Insurance Questions

If a company has 2,000 employees eligible for a noncontributory group life insurance program, how many would be required to participate? A) 2,000 B) 500 C) 1,000 D) 1,500

A) 2,000. If a group life insurance plan is noncontributory, 100% of eligible persons must be insured.

All of the following have an insurable interest in the person insured EXCEPT: A) a neighbor. B) an employer. C) a spouse. D) a child.

A) a neighbor.

Each application for life insurance requires the signature of all of the following EXCEPT: A) the proposed insured. B) the policyowner, if different from the insured. C) the beneficiary. D) the agent.

C) the beneficiary.

Since the obligations of the insurance company hinge on certain acts of the policyowner, the beneficiary, or both, the insurance contract is termed: A) aleatory. B) unilateral. C) bilateral. D) conditional.

D) conditional. Insurance is a conditional contract because the obligations of the insurance company hinge on the performance of certain acts by the owner and the beneficiary, such as the payment of premiums and furnishing proof of loss.

The authority that an insurer gives to its agents by means of the agent's contract is known as: A) fiduciary responsibility. B) implied authority. C) general authority. D) express authority.

D) express authority. Express authority is what the insurer gives to its agent through means of the agency agreement.

A commercial insurer can take all of the following forms EXCEPT: A) mutual insurance company. B) fraternal benefit society. C) stock insurance company. D) individual benefit society.

D) individual benefit society.

shows the average number of individuals at various ages who can be expected to become disabled each year

morbidity rates

show the average number of persons within a larger group of people who can be expected to die within a given year at a given age

mortality rates

Three primary factors are considered when computing the basic premium for life insurance:

mortality, interest, and expense.

statements believed to be true are called:

representations

statements guaranteed to be true are called:

warranties

Who would NOT have an insurable interest for a life insurance policy? A) The spouse of the insured. B) The closest friend of the insured. C) The employer of a key employee insured. D) The daughter of the insured.

B) The closest friend of the insured.

The fact that an insurance contract promises to pay benefits contingent on a future uncertainty (such as death or illness) makes it what type of contract? A) Aleatory. B) Conditional. C) Adhesion. D) Estoppel.

B) Conditional. Keyword: contingent

What tool do life insurance actuaries use to help establish premium rates based on the probabilities of death at various ages? A) Morbidity table. B) Survivor table. C) Mortality table. D) Annuity table.

C) Mortality table.

Which of the following statements pertaining to a life insurance policy application is CORRECT? A) An agent must be very specific when listing an applicant's occupation on an application. B) If an applicant's age is shown erroneously on a life insurance application as 28 instead of 29, this could result in a premium quote that is higher than it should be. C) The applicant's signature is required on an application, but the agent's signature is not. D) An application is not part of the legal contract between insurer and insured, even when it is attached to the policy.

A) An agent must be very specific when listing an applicant's occupation on an application.

Assume the following persons buy identical life insurance policies from the same company. Who would pay the LOWEST premium rate? A) Linda, age 30. B) Arthur, age 42. C) Brandon, age 34. D) Thomas, age 30.

A) Linda, age 30. Since female mortality rates are generally lower than those for males, a 30-year-old woman would pay less for life insurance than a 30-year-old man.

A woman may be eligible for group credit insurance in which of the following situations? A) She recently purchased a car and financed it through the dealership. B) She is an employee of a car dealership and wants to buy credit insurance through the dealership. C) She recently paid off her car loan and has excellent credit. D) She recently purchased a new car, paying cash.

A) She recently purchased a car and financed it through the dealership.

Which of the following statements pertaining to sources of insurability information is CORRECT? A) Special questionnaires are used to obtain additional information when an extra hazard or risk may be involved, and to replace the application in unusual cases. B) The insurance agent completes the medical report on a life insurance applicant. C) An insurer cannot use an unfavorable credit report to reject an applicant for insurance. D) When conducting an inspection report, an investigator cannot interview an individual who actually knows the applicant.

