance sales. Under this system, an insurer enters into contracts with successful agents who agree to sell the insurerʹs products. This life insurance marketing system is called the B) nonbuilding agency system.
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Under one method of estimating a loss reserve, the reserve is based on life expectancy, duration of disability, and similar factors. This method of estimating loss reserves is called the: tabular value method.
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Which of the following statements about property and casualty insurance company operating results is (are) true? I. An insurance company can have a combined ratio greater than 1 (or 100 percent) and still be required to pay income taxes.
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Which of the following statements about the investments of property and liability insurers is (are) true? I. Income from investments is important in offsetting any unfavorable underwriting experience.
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Which of the following statements about treaty reinsurance is true? D) Using a reinsurance pool provides financial capacity to write large amounts of insurance.
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Which of the following statements about treaty reinsurance is true? The reinsurer must accept all business that falls within the scope of the treaty.
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Which of the following statements about underwriting policy is (are) true? I. A company must establish an underwriting policy consistent with company objectives.
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catastrophe bonds - high interest rates
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Which of the following statements about Lloydʹs of London is true? A) Coverage is actually written by syndicates who belong to Lloydʹs of London. B) Its underwriters specialize in writing life and health insurance. C) It operates as an admitted insurer throughout the United States. D) It allows underwriters to write coverage without meeting stringent financial requirements.
A) Coverage is actually written by syndicates who belong to Lloydʹs of London.
9) Which of the following statements about brokers is (are) true? I. They legally represent the insured rather than the insurance company. II. They are prohibited from being licensed as agents. A) I only B) II only C) both I and II D) neither I nor II
A) I only
R.I.P. Company manufactures herbicide and pesticide. The company had difficulty finding affordable liability insurance. R.I.P. established its own insurance company based in Bermuda for the purpose of insuring R.I.P.ʹs loss exposures. The company that R.I.P. formed is called a A) captive insurer.
A) captive insurer.
A property and casualty insurerʹs loss reserve includes estimates for all of the following EXCEPT A) claims anticipated but not yet incurred. B) claims reported and adjusted but not yet paid. C) claims reported and filed but not yet adjusted. D) claims incurred but not yet reported to the company.
A) claims anticipated but not yet incurred.
All of the following would appear in the asset section of an insurance companyʹs balance sheet EXCEPT A) loss reserves. B) bonds. C) common stock. D) real estate.
A) loss reserves
Some investors decided to start an insurance company. Each investor contributed $50,000 to raise the capital required to charter a new company. Each investor received an ownership interest in the company. The company will raise additional capital by selling ownership rights to other investors. Under this type of organization, the customer and owner functions are separate. This type of insurer is called a A) stock company.
A) stock company.
All of the following are reasons for a primary insurer to use reinsurance EXCEPT A) to increase the unearned premium reserve. B) to increase underwriting capacity. C) to protect against catastrophic losses. D) to stabilize profits.
A) to increase the unearned premium reserve.
MedProf Insurance markets medical malpractice insurance. The companyʹs combined ratio in 2009 was 95.4. Its expense ratio was 25.4. What was the companyʹs loss ratio? A) 60.4 B) 70.0 C) 88.2 D) 120.8
B
All of the following statements about the general agency system used for selling life insurance are true EXCEPT A) A general agent is responsible for hiring, training, and motivating new agents. B) A general agent is a salaried employee whose responsibilities are limited to selling life insurance. C) A general agent may receive an allowance for the expenses of maintaining an agency office. D) A general agent receives a commission based on the amount of business produced.
B) A general agent is a salaried employee whose responsibilities are limited to selling life
Which of the following statements about a reciprocal exchange is (are) true? I. It usually specializes in health insurance. II. It is an unincorporated mutual insurance company. A) I only B) II only
B) II only
Which of the following statements is (are) true with respect to the financial services industry? I. The number of firms operating in the industry continues to increase at a high rate. II. The Financial Modernization Act of 1999 permits financial institutions to compete in other financial markets outside their core business area. A) I only B) II only C) both I and II D) neither I nor II
B) II only
The corporate structure of mutual insurers is changing rapidly. All of the following are current trends EXCEPT A) Demutualization of some insurers. B) Sharp increase in the number of mutual insurance companies. C) Increase in company mergers. D) Formation of mutual holding companies.
