Life Insurance Chapter 1
What is the maximum fine that could be levied against an individual who violates Federal Regulation 18 USC 1033/1034?
$50K + 15 years in prison
All of the following would be considered fiduciary responsibilities of an agent, EXCEPT: A. Referring clients to an insurance advisor B. Adhering to strict guidelines against commingling premiums C. Completing continuing education requirements D. Not giving answers which they are unsure of
A
Insurance rating services analyze insurers based upon all of the following criteria EXCEPT: A. Personnel Practices B. Expense Ratios C. Product Mix D. Insurer
A
A reciprocal is managed by_____
An attorney-in-fact
The most significant difference between a stock and mutual insurance company is:
Company ownership
Life insurance provides for the immediate ______ of an estate, upon the death of an insured.
Creation
Which of the following help to reduce or avoid adverse selection? A. Speculative risk B. Investment income C. Human life values D. Sound underwriting
D
Which of the following would not be covered under an Errors and Omissions policy? A. An incorrect review of insurance contract benefits B. A review of group plan benefits C. An opinion or advice D. Fraudulent misappropriation of collected premiums
D
________ spreads the risk of loss from one person to a large number of people through the pooling of collected premiums
Insurance
Reinsurance is the process whereby:
Insurance risk is transferred to reinsurers, diversifying the risk amongst multiple companies
The most important aspect of the Law of Large Numbers is:
It Assists in creating accurate insurance rates
A potential event or circumstance that could result in a financial loss to a person or organization. The loss is caused by an identifiable peril", best describes:
Loss Exposure
Someone who leaves his car idling while inside a convenience store would be said to be engaging in what type of hazard?
Morale
Someone who is careless or has an "I don't care" attitude would be considered a:
Morale Hazard
A net premium is comprised of_____
Mortality and interest
The gross premium of a life insurance contract consists of
Mortality/Interest/Expenses
Rick purchases an insurance policy and for the first 7 years of the contract, receives a nontaxable dividend check. In the eighth year he does not receive a dividend check. What type of company did Rick purchase his policy from?
Mutual Company
A Surplus Lines Insurance company is also referred to as a(n)
Non-admitted Insurer
An office structure that generally involves just an individual producer best describes a:
Personal Producing General Agency
Mr. Steinway paid his $2,400 annual life insurance premium on June 1, 2007. Three months later he suffers a heart attack and dies. What value, if any, would his beneficiary receive?
Policy death benefit and 9 months unearned premium
Which answer below most accurately describes the cause of a loss? A. Peril B. Accident C. Illness D. Hazard
A
Which characteristic below cannot be used to determine the risk for life or health insurance? A. Marital status B. Age C. Gender D. Occupation
A
Which of the following choices describes a position of trust, particularly with regard to collected insurance premiums? A. Fiduciary Capacity B. Commingling of Premiums C. Honesty of the producer agent D. Errors and Omissions
A
Which of the following methods of determining life insurance death benefit "need" is based, in major part, on the income potential of the applicant over their entire lifetime? A. Human Life Value Approach B. Needs Approach C. Aggregate Value Approach D. Income Averaging Approach
A
An insurer owned by its policyholders best describes_____
A mutual company
In order for one person to purchase life insurance on the life of another a valid insurable interest must be present. When must insurable interest exist in life insurance?
At the time of application
When must Insurable Interest in a life insurance policy exist?
At time of policy application
An insurance company may be able to assess an additional fee or surcharge when a policyowner pays their premium in a mode other than annual. What provision below allows an insurer to charge this additional fee? A. Reinstatement provision B. Payment of Premium provision C. Consideration clause D. Incontestability provision
B
An insurance contract is an agreement between two parties. Which of the following are the parties involved in a life insurance contract? A. Policy owner and Beneficiary B. Insurer and policy owner C. Insured and beneficiary D. Insurer and beneficiary
B
An insurer asks one of its agents to meet with and obtain additional information in order to complete the underwriting of a contract of insurance. This activity is not specifically listed in the agent's contract. What authority listed below best describes this authority? A. Actual authority B. Implied authority C. Apparent authority D. Expressed authority
B
An insurer that is chartered in New Jersey and also authorized in Connecticut is referred to in the latter State as which of the following? A. Domestic Insurer B. Foreign Insurer C. Alien Insurer D. Nonadmitted Insurer
B
Insurance aids in reducing uncertainty with regard to possible financial losses. Which of the following best identifies the uncertainty concerning loss or chance of loss? A. Hazard B. Risk C. Law of large numbers D. Retention
B
Ownership of an insurance policy issued by the company itself is a requirement to be considered an owner of which type of company below? A. Foreign Stock company B. Mutual company C. Alien company D. Stock company
B
Which answer below best represents an insurance producer that is a legal representative of their principle or company? A. Broker B. Agent C. Both Agent and Broker D. Neither Agent or Broker
B
Which choice below describes the statistics used by an insurer to help determine life insurance premiums? A. Morbidity Table B. Mortality Table C. Forecasting Table D. Statistical Table
B
Which of the following approaches used to determine the appropriate amount of life insurance involves an individual's future earning capacity? A. Needs approach B. Human life value approach C. Projection approach D. Financial objectives approach
B
Which of the following is a syndicate that shares underwriting information? A. Reciprocal B. Lloyds organization C. Stock Insurer D. Mutual Insurer
B
Which of the following risk management techniques is the most difficult to manage? A. Retention B. Avoidance C. Reduction D. Sharing
B
Which of the following types of authority is unwritten? A. Express B. Implied C. Apparent D. Warranted
B
Which statement below is incorrect with regard to reinsurance? A. The two primary forms of reinsurance are Facultative and Automatic. B. The company that insures a transferred portion of a risk is known as the Primary Insurer. C. The company that transfers a portion of a risk to another company is known as the Primary Insurer. D. The process by which a reinsurer reinsures a portion of its risk is known as retrocession.