A) Special questionnaires are used to obtain additional information when an extra hazard or risk may be involved, and to replace the application in unusual cases.

AGC Publishing applied for key-person life insurance on its chief executive officer. Which of the following parties must sign the application? A) The CEO, another officer of AGC, and the agent handling the application. B) The CEO and the agent handling the application. C) The CEO and another officer of AGC. D) An officer of AGC and the agent handling the application.

A) The CEO, another officer of AGC, and the agent handling the application.

An insurance contract is prepared by one party, the insurer, rather than by negotiation between the contracting parties. Which of the following statements explains this characteristic of insurance contracts? A) The insurance contract is a contract of adhesion. B) The insurance contract is an aleatory contract. C) The insurance contract is a unilateral contract. D) The insurance contract is a conditional contract.

A) The insurance contract is a contract of adhesion. Insurance contracts are contracts of adhesion, meaning that they are prepared by one party, the insurer. They are not negotiated contracts. In effect, the applicant "adheres" to the terms of the contract when he or she accepts it.

Which of the following statements regarding morbidity tables is CORRECT? A) They indicate the average number of individuals from a given group who will become disabled. B) They indicate the gender and number of individuals from a given group who will die in a given year. C) They indicate the average number of individuals from a given group who will die in a given year. D) They indicate the gender and number of individuals from a given group who will become disabled in a given year.

A) They indicate the average number of individuals from a given group who will become disabled.

With three partners in a business, how many life insurance policies would be required to insure an entity buy-sell plan? A) Three policies. B) Eight policies. C) Nine policies. D) Six policies.

A) Three policies. In an entity buy-sell plan, the partnership buys and pays the premiums for a life insurance policy on the life of each partner. The partnership in the above example would own three policies, one insuring each partner.

All of the following statements pertaining to the Fair Credit Reporting Act are correct EXCEPT: A) the Fair Credit Reporting Act is a state law that helps to assure accurate reporting of information about consumers. B) the Fair Credit Reporting Act does not apply to insurance companies who use their own staffs to investigate an applicant for insurance. C) a life insurance company obtains a consumer report on Burl, an applicant, without advising him of its intended action. The company has violated the Fair Credit Reporting Act. D) Peg has an application for life insurance rejected because of an unfavorable consumer report. She has a right to know what information the reporting agency has and can insist that any errors in the data be corrected.

A) the Fair Credit Reporting Act is a state law that helps to assure accurate reporting of information about consumers. The Fair Credit Reporting Act is a federal law, not a state law. As corrected, the statement is also true.

Statements guaranteed to be true are called: A) warranties. B) waivers. C) representations. D) estoppels.

A) warranties.

Controlled business is insurance sold to cover the lives, businesses, properties, or risks of all the following EXCEPT: A) the insurance producer. B) a friend of the insurance producer. C) an employer of the insurance producer. D) the spouse of the insurance producer.

B) a friend of the insurance producer.

A stock insurance company that issues both participating and nonparticipating policies is classified as: A) a combined company. B) a mixed company. C) an all lines company. D) a blended company.

B) a mixed company.

A corporation or other limited liability association that assumes and spreads the liability exposure for any of its group members is called: A) a stock insurer. B) a risk retention group. C) a mutual insurer. D) a reciprocal insurer.

B) a risk retention group. All members of a risk retention group have an ownership interest in the group and must be in businesses that expose them to similar liabilities.

An advertisement for health insurance that uses an unusual amount paid for a unique claim on an advertised policy as an illustration of the policy's benefits: A) must be approved by the Insurance Commissioner before it can be published. B) is misleading and must not be used. C) may be used if it is actually true. D) serves as an excellent example to inform the public about the policy's benefits.

B) is misleading and must not be used.

An agent must notify the applicant that all of the following sources will be used to assess the applicant's application EXCEPT: A) application. B) personal references. C) Medical Information Bureau report. D) credit report.

B) personal references.