B) Sharp increase in the number of mutual insurance companies.
All of the following statements about business objectives in designing a rating system are true EXCEPT A) The rating system should encourage loss control activities. B) The rating system should be independent of long-run changes in economic conditions. C) The rating system should be simple to understand. D) The rating system should be stable over short periods so that consumer satisfaction can be maintained.
B) The rating system should be independent of long-run changes in economic conditions.
All of the following statements about fraternal insurers are true EXCEPT A) They are a form of mutual insurer. B) They specialize in writing property and liability insurance. C) They enjoy tax advantages because of their nonprofit or charitable status. D) They market their coverage to members of a social organization or religious group.
B) They specialize in writing property and liability insurance.
Which of the following is characteristic of a typical mass merchandising plan? A) higher commission scales for agents and higher administrative expenses B) payment of premiums through payroll deduction C) group rather than individual underwriting D) contributions by the employer to the cost of coverage
B) payment of premiums through payroll deduction
All of the following are methods that a property and liability insurance company can use to protect against catastrophic losses EXCEPT: A) sale of catastrophe bonds. B) purchase of common stock. C) purchase of excess-of-loss reinsurance. D) quota share reinsurance with a low retention percentage.
B) purchase of common stock.
One type of insurer is a community-oriented health insurer. In most states, this insurer is set-up as a non-profit organization that provides coverage for hospital services, physiciansʹ and surgeonsʹ fees, and other medical services. This type of insurer is called Blue Cross/Blue Shield Plan.
Blue Cross/Blue Shield Plan.
Factors that may result in more restrictive underwriting decisions include which of the following? I. Inadequate rates. II. The unavailability of reinsurance at favorable terms.
Both
Functions of an insurance companyʹs legal department include which of the following? I. Lobbying for legislation favorable to the insurance industry. II. Drafting policy provisions.
Both
Reasons for the unearned premium reserve include which of the following? I. To pay losses that occur during the policy period. II. To pay premium refunds to policyholders in the event of cancellation.
Both
Which of the following statements is (are) true about life insurance company investments? I. The majority of life insurance company general account assets are invested in bonds. II. The majority of life insurance company separate account assets are invested in stocks.
Both
Which of the following statements is true regarding the information systems functional area of an insurance company? I. Computers and information systems are able to perform some tasks that previously were performed directly by employees. II. Information systems can speed the processing of policies by insurers.
Both
LMN Mutual Insurance Company has total liabilities of $300 million. The company has total assets of $380 million. What is LMNʹs policyholdersʹ surplus? A) $680 million B) $340 million C) $80 million
C) $80 million
All of the following are reasons why mutual insurance companies convert to stock insurance companies EXCEPT A) Stock companies can offer stock options to attract and retain key personnel. B) Stock companies can raise new capital more easily. C) Stock companies are exempt from state insurance regulation. D) Stock companies offer greater flexibility to expand through acquisitions.
C) Stock companies are exempt from state insurance regulation.
Which of the following statements about stock insurers is true? A) They issue assessable policies. B) They are not permitted to write property and liability insurance. C) Stockholders bear any losses and share in any profits. D) They are owned by their policyowners.
C) Stockholders bear any losses and share in any profits.
All of the following statements about the settlement of a claim are true EXCEPT A) The insurance policy usually has a provision specifying how a notice of loss is to be made to the insurance company. B) One step in the investigation of a claim is to determine whether the policy was in force when the loss occurred. C) The adjustor must file the proof of loss, which is a sworn statement supporting his or herdecision regarding a claim. D) A policy provision may determine how disputes over claim settlements are resolved.
C) The adjustor must file the proof of loss, which is a sworn statement supporting his or herdecision regarding a claim.
All of the following statements about the independent agency system are true EXCEPT A) Agents are often authorized to adjust small claims. B) Agents are compensated on the basis of commissions. C) The insurer rather than the agent owns the renewal rights to the business. D) The agent is an independent business person who represents several insurers.
C) The insurer rather than the agent owns the renewal rights to the business.
