Insurance 1c

The transfer of all ownership rights in a life insurance policy can be accomplished through a(n) A) absolute assignment. B) irrevocable beneficiary designation. C) incontestable clause. D) participating-policy provision.

a

Sarah is using the needs approach to determine how much life insurance to buy. Her cash needs are $30,000; her income 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 insuracne policy through her employer. Based on this information how much additional life insurance should Sarah purchase?

$130,000

Richard is using the capital retention approach to determine how much life insurance to purchase. Richard would like to provide $35,000 per year to his family, forever, if he dies. The assets that he has today will provide $25,000 in annual income without the liquidation of these assets. If life insurance proceeds can be invested to earn a 5 percent annual return, how much life insurance should Richard purchase to fund the additional income needed to meet the $35,000 annual income goal?

$200,000

Malcolm was involved in an auto accident. He was judged to be 20 percent at fault in the accident, and the other party was judged to be 80 percent at fault. Malcolmʹs actual damages were $40,000. Under a pure comparative negligence rule, how much will Malcolm receive for his injuries? $32,000

$32,000

The purpose of a coordination-of-benefits provision in group health insurance plans is to A) determine which plan pays first if more than one plan covers a loss.

...

The deductible used for automobile collision losses is an example of a(n) straight deductible.

...

Which of the following statements about the scheduled personal property endorsement to the homeowners policy is (are) true? II. It can be used to insure valuable items such as jewelry, silverware, and coin collections.

...

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? A) $69.99 B) $166.67 C) $350.00 D) $500.00

500.00

11) 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

16) Which of the following statements about the elements of negligence is (are) true? I. The negligence of the tortfeasor may arise from a failure to act. II. The damage that results must be in the form of property damage. A) I only B) II only C) both I and II D) neither I nor II

A

22) Which of the following is a principal method of ensuring the solvency of insurers? A) requiring submission of annual financial statements to state regulators B) tracking and investigating market conduct complaints against insurers C) disciplining agents of the insurer for illegal sales practices D) regulating the forms (applications and policies) employed by the insurer

A

3) The basis for current state regulation of insurance is A) the McCarran-Ferguson Act. B) Paul v. Virginia. C) the South-Eastern Underwriters Association case. D) the National Association of Insurance Commissioners.

A

37) 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. II. They are payable even after the limit of liability is exhausted. A) I only B) II only C) both I and II D) neither I nor II

A

46) Which of the following is authority given to the Federal Insurance Office created by the Dodd-Frank Act? A) to represent the federal government in international discussions of insurance regulation B) to license and charter new insurance companies that plan to operate nationally C) to be the primary monitor of insurance company solvency D) to be the primary regulator of all aspects of insurance

A

47) Liability arising out of work performed by independent contractors is referred to as A) contingent liability. B) contractual liability. C) care, custody, and control liability. D) customer's liability.

A

9) The policyholders' surplus of an insurer is defined as the difference between its A) assets and its liabilities. B) premium income and its expenses. C) reserves and its liabilities. D) assets and its nonadmitted assets.

A

9) Which of the following losses would be covered under a Commercial General Liability Policy that has no endorsements? I. The named insured rented a building and an employee of the named insured negligently started a fire at the rented building. II. The cost to recall defective products A) I only B) II only C) both I and II D) neither I nor II

A

Under common law, which of the following persons is most likely to be classified as an invitee? A) a mail carrier B) a social guest C) a door-to-door salesperson D) a solicitor for a charitable organization

A) a mail carrier

All of the following are elements of negligence EXCEPT A) the ability to pay damages. B) the failure to perform a legal duty to use reasonable care. C) damages or injuries to a claimant. D) proximate cause between the negligent act and the injury or harm that occurs.

A) the ability to pay damages.

All of the following are covered as supplementary payments under the liability section of the PAP EXCEPT

All of the following are covered as supplementary payments under the liability section of the PAP EXCEPT

45) Which of the following statements about ocean marine insurance coverages is (are) true? I. Hull insurance limits coverage to the breakdown of a ship's machinery and equipment. II. Protection and indemnity insurance provides liability insurance to the ship owner for bodily injury and property damage to third parties. A) I only B) II only C) both I and II D) neither I nor II

B

46) Gail lives in southern Illinois, near the New Madrid Fault Line. She added an earthquake endorsement to her Homeowners 3 policy. All of the following statements about the endorsement are true EXCEPT A) Aftershocks occurring within 72 hours of an earthquake are considered part of the same occurrence. B) The endorsement also covers flood losses. C) The endorsement also covers landslides and volcanic eruptions. D) The deductible is expressed as a percentage of the coverage limit rather than as a dollar

B

6) 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) A) nonadmitted insurer. B) foreign insurer. C) alien insurer. D) reciprocal insurer.