B
Several financial burdens exist upon the death of an individual. Each of the following is a cost associated with death, EXCEPT: A. Burial expenses B. Estate taxes C. Indemnification expenses D. Debt obligations
C
Which of the following best defines the concept of life insurance? A. Liquidation of Funds B. Investment of Funds C. Immediate creation of funds D. Financial interest in another's life
C
Which of the following statements is not a characteristic of an "ideally insurable" risk? A. The loss must not be catastrophic to the insurer. B. Premiums charged must be reasonable. C. The loss does not necessarily have to cause financial hardship. D. The loss must be definable.
C
Which of the following terms best describes when an applicant for insurance has a greater likelihood of injury or illness, as compared to the general population? A. Standard Risk B. Loss Exposure C. Adverse Selection D. Indemnity
C
Which statement below is CORRECT with regard to the financial rating of an insurer? A. The financial rating of a company is important only to those who work within the insurance department. B. If requested, the financial rating of a company can be printed on a policy application. C. The financial rating of an insurer is not required to be placed on an insurance policy. D. Personal sales and marketing practices are included in the rating analysis.
C
All of the following influence the premiums charged for life insurance policies, EXCEPT: A. Mortality B. Agent Commissions C. Investment return D. Insurance Commissioner
D
All of the following statements regarding risk are TRUE except: A. Risk is transferred in an insurance transaction. B. Speculative risk involves the chance for loss or gain. C. Insurance provides a known benefit against an unknown event. D. Risk is defined as a known event.
D
An MGA has all of the following duties except: A. Negotiate with, and accept or reject an applicant for insurance. B. Hire, supervise and possibly terminate agents. C. Receive and remit collected insurance premiums. D. Replace the agent's responsibility in acting on behalf of his principal.
D
There are 6 specifications that must be identified in every life or health insurance contract. Which of the following is not one of those 6 specifications? A. The risk being insured against B. The parties to the contract C. The relevant insurable interest D. The risk management technique being utilized
D
Which of the following best describes a reinsurance agreement where the parties agree on specific percentage of risk sharing? A. Conditional B. Retrocession C. Facultative D. Quota Share
D
The process whereby a mutual insurer becomes a stock company is called:
Demutualization
An authorized company whose principal office is located in a particular State, operates in that State as a____
Domestic Company
The "Let's Make a Deal" insurance company is headquartered in Rochester, NY. They are also authorized to conduct insurance business in several states other than New York. When conducting insurance business in Ohio, this company would be considered a(n):
Foreign Company
The description "non-profit, social organization that often provides group life insurance to its members" best describes a:
Fraternal
Which of the following insurance concepts means that an insured or policyowner will only receive the actual amount of loss, even though the insurance contract allows for, or could pay, an even greater amount of benefit?
Indemnity Principle
"Any unknown event, past or future, which may injure a person having an insurable interest, (or create a liability against) that may be insured against" best describes:
Insurable Event
Having an adequate number of good or preferred risks to offset lower or poorer risks best describes:
Profitable Distribution of Exposure
The purpose of insurance is to protect against_____
Pure risk
"The price of insurance per each exposure unit" best describes the:
Rate
Methods of managing risk would include all the following except:
Replacement of risk
When an airport uses de-icing on a plane ready for takeoff, it has engaged in_____
Risk Prevention
When a policyowner cancels their policy prior to the renewal period, and is willing to pay a surrender fee in order to cancel coverage, they will receive:
Short-rata refund of premium
The two most common or primary types of risk are:
Speculative/Pure
This type of company is also called a "non-participating" company, because it does not provide its policyowners with dividends.
Stock Company
An agent generally represents_____
The Insurer
By simple definition, an agent represents the insurance company or principal they are appointed with, while a broker legally represents:
Themselves and their clients
When a producer engages is an honest mistake, they have committed an error or omission which is also known as a:
Tort
By definition, insurance is described as the _____ of risk.
Transfer
An insurance company that is not permitted to conduct business in a state and does not have a certificate of authority to conduct business in a state is called a(n):
Unauthorized Insurer
Which department of an insurance company is responsible for determining the acceptability of an applicant for insurance?
Underwriting
The total premium is a combination of earned premium and____
Unearned premium
An agent receives their Expressed Power through:
Written agency contract
A legal relationship between two parties when one of the parties acts on behalf of another is known as_____
an Agency
Fraternals offer various types of insurance programs for_____
members only