All of the following items would appear in the income section of an insurance companyʹs income and expense statement EXCEPT A) gain on sale of securities. B) common stock dividends. C) commissions. D) premiums.
C) commissions.
Salespersons of a direct writer are considered to be A) independent agents. B) independent contractors. C) employees. D) brokers.
C) employees.
The leaders of a religious group decided to start a life insurance organization to insure members of the religious group. The insurer will operate as a nonprofit organization, thus receiving favorable tax treatment. The insurer formed will be a A) health maintenance organization. B) stock insurer. C) fraternal insurer.
C) fraternal insurer.
The demutualization process is expensive and time consuming. As an alternative to demutualization, many states have enacted legislation allowing a mutual company to reorganize as a company that directly or indirectly controls another insurer. The other insurer is a stock company that can issue additional shares of stock to raise capital. The reorganized company is called a A) captive insurance company. B) conglomerate. C) mutual holding company.
C) mutual holding company.
Jim would like to start a business raising thoroughbred racehorses. The business would be the first of its kind in the state where he lives. Obtaining insurance on the horses is a key concern, and he was dismayed to learn that none of the insurers authorized to operate in his state offer this specialty insurance. What is the name of the intermediary which Jack can use to place this coverage with an insurer not admitted to his state? A) alien insurer B) general agent C) surplus lines broker D) direct writer
C) surplus lines broker
Antonio is a claims adjustor for LMN Insurance Company. After the insurer is notified that there has been a loss, Antonio meets with the insured. The first step in the claims process that Antonio should follow is to A) determine the amount of the loss. B) attempt to deny the claim regardless of whether he believes the claim is covered. C) verify that a covered loss has occurred. D) delay paying the claim if the claim is covered.
C) verify that a covered loss has occurred.
All of the following statements about claims settlement are true EXCEPT A) Agents may have the authority to settle claims. B) Independent adjustors may be used in a geographic area where the volume of business is too low for an insurer to have its own adjustors. C) Company adjustors are salaried employees who work for one insurer. D) A public adjustor is usually paid a flat fee regardless of the size of a claim.
D) A public adjustor is usually paid a flat fee regardless of the size of a claim.
Which of the following statements about the exclusive agency system for marketing property and liability insurance is true? A) Exclusive agents typically have complete ownership of policy expirations. B) A higher commission rate is usually paid on exclusive agentsʹ renewal business than on new business. C) Exclusive agents represent several different insurance companies. D) New exclusive agents usually start as employees and after a training period become independent contractors.
D) New exclusive agents usually start as employees and after a training period become independent contractors.
All of the following statements about reinsurance are true EXCEPT A) A reinsurer may also purchase reinsurance. B) Reinsurance is an arrangement by which the primary insurer that initially writes the insurance transfers to another insurer part or all of the potential losses associated with such insurance. C) The insurer transferring business to a reinsurer is called the ceding insurer. D) The amount of insurance transferred to a reinsurer is called the net retention.
D) The amount of insurance transferred to a reinsurer is called the net retention.
All of the following statements about life insurance company investments are true EXCEPT A) Funds for these investments are derived primarily from premium income, investment earnings, and maturing investments that must be reinvested. B) Income from these investments reduces the cost of insurance. C) A primary objective in making these investments is safety of principal. D) The majority of these investments are short-term investments.
D) The majority of these investments are short-term investments.
Why are some mutual insurers referred to as ʺassessment mutualsʺ? A) They charge low premiums because the loss exposures of their insureds are thoroughly assessed before a policy is written. B) They are noted for being very thorough in their assessment of investment opportunities. C) They are assessed for state premium taxes only if they make a profit. D) They can assess policyowners if premiums are insufficient to pay losses and expenses.
D) They can assess policyowners if premiums are insufficient to pay losses and expenses.
Which of the following statements about mutual insurers is true? A) They are legally organized as partnerships. B) They have a board of directors which is selected by state insurance departments. C) They are owned by their stockholders. D) They may pay dividends to their policyowners.
D) They may pay dividends to their policyowners.
Big Mutual Insurance Company would like to take advantage of financial services deregulation by acquiring a bank and a stock brokerage firm. Big Mutual, however, would have trouble raising the funds needed to make these acquisitions under the mutual form of organization. Big Mutual is planning to switch from the mutual form of organization to the stock form, and to issue shares of common stock to raise capital. This change in organizational structure is called A) mutualization. B) retrocession. C) reinsurance. D) demutualization.