B

All of the following statements about the cancellation of a Homeowners 3 policy are true EXCEPT A) The insurer may cancel a new policy for any reason if it has been in force for less than 60 days and is not a renewal policy. B) At least 100 days notice of cancellation must be given if an insurer cancels a policy for nonpayment of premium. C) A policy written for longer than 1 year can be cancelled for any reason on the anniversary date by giving the insured at least 30 days notice of cancellation. D) After a policy has been in force for at least 60 days, it can be cancelled by the insurer if the risk has increased substantially since the policy was issued.

B) At least 100 days notice of cancellation must be given if an insurer cancels a policy for nonpayment of premium.

Which of the following statements about the coverage for medical payments to others (Coverage F) under the homeowners policy is true? A) Medical payments may be made for any resident of the named insuredʹs household. B) Medical expenses incurred within 3 years of an accident are covered. C) Medical payments are made only if the insured is not legally liable. D) Covered medical expenses are limited to emergency room charges.

B) Medical expenses incurred within 3 years of an accident are covered.

All of the following statements about covered perils and loss settlement under an unendorsed Homeowners 3 policy are true EXCEPT A) The dwelling is covered on an all-risk basis. B) Personal property losses are settled on a replacement cost basis. C) Losses to the dwelling may be settled on an actual cash value basis. D) Personal property is covered on a named-perils basis.

B) Personal property losses are settled on a replacement cost basis.

All of the following statements about the coverage for loss of use (Coverage D) under the Homeowners 3 policy are true EXCEPT A) If a covered loss makes the home unfit for living, the insurer pays additional living expenses the insured may incur as a result of the loss. B) The duration of payments for additional living expenses is limited to a maximum of 15 days. C) There is coverage for the fair rental value of any part of the premises rented to others. D) There is coverage if civil authorities prohibit the insured from using the premises because of a loss to a neighboring premises from an insured peril.

B) The duration of payments for additional living expenses is limited to a maximum of 15 days.

All of the following requirements must be met to satisfy the doctrine of res ipsa loquitur EXCEPT A) The injured party has not contributed to the accident in any way. B) The injured party must prove negligence on the part of the defendant. C) The event is one that normally does not occur in the absence of negligence. D) The defendant has exclusive control over the instrumentality causing the accident.

B) The injured party must prove negligence on the part of the defendant.

All of the following losses are excluded from coverage under Section II of an unendorsed Homeowners 3 policy EXCEPT A) Phyllis, a medical technician, misread a lab test and the patient is suing her. B) While using his canoe, Bert hit another canoe. The other canoe sank. Bert is being sued. C) Violet runs a for-profit daycare service in her home. The parents of a child injured while in Violetʹs care are suing Violet. D) The homeownerʹs son was injured when he fell off a swing in the homeownersʹs yard.

B) While using his canoe, Bert hit another canoe. The other canoe sank. Bert is being sued.

Which of the following property is covered under the personal property coverage (Coverage C) of the Homeowners 3 policy? A) a pet iguana owned by the named insuredʹs spouse B) a bicycle owned by a foster child living with the named insured C) music CDs located in the named insuredʹs automobile D) a stamp collection insured under a separate policy

B) a bicycle owned by a foster child living with the named insured

All of the following are exclusions in the homeowners policy that apply to medical payments to others (Coverage F) EXCEPT A) bodily injury resulting from nuclear radiation. B) bodily injury to persons who are social guests at the insured location. C) bodily injury to persons eligible to receive workers compensation benefits. D) bodily injury to residents of the household who are in the care of an insured.

B) bodily injury to persons who are social guests at the insured location.

All of the following are categories of torts EXCEPT A) intentional torts. B) breach of contract. C) strict liability. D) negligence.

B) breach of contract

All of the following are proposed solutions to the medical malpractice problem EXCEPT A) shortening the statute of limitations for filing lawsuits. B) eliminating arbitration panels to resolve disputes. C) placing limitations on contingent fees charged by attorneys. D) placing limitations on damage awards.

B) eliminating arbitration panels to resolve disputes.

15) A situation in which a person is held legally liable even though fault or negligence cannot be proven is an example of A) an intentional tort. B) general damages. C) strict liability. D) comparative negligence.