Statements made on an application regarding the applicant's medical history or health that require a medical opinion are called: A) identifications. B) representations. C) interpretations. D) declarations

B) representations. Representations are the applicant's statements on an insurance application.

Anthony is a newly licensed insurance agent. In any insurance transaction, his primary duty is to serve: A) the applicant and insured. B) the insurer. C) himself. D) the state insurance department.

B) the insurer.

The law of large numbers states that: A) the smaller the number of risks combined into one group, the less uncertainty there will be as to the amount of loss that will be incurred. B) the larger the number of risks combined into one group, the less uncertainty there will be as to the amount of loss that will be incurred. C) the larger the number of risks combined into one group, the smaller the loss will be to any one individual in that group. D) the smaller the number of risks combined into one group, the larger the loss will be to any one individual in that group.

B) the larger the number of risks combined into one group, the less uncertainty there will be as to the amount of loss that will be incurred.

Three equal partners in a business worth $600,000 decide to set up an insured cross-purchase buy-sell agreement. How large a policy would each partner buy to insure the lives of the other partners? A) $50,000.00 B) $100,000.00 C) $200,000.00 D) $150,000.00

C) $200,000.00. Each partner's share of the $600,000 business equals $200,000. Thus, if each partner were to purchase a $100,000 policy covering the lives of the other two, the benefits payable at the death of a partner--a total of $200,000--would enable the two survivors to purchase the deceased's interest in full and retain an equal partnership basis. Both of them together can purchase the dead guy's share.

Which of the following actions is best described as misrepresentation? A) Intentionally telling a prospect that a particular life insurance policy provides for the payment of dividends when it does not. B) Convincing a policyowner to lapse their present policy in order to sell them a new policy with a different insurance company. C) Not informing a health insurance policy buyer that the policy excludes preexisting conditions. D) Inducing a policyowner to replace their current policy with a new policy with that same insurer.

C) Not informing a health insurance policy buyer that the policy excludes preexisting conditions. Omitting or misrepresenting information about the benefits, advantages, conditions or terms of a policy is considered misrepresentation.

Assume an agent stresses the following points in a sales interview while recommending a participating 30-pay life policy to a 37-year-old prospect. Which of the following statements constitutes misrepresentation? A) Dividends are not guaranteed for the future. B) The policy will be fully paid up in 30 years. C) The policy endows in 30 years. D) The policy's cash value will build at a faster rate than that in a straight life policy.

C) The policy endows in 30 years. A 30-pay life policy does not endow (reach a point at which cash value equals face amount) in 30 years; it is simply paid up.

A life insurance company organized in Pennsylvania, with its home office in Philadelphia, is licensed to conduct business in New York. In New York, this company is classified as: A) an alien company. B) a domestic company. C) a foreign company. D) a regional company.

C) a foreign company. A foreign insurance company operates within a state where it is not chartered and where its home office is not located.

The needs approach can be used to determine all of the following EXCEPT: A) amount of income needed if the breadwinner dies. B) amount needed to provide income for the surviving spouse's retirement. C) amount needed to replace the breadwinner's projected increasing annual salary. D) amount needed to pay for a child's education.

C) amount needed to replace the breadwinner's projected increasing annual salary. Replacement of the breadwinner's projected increasing annual salary is a factor that is taken into account when using the *human life value* approach to determine how much life insurance is needed.

With regard to life insurance, all of the following statements are correct EXCEPT: A) spouses are automatically considered to have insurable interests in each other. B) A creditor has an insurable interest in a debtor. C) insurable interest must be maintained throughout the life of the contract. D) all individuals are considered to have insurable interests in themselves.

C) insurable interest must be maintained throughout the life of the contract. It does not have to be maintained throughout the life of the contract, nor is it necessary at the time of claim.

The phrase "the applicant for insurance has more to gain if the insured continues to live than if the insured dies" is the rule defining: A) a legal wagering contract. B) the aleatory nature of an insurance contract. C) insurable interest. D) one's legal capacity to enter into an insurance contract.