D) demutualization.
Mark has been an underwriter for 20 years. An application he recently reviewed looked odd to him. The building value in the application seemed far too high, and Mark suspected the applicant might be planning to destroy the property after it is insured. Mark contacted an outside firm and hired someone to investigate the applicant and to prepare a report about the applicant. This report is called a(n) A) agentʹs report. B) binder. C) physical inspection. D) inspection report.
D) inspection report.
Which of the following statements about claim settlement is (are) true? I. The fair payment of claims requires an insurer to adopt a very liberal claims policy. II. To prevent lawsuits, an insurer should provide no personal assistance to a claimant other than that which is required by contractual obligations. A) I only B) II only C) both I and II D) neither I nor II
D) neither I nor II
Which of the following statements about the sale of property and liability insurance through the direct response system is (are) true? I. Selling expenses are higher because market segmentation tends to be less precise than with other marketing methods. II. It is the most appropriate system for selling complex products. A) I only B) II only C) both I and II D) neither I nor II
D) neither I nor II
All of the following are expenses of life insurance companies EXCEPT A) matured endowments. B) surrender benefits. C) disability income payments. D) realized capital gains.
D) realized capital gains.
Amy heads the legal staff of a large property and liability insurance company. Amyʹs staff is likely involved in all of the following activities EXCEPT A) reviewing policy wording before policies are adopted and marketed. B) recouping subrogation recoveries from third parties who injured individuals insured by Amyʹs company. C) providing legal advice about marketing, taxation, and insurance law. D) reviewing applications to determine if the company should insure the risk.
D) reviewing applications to determine if the company should insure the risk.
Common sources of underwriting information for life and health insurance include all of the following EXCEPT A) the application. B) a physical examination. C) the Medical Information Bureau. D) the applicantʹs income tax return.
D) the applicantʹs income tax return.
All of the following are functions of the marketing department of an insurance company EXCEPT: A) to advertise the insurerʹs products. B) to develop new products. C) to identify production goals. D) to make final underwriting decisions.
D) to make final underwriting decisions.
judgement rating
It is used when the loss exposures are so diverse that a class rate cannot be calculated.
One source of life and health insurance underwriting information is an organization that life and health insurance companies can join. As a member, life and health insurance companies report health impairments of applicants, and this information is shared with member companies. Although the information is shared, the underwriting decision of the member company is not disclosed. What is this organization called? Medical Information Bureau (MIB)
Medical Information Bureau (MIB)
Which of the following statements about underwriting standards is (are) true? I. One purpose of underwriting standards is to reduce adverse selection against the insurer. II. Equitable rates should be charged so that each group of policyowners pays its own way in terms of losses and expenses.
both
RST Insurance is an interesting company. It doesnʹt have any agents. Instead, the company sells insurance through radio ads, telemarketers, and newspaper and magazine inserts. This distribution method is called direct response system.
direct response system.
Brian is a life insurance agent. He is licensed to represent one company and has been assigned a territory. In addition to marketing life insurance products in the territory, Brian is also responsible for recruiting, training, and motivating new agents for the company in his territory. Brian is a(n) general agent.
general agent.
Scott works in property and liability insurance marketing. He legally represents insurance purchasers, rather than insurance companies. Scott is paid a commission on the insurance placed with insurers. Scott is a(n) insurance broker.
insurance broker.
Cathy just started a job with XYZ Manufacturing Company. She attended an orientation and was given a packet providing information about the various employee benefits XYZ offers. One item in the packet was a booklet and application form from an auto insurer. The insurer offers lower premiums to XYZ employees. The insurerʹs plan for selling individually-underwritten auto insurance to employees of XYZ Manufacturing Company is called mass merchandising.
mass merchandising.
ABC Insurance has always used the exclusive agency system to market coverages. ABC, however, cannot afford full-time agents in sparsely-populated areas. To reach customers in these areas, ABC enters into agreements with local independent agents. Using more than one marketing system is called employing a multiple distribution system.
multiple distribution system.