C

18) Cal is renting an apartment. Which homeowners policy is specially designed to insure renters? A) HO-2 B) HO-6 C) HO-4 D) HO-3

C

2) Which of the following statements about torts is (are) true? I. The person who is injured or harmed by a tort is called a plaintiff or claimant. II. The punishment for committing a tort is damages in the form of money. A) I only B) II only C) both I and II D) neither I nor II

C

20) A shortcoming of state regulation of insurance found by Congressional committees and the General Accounting Office is that state regulation A) leads to decentralized governmental power. B) provides opportunities for innovation. C) provides inadequate consumer protection. D) is more responsive to local needs.

C

21) The major reasons for insurer insolvency include which of the following? I. Inadequate pricing and loss reserves II. Rapid growth and inadequate surplus A) I only B) II only C) both I and II D) neither I nor II

C

29) Which of the following is an intentional tort? A) negligence B) murder C) slander D) strict liability

C

34) Section II of the homeowners policy has exclusions applying to all of the following EXCEPT A) business activities. B) transmission of a communicable disease. C) activities of the named insured's minor children. D) intentional injuries.

C

42) During the financial crisis, the U.S. federal government stepped-in to prevent the financial failure of the world's largest insurer, the American International Group (AIG). AIG's near insolvency was caused by A) catastrophic hurricane and earthquake losses that were not reinsured. B) fraudulent accounting practices that had inflated earnings for many years. C) losses on derivative loan guarantees issued by the company. D) over-investment in U.S. equity markets and the sharp drop in U.S. equity values.

C

48) The insurance company's 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. A) I only B) II only C) both I and II D) neither I nor II

C

49) Failure to exercise the degree of care required by law to protect others from harm is called A) punitive damages. B) premeditated liability. C) negligence. D) vicarious liability.

C

50) Persons insured under Section I of the Homeowners 3 policy include which of the following? I. A spouse of the named insured if living in the same household II. The named insured's children who are under age 24 and who are full-time college students A) I only B) II only C) both I and II D) neither I nor II

C

7) 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) A) nonadmitted insurer. B) foreign insurer. C) alien insurer. D) reciprocal insurer.

C

Which of the following statements about offer and acceptance for insurance contracts is true? A) In property and liability insurance, agents typically do not have the authority to bind coverage. B) In life insurance, the agent can usually accept an offer by immediately binding coverage. C) In property insurance, the offer and acceptance are usually in writing but may be oral. D) In life insurance, the offer is merely the promise to pay the first premium.

C) In property insurance, the offer and acceptance are usually in writing but may be oral.

All of the following losses are covered under Section II of an unendorsed Homeowners 3 policy EXCEPT A) The homeowner accidentally dropped a bowling ball, injuring another bowlerʹs foot. B) A baby sitter slipped and fell at the insuredʹs home, breaking her ankle and incurring medical expenses. C) The insured slandered a city council member at a city council meeting. D) The insuredʹs dog bit a neighbor.

C) The insured slandered a city council member at a city council meeting.

Which of the following statements about subrogation is true? A) It is used primarily for losses paid under life insurance policies. B) It allows the insurer to sue its own insured who is negligent. C) The insuredʹs right to collect benefits may be forfeited if the insured interferes with the insurerʹs rights after a loss occurs. D) The insurer is required to exercise its subrogation rights.

C) The insuredʹs right to collect benefits may be forfeited if the insured interferes with the insurerʹs rights after a loss occurs.

The Homeowners 3 policy limits the amount of coverage provided on certain personal property (e.g. coin collections and silverware). This personal property can be adequately insured by A) lowering the deductible which applies to personal property losses. B) storing the property away from the home at another location. C) adding a schedule to the policy listing the property with specific amounts of insurance. D) adding an appraisal clause to the policy.

C) adding a schedule to the policy listing the property with specific amounts of insurance.

Which of the following losses to a dwelling would be covered under an unendorsed Homeowners 3 policy? A) smoke damage resulting from agricultural operations of a neighboring farmer B) damage to the structure caused by a flash flood C) damage to the structure caused by the weight of heavy snow D) damage to a floor caused by water backing up through a sewer pipe

C) damage to the structure caused by the weight of heavy snow

Which of the following losses would be covered under the medical payments coverage of the Homeowners 3 policy? A) injuries to another person arising out of the insuredʹs negligent operation of a vehicle B) medical payments resulting from the transmission of a communicable disease C) injury to a resident employee at the insuredʹs home D) workers compensation medical payments

C) injury to a resident employee at the insuredʹs home

All of the following are general exclusions under Section I of the Homeowners 3 policy EXCEPT A) losses due to earthquake. B) losses due to the failure of the insured to use all reasonable means to save and preserve property after the time of a loss. C) losses resulting from a power failure caused by an insured peril at the residence premises. D) losses due to radiation from a nuclear power plant.