C) insurable interest. A person acquiring a life insurance contract must be subject to loss upon the death of the individual to be insured. This is known as insurable interest and it is required before a life insurance policy will be issued.

All of the following, if performed frequently enough to indicate a general business practice, are unfair claims settlement practices EXCEPT: A) attempting to settle claims on the basis of an application that was altered without the insured's consent. B) making claim payments not accompanied by a statement setting forth the coverage under which payments are made. C) refusing to pay claims without conducting a reasonable investigation based on all available information. D) delaying the payment of claims by requiring submission of preliminary claim reports and formal proof of loss that contain different information.

C) refusing to pay claims without conducting a reasonable investigation based on all available information.

Elizabeth is shopping for a whole life insurance policy and is evaluating the financial strength and stability of various insurers. As her financial advisor, you would advise Elizabeth to purchase a policy from a company that has a rating of: A) A++ to B+. B) A+ to A. C) A++ to B. D) A++ to A-.

D) A++ to A-.

If a policyowner purchases a $250,000 single-premium whole life insurance policy and needs additional funds for retirement six months later: A) he can take a withdrawal but not a loan from the policy. B) he can take a loan from the policy to supplement his retirement income but must repay it within 1 year. C) he cannot access the policy's cash value because there has not been enough cash value accumulation buildup in the policy. D) he can draw on the cash value to supplement his retirement income.

D) he can draw on the cash value to supplement his retirement income. Because a single-premium whole life policy involves a large, onetime premium payment at the beginning of the policy period, the policy is completely paid for at that point. The payment of a single premium gives it an immediate cash value.

Which of the following does NOT describe a penalty for violating the Fair Credit Reporting Act? A) Punitive damages awarded by a court. B) Reasonable attorney's fees. C) Either fines or imprisonment. D) loss of license indefinitely

D) loss of license indefinitely

Which of the following premium factors has the greatest effect on life insurance premium calculations? A) interest. B) health. C) expense. D) mortality.

D) mortality.

Who are the parties to a life insurance contract? A) Applicant and the insuring company. B) Applicant and the beneficiary. C) Agent, the applicant and the beneficiary. D) Agent and the applicant.

A) Applicant and the insuring company. The parties to a life insurance contract are the applicant and the insuring company. Neither the beneficiary nor the agent is a contracting party.

Employees may be classified for group insurance in all of the following ways EXCEPT: A) sex. B) job duties. C) eligible full-time. D) type of payroll.

A) sex.

Which of the following statements regarding insurance company organization is CORRECT? A) A stock company pays dividends to its policyholders. B) A policyholder in a mutual company may receive a dividend. C) Stock companies are owned by the policyholders. D) Mutual companies do not declare dividends.

B) A policyholder in a mutual company may receive a dividend.

All of the following statements about executive bonus plans are correct EXCEPT: A) the employee is the policyowner. B) at the employee's death, the company receives the death proceeds free of tax. C) they are considered nonqualified plans. D) the bonus paid to the employee is includable in his gross income.

B) at the employee's death, the company receives the death proceeds free of tax. The beneficiary receives the proceeds, not the company.

Regular notices sent to policyowners for payment of their life insurance policy premiums reflect: A) gross single premium. B) gross premium. C) net level premium. D) net single premium.

B) gross premium.

Which of the following terms refers to that period following the death of a breadwinner during which the children are living at home? A) Child-rearing period. B) Blackout period. C) Dependency period. D) Provision period.

C) Dependency period.

After a family's breadwinner dies, the blackout period generally can be defined as the period: A) during which children only receive Social Security benefits. B) that begins when the surviving parent retires. C) that begins when the youngest child turns 16 and ends when the surviving parent reaches age 60. D) during which minor children are living at home.

C) that begins when the youngest child turns 16 and ends when the surviving parent reaches age 60. The blackout period is the time during which no Social Security benefits are payable to a surviving spouse. This period begins when the youngest child reaches age 16 and continues until, at the earliest, the spouse reaches age 60.