C) losses resulting from a power failure caused by an insured peril at the residence premises.

17) Which of the following statements about premium taxes is (are) true? I. They are levied by the federal government as a result of the McCarran-Ferguson Act. II. Their primary purpose is to provide funds for insurance regulation. A) I only B) II only C) both I and II D) neither I nor II

D

19) For which of the following situations would there be personal liability coverage under the homeowners policy? I. The named insured accidentally injures her husband with a chain saw. II. The named insured breaks his wife's valuable vase while practicing his golf swing. A) I only B) II only C) both I and II D) neither I nor II

D

22) Tom opened a store in a mall. His store is located between a theater and a department store. Tom counts on the theater and department store to generate walk-in business at his store. While his store has been successful, Tom knows that if either or both of the other businesses closed, his store would suffer an economic loss. What type of dependent property situation is illustrated in this scenario? A) recipient location B) contributing location C) manufacturing location D) leader location

D

25) 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) A) domestic insurer. B) captive insurer. C) foreign insurer. D) alien insurer.

D

31) ABC Insurance Company would like to purchase a bank. For many years, ABC was not permitted under federal law to enter into banking operations. Which of the following legislative acts eliminated the prohibition that prevented banks, insurers, and investment firms from entering into one another's markets? A) The McCarran-Ferguson Act B) The Tax Reform Act C) The Consolidated Omnibus Budget Reconciliation Act D) The Financial Modernization Act (Gramm-Leach-Bliley Act)

D

All of the following statements about the personal liability coverage (Coverage E) of an unendorsed homeowners policy are true EXCEPT A) Coverage is written on an occurrence basis. B) Coverage is provided for bodily injury liability. C) Coverage is provided for property damage liability. D) Coverage is provided for personal injury liability.

D) Coverage is provided for personal injury liability.

Jose and Maria would like ʺall-risksʺ coverage on their home and their personal property. Which unendorsed homeowners form provides this coverage? A) Homeowners 2 B) Homeowners 3 C) Homeowners 4 D) Homeowners 5

D) Homeowners 5

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.

Shauna hurt her back and was unable to work. She filed a claim under her disability income insurance policy. Under terms of the policy, 60 days must pass between the date of the injury and when the insurer begins to replace lost earnings. This 60-day period is called a(n) A) grace period. B) enrollment period. C) probationary period. D) elimination (waiting) period.

D) elimination (waiting) period.

Section I of the Homeowners 3 policy provides coverage for all of the following EXCEPT A) loss of use. B) personal property. C) other structures. D) medical payments.

D) medical payments.

A false statement made by an applicant for insurance is an example of a A) concealment. B) breach of warranty. C) lack of offer and acceptance. D) misrepresentation.

D) misrepresentation.

Failure to exercise the degree of care required by law to protect others from harm is called A) premeditated liability. B) vicarious liability. C) punitive damages. D) negligence.

D) negligence.

Persons insured for personal liability under the homeowners policy include which of the following? I. Relatives while visiting the named insured. II. Overnight guests who are not relatives of the named insured. 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 Medicare prescription drug benefit is (are) true? I. Beneficiaries select a prescription drug plan and pay monthly premiums, with the premium reduced or waived for low-income beneficiaries. II. The benefit provides first-dollar coverage of prescription drugs up to a maximum of $10,000 per year, but no coverage after $10,000.

I only

Which of the following statements about the financial status of Medicare Part A is (are) true? I. Part A has serious financial problems. II. Reforms instituted by Congress have reduced total Part A expenditures in recent years.

I only

Which of the following statements about the financing of OASDI and Medicare is (are) true? I. There is a maximum taxable wage base for OASDI. II. There is a maximum taxable wage base for Part A of Medicare.

I 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 insured's 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.

II only

Which of the following statements about hospice benefits under the hospital insurance (Part A) portion of Medicare is (are) true? I. Hospice benefits are payable only while the beneficiary is hospitalized. II. Hospice benefits are provided to persons who are terminally ill.

II only

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?

Larry's policy automatically provided $50,000 of liability coverage.

All of the following statements about class rating are true EXCEPT: A) Exposures with similar characteristics are placed in the same underwriting class. B) The rate charged for each class reflects the average loss experience for that class. C) The complexity of class rating makes it inappropriatefor personal lines coverages. D) It is based on the assumption that future losses to insureds will be determined by the same classification factors currently in use.

The complexity of class rating makes it inappropriatefor personal lines coverages

What is the legal significance of a material concealment by an insurance applicant? The contract is voidable at the insurerʹs option.

The contract is voidable at the insurerʹs option.

Which of the following situations would be covered by the liability section of an unendorsed PAP if the insured is legally liable?

The insured backs into and damages the garage door of his rented house.

Which of the following statements is (are) true with respect to annuities? I. Annuities are the opposite of life insurance. II. The fundamental purpose of annuities is to replace lost income in case of premature death. A) I only B) II only C) both I and II D) neither I nor II

a

Life insurance policyowners may borrow the cash value from their life insurance policies. Where are life insurance policy loans shown on a life insurance company!s financial statements? A) as an asset B) as a liability C) as income D) as an expens

as an asset

Which of the following statements is/are true regarding exclusions in life insurance contracts? I. Life insurance policies are remarkably restrictive, including numerous exclusions. II. A life insurer may exclude death attributable to certain activities or hobbies disclosed on the application. A) I only B) II only C) both I and II D) neither I nor II

b

Which of the following statements is (are) true with respect to the Social Security earnings test? I. The earnings test does not apply to dividends, interest, and rental income. II. The earnings test does not apply to work earnings for those individuals who have reached the full retirement age under Social Security.

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. A) I only B) II only C) both I and I D) neither I nor II

both I and II

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 friend's auto

both I and II

Which of the following statements about schedule rating is (are) true? I. It involves the determination of a basis rate for each exposure, which is then modified by credits or debits. II. It is based on the assumption that certain physical characteristics of the insured!s operations will influence the insured!s future loss experience. A) I only B) II only C) both I and II D) neither I nor II

both I and II

Which of the following statements about the liability limits of the PAP is (are) true? I. The policy can be written with split limits of liability. II. Prejudgment interest is considered part of the damage award and is subject to the policy limit

both I and II

Which of the following statements is (are) true concerning investments of property and casualty insurers and life insurers? I. Property and casualty insurance companies place greater emphasis on liquidity than do life insurers. II. Life insurance company investments are, on average, of longer duration than property and casualty insurance company investments. A) I only B) II only C) both I and II D) neither I nor I

both I and II

) Purposes of life insurance policy reserves include which of the following? I. Legal test of the insurer's solvency. II. Formal recognition of the obligation to pay future claims. A) I only B) II only C) both I and II D) neither I nor II

c

All of the following items would appear in the income section of an insurance company!s income and expense statement EXCEPT: A) gain on sale of securities. B) common stock dividends. C) commissions. D) premiums.

commissions.

Which of the following statements about the grace period in a life insurance contract is (are) true? I. It is usually between 90 and 180 days in duration. II. If the insured dies during the grace period, the death benefit is reduced by 50 percent. A) I only B) II only C) both I and II D) neither I nor II

d

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: A) schedule rating. B) judgment rating. C) experience rating. D) retrospective rating.

experience rating.

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.

exposure

The unit of measurement used in property and casualty insurance pricing is called the: A) unit rate. B) premium. C) exposure unit. D) experience unit.

exposure unit

he portion of an insurance premium allocated to expenses, profit, and a margin for contingencies is called the: A) loading. B) pure premium. C) gross premium. D) experience rate.

loading

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 ABC!s director of ratemaking. Nathan calculated the pure premium and presented this value as the final premium. After Nathan!s presentation, the director of ratemaking said, "You left out something very important. If we sell coverage at the pure premium rate, we!ll be out of business soon."What did Nathan overlook in his calculations? A) loadings B) the underwriting cycle C) seasonality of claims D) investment income

loadings

Which of the following statements about a worker's primary insurance amount is (are) true? I. It is the monthly amount paid to a worker who elects early retirement at age 62. II. It is equal to 50 percent of the worker's final average pay that was subject to Social Security taxes.

neither

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: A) net level premium. B) gross premium. C) net single premium. D) life insurance policy reserve.

net single premium.

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

occupancy

RST is a manufacturer. The company does not have a good safety record and pays high workers compensation premiums. RST just hired a new risk manager, and she has instituted several employee safety programs. She has also persuaded the insurer writing RST!s workers compensation insurance to base the premium on RST!s actual loss experience during the current period rather than on the company!s historical performance. This type of plan is called a(n): A) retrospectively rated plan. B) class rated plan. C) experience rated plan. D) judgment rated plan.

retrospectively rated plan.

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.

subrogation.

Under one method of estimating a loss reserve, the reserve is based on life expectancy, duration of disability, remarriage of the beneficiary, and similar factors. This method of estimating loss reserves is called the: A) judgment method B) tabular value method. C) loss ratio method. D) average value method

tabular value method

Under certain conditions, the wrongful acts of one person can be attributed to another person. This practice is called A) imputed negligence.

...

LMN Mutual Insurance Company has total liabilities of $300 million. The company has total assets of $380 million. What is LMN!s policyholders!surplus? A) $680 million B) $340 million C) $80 million D) -$80 million

$80 MILLION

James was injured in an auto accident caused by another motoristʹs negligence. To reimburse him for his hospital bills and lost earnings, items which can be specifically itemized, James will receive special damages.

...

Under one doctrine, a person who understands the danger inherent in an activity cannot recover damages in the event of injury from the activity. This doctrine is the assumption of risk doctrine.

...

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? A) $900

...

Kate is covered under her employerʹs group health plan. She is also covered as a dependent under her husbandʹs group health plan. Under the usual coordination -of-benefits provision, how will each company respond to a claim filed by Kate? A) Kateʹs plan is primary, and her husbandʹs plan is excess.

...

Why are insurance contracts said to be contracts of adhesion? B) One party writes the contract, and the other party must accept the entire contract as written.

...

Kevin has three liability policies which provide for contribution by equal shares if other insurance applies to a loss. How much will each policy pay for a $3,000,000 liability judgment if policy A provides $500,000 of coverage, policy B provides $1,000,000 of coverage, and policy C provides $3,000,000 of coverage? Policy A will pay $500,000, policy B will pay $1,000,000, and policy C will pay $1,500,000.

...

A credit-based score that is highly predictive of future claims cost is an individualʹs: insurance score.

...

A defendant who is only slightly liable may be required to pay the full amount of damages under which of the following? A) the joint and several liability rule

...

A dwelling with a replacement cost of $150,000 was insured under a Homeowners 3 policy for $100,000 at the time the roof was destroyed by a windstorm. The actual cash value of the loss was $9,000, but it will cost $12,000 to replace the roof. Assuming no deductible, what will the insurer pay to settle this loss? $10,000

...

ABC Company insured its building on a replacement cost basis for $700,000 under a property insurance policy that included an 80 percent coinsurance clause. The building had a replacement cost of $1 million when it sustained a $40,000 loss. How much will ABC Company receive from its insurer, assuming no deductible applies? $35,000

...

Arguments in favor of reforming the civil justice system include which of the following? I. There is often a long delay in settling lawsuits.

...

As an alternative to coinsurance, rate discounts can be given as the amount of insurance to value increases. This alternative is called A) graded rates.

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At what point in time must an insured meet the coinsurance requirement in a property insurance policy in order to avoid having to pay a portion of the loss? A) only at the time of loss

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Bettyʹs personal property is insured for $100,000 under her Homeowners 3 policy. If she usually keeps some personal property at a mountain cabin that she owns, how much coverage for this property is available under her homeowners policy? $10,000

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Bruce believes a local manufacturer is responsible for contaminating some land he owns. He filed suit against the company. Rather than have the case go to court, the manufacturing companyʹs legal team suggested mediation or arbitration to settle the case. Methods that are employed to resolve legal disputes without litigation, such as mediation, are called: alternative dispute resolution techniques.

...

Cal is renting an apartment. Which homeowners policy is specially designed to insure renters? HO-4

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Compensatory damages include: general damages and special damages.

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Congress passed the Sarbanes-Oxley Act to address which of the following problems? corporate fraud and lax corporate governance

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Connie has a major medical policy with a $200 deductible and a 75 -25 coinsurance clause. If she has eligible medical expenses of $10,000, how much will be paid by her insurer? $7,350

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Damages awarded for losses that can be determined or measured are A) special damages.

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Darla purchased an unendorsed Homeowners 3 policy. While the policy was in force, a fire occurred that destroyed a living room set. The living room set cost $4,000 new, but was 25 percent depreciated when the loss occurred. Replacement furniture will cost $4,400. Assuming no deductible, how much will Darla receive from her insurer? $3,300

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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 B) being a secured creditor.

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David has a Homeowners 3 policy that provides $280,000 of insurance on his dwelling, which has a current replacement value of $400,000. Ignoring any deductible, how much will David collect if a kitchen with a replacement value of $24,000 but an actual cash value of $18,000 is destroyed in a fire? $21,000

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David owns a commercial building with a replacement cost of $4 million. The building is insured on a replacement cost basis for $3 million under a fire insurance policy that has an 80 percent coinsurance clause. How much will David collect if the building sustains a covered fire loss with a replacement cost of $320,000? $300,000

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Ellen believes the value of the loss to her home is $30,000. The insurer has offered $18,000 to settle the loss. If Ellen and the insurer cannot agree on the value of the loss, which homeowners policy provision specifies how this dispute will be settled? appraisal clause

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Heather sued Robert for injuries suffered in an automobile accident. Based upon the facts presented, the jury concluded that Heather was 40 percent at fault in the accident and Robert was 60 percent at fault. Under the common law doctrine of contributory negligence, the jury should award Heather A) nothing.

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If there is a conflict between state law and a provision in a homeowners policy: the state law takes precedence.

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In the context of medical malpractice, what is a ʺnever eventʺ? A medical error that should never occur.

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Lauraʹs major medical insurance policy includes a $500 deductible and an 80 -20 coinsurance clause. Laura was hospitalized and her covered medical expenses were $10,500. How much of the $10,500 will be paid by the insurer under Lauraʹs major medical policy? $8,000

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Linda wants to purchase a homeowners policy, but she has some valuable personal property to which internal policy limits apply. Her agent said that she could obtain coverage under her homeowners policy by attaching a list of this valuable property with specific amounts of insurance. Such a listing is called a: schedule.

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Lisa has three fire insurance policies on her office building. The policy from company A is for $400,000, and the policies from companies B and C are for $100,000 each. If Lisa has a $360,000 loss, how much of the loss will be covered by each policy if the loss is settled on a pro rata basis by the insurers? policy A: $240,000; policies B and C: $60,000 each

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Louise was in a hurry and tried to cross the street in the middle of the block rather than at a street corner. A car struck her. Even though Louise placed herself in danger, she may still be able to collect for her injuries if the driver had an opportunity to avoid hitting her but failed to do so. This rule is called the A) last clear chance rule.

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Mark owns a building that he insured for $90,000. The replacement cost of the building is $100,000. Markʹs property insurance policy has an 80 percent coinsurance clause and no deductible. If Markʹs building is destroyed by a covered peril, how much will Mark receive from his insurer? $90,000

...

Mark reviewed his homeowners policy. He learned that his personal property was insured on an actual cash value basis. He would like replacement cost coverage on the property. He contacted his agent who said, ʺIʹll simply add an amendment to your contract that changes the basis of recovery to replacement cost.ʺ The written provision the agent was referring to is called a(n) A) endorsement.

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Michelle had major abdominal surgery. Months after the surgery, she still did not feel well. When she was operated on again, the surgeon discovered two sponges that were not removed at the conclusion of the first operation. Michelle should be able to collect damages without having to prove negligence under the doctrine of: res ipsa loquitor.

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Nancy was injured when she drove her car through a stop sign and was struck by Philipʹs car. Philip saw Nancy and could have stopped. However, he failed to do so since he had the right-of-way. Nancy can recover damages from Philip under which of the following legal doctrines? B) the last clear chance rule

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One method of providing group health insurance is a basic medical expense plan supplemented with major medical insurance. The insured is required to pay a deductible between where the basic coverage ends and where the major medical coverage begins. This deductible is called a(n) A) corridor deductible.

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One tort reform permits manufacturers to assert that as long as the product conformed to the prevailing technology and production methods at the time it was produced, it cannot be considered a defective product today. This defense is called the state of the art defense.

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Purposes of the coinsurance clause in health insurance contracts include which of the following? I. To reduce premiums.

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Robert purchased an unendorsed Homeowners 3 policy. He is concerned that if his personal property is destroyed, the insurer will take depreciation into consideration when determining the loss settlement and will pay him less than the amount needed to purchase new property. Which endorsement can Robert add to his Homeowners 3 policy to address this concern? personal property replacement cost endorsement

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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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Shauna purchased a condominium unit. Which homeowners policy is specially designed for condominium unit owners? HO-6

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Steve was involved in an auto accident. Both drivers were partially at fault for the accident. Steveʹs actual damages were $50,000. He was judged to be 60 percent at fault. If Steveʹs state has a 51 percent rule for comparative negligence, how much will Steve collect? $0

...

Steve was involved in an auto accident. Both drivers were partially at fault for the accident. Steveʹs actual damages were $50,000. He was judged to be 60 percent at fault. If Steveʹs state has a pure comparative negligence law, how much will Steve collect? $20,000

...

The exclusion of flood in a homeowners policy is an example of an excluded peril.

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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 B) the principle of reasonable expectations .

...

The policy provision requiring the filing of proof of loss with the insurer is an example of a(n) condition.

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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 primary purpose of coinsurance in property insurance is to achieve equity in rating.

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Trisha was injured when the delivery truck for a local furniture store struck her. The delivery driver claimed the brakes of the delivery truck failed, causing the accident. Trisha filed suit, and in her lawsuit named the delivery driver, the furniture store, the service station responsible for vehicle maintenance, and the manufacturer of the vehicle. Even though the manufacturer of the vehicle may be only 1 percent responsible for the accident, it may be required to pay a large percentage of the damages under the: joint and several liability rule.

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Under the terms of Jennyʹs auto insurance policy, she must pay the first $500 of any physical damage loss to her vehicle before her insurer will pay anything. What type of deductible is included in Jennyʹs auto insurance policy? C) straight deductible

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What information is contained in the insuring agreement of an insurance policy? B) a summary of the major promises of the insurer

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What is the effect of the family purpose doctrine? to impose liability on the owner of an automobile for the negligence of immediate family members operating the automobile

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What is the practical effect of an insurance policy being a conditional contract? A) The insurer can refuse to a pay claim unless the insured has complied with all policy provisions.

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When must an insurable interest legally exist in life insurance? B) 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? A) only at the time of the loss

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Which distinct legal characteristic of insurance contracts states that only the insurerʹs promise to perform is legally enforceable? unilateral contracts

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Which homeowners policy is designed for the tenants of rented premises? Homeowners 4

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Which of the following is a fundamental purpose of the principle of indemnity? A) to reduce moral hazard

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Which of the following situations is covered under Section II of an unendorsed homeowners policy? B) injuries resulting from an auto not subject to registration because it is in dead storage

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Which of the following statements about a warranty in an insurance contract is (are) true? I. It is part of the insurance contract.

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Which of the following statements about an earthquake endorsement for a homeowners policy is (are) true? I. The endorsement also covers landslides and volcanic eruptions.

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Which of the following statements about buying homeowners insurance is true? C) Premiums often can be reduced substantially by selecting a higher deductible.

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Which of the following statements about comparative negligence laws is (are) true? II. Under the 50 percent rule, parties who are equally at fault are each allowed to recover damages.

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Which of the following statements about covered perils under the personal property coverage (Coverage C) of the Homeowners 3 policy is true? A) Theft losses to boats and watercraft are covered only if they occur at the insuredʹs residence.

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Which of the following statements about eligibility requirements for homeowners insurance is (are) true? II. Separate forms are available for renters and condominium owners.

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Which of the following statements about endorsements to the homeowners policy is (are) true? I. The purpose of the inflation guard endorsement is to help prevent home owners from being under-insured.

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Which of the following statements about the additional coverage for damage to property of others in Section II of the homeowners policy is true? B) Payments are made on the basis of the replacement cost of the damaged property.

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Which of the following statements about the additional coverages under Section I of the Homeowners 3 policy is true? A) There is coverage for the reasonable cost incurred to protect property from further damage after a covered loss occurs.

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Which of the following statements about the appraisal clause in the Homeowners 3 policy is (are) true? II. It is used to help settle disputes over the amount of a loss after a loss has occurred.

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Which of the following statements about the coverage for other structures (Coverage B) under the Homeowners 3 policy is true? A) The amount of insurance on other structures is equal to a percentage of the coverage on the dwelling.

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Which of the following statements about the definition of the insured is (are) true? I. In some cases, a person who is not specifically named may be classified as an insured.

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Which of the following statements about the elements of negligence is (are) true? I. The negligence of the tortfeasor may arise from a failure to act.

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Which of the following statements about the immunity of governmental entities is (are) true? II. Many courts have eliminated the immunity of government entities.

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Which of the following statements about the legal obligations of a property owner is (are) true? I. A property owner must inspect the premises for the benefit of an invitee and correct any unsafe conditions.

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Which of the following statements about the replacement cost provision of the Homeowners