The Commissioner examines a domestic insurer to accomplish all of the following EXCEPT: A) to conduct periodic examinations of an insurer's books and records. B) to determine whether a company will be granted a certificate of authority. C) to approve the location of the insurer's offices. D) to investigate alleged violations of insurance law.

C) to approve the location of the insurer's offices. It is not one of the Commissioner's responsibilities to approve the location of the insurer's office.

Jake and Sue signed a contract whereby Sue agreed to pay half of the life insurance proceeds to Jake if he murdered her estranged husband. The contract between Jake and Sue would not be enforceable in court because: A) Jake and Sue are not considered competent parties. B) the contract lacks consideration. C) Jake could not legally accept the contract. D) the contract lacks a legal purpose.

D) the contract lacks a legal purpose.

Special questionnaires are used to obtain additional information when an extra hazard or risk (e.g., skydiving) may be involved and to replace the application in unusual cases. A medical report, if required, is completed by a physician or paramedic, not by the agent. An unfavorable credit report can be used to reject an applicant. Investigators do interview individuals who are personally acquainted with the insurance applicant.

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What authority establishes the minimum number of persons to be insured under a group health insurance policy? A) State law. B) The employer. C) Federal law. D) The insurance company.

A) State law.

What is the purpose of the Fair Credit Reporting Act? A) It prohibits insurance companies from obtaining reports on applicants from investigative agencies. B) It gives consumers the right to question reports made about them by investigative agencies. C) It protects credit companies during the course of their investigations. D) It guarantees that credit reports will remain confidential and not accessible to businesses that do not sell insurance.

B) It gives consumers the right to question reports made about them by investigative agencies.

Which of the following statements describes franchise insurance? A) It is treated in the same manner as any group insurance plan. B) It may be issued to individuals with or without evidence of insurability. C) It is available only to persons who deliver materials to a central point. D) It is issued only to certain businesses that are owned by individuals.

B) It may be issued to individuals with or without evidence of insurability. Franchise insurance is coverage issued as individual accident and health insurance policies distributed on a mass merchandising basis. It is administered by group methods with or without evidence of insurability.

Jill met with an insurance agent to discuss purchasing a $500,000 term life insurance policy. If she signs a contract two weeks later while intoxicated: A) the contract will be voidable at the insurer's option. B) Jill will not be presumed to be competent. C) the contract will be considered valid. D) Jill will be presumed to be competent since she was capable of understanding the contract during the initial meeting.

B) Jill will not be presumed to be competent.

Self-insurance is an example of what kind of risk treatment? A) Transference. B) Retention. C) Avoidance. D) Reduction.

B) Retention. Self-insurance is a form of risk retention because the individual or business entity personally retains the risk and must accept any resulting economic loss.

A corporation has key-person life insurance on its president and vice president. The policies show a current total cash value of $15,000. Which of the following statements is CORRECT? A) The policy proceeds will be taxable at the executives' deaths. B) The company may use the policies' cash value for emergencies. C) The executives may access the policies' cash values during retirement. D) The premiums the company pays for the policies are tax deductible.

B) The company may use the policies' cash value for emergencies. Complete control of the policy rests with the business, which means key-person insurance can be considered a company-owned asset. The death proceeds and cash value can therefore be used for a variety of business purposes by the corporation.

Bob is an agent for the Assured Insurance Company. He visits Mary, a prospect, in her home. He arrives with business cards, sample policies from Assured, and an Assured rate book. He recommends Assured policies that can meet Mary's needs for insurance. Which of the following terms describes the kind of authority that Bob has in this situation? A) Express. B) Implied. C) Apparent. D) Binding.

C) Apparent.

In a group health insurance plan, employees may NOT be classified by: A) duties. B) type of payroll. C) age. D) length of service.

C) age.

In the United States, the primarily regulatory authority for the insurance industry is the: A) U.S. Supreme Court. B) U.S. Senate. C) National Association of Insurance Commissioners. D) States.

D) States. The insurance industry is regulated primarily by the states, rather than by the federal government or a national insurance association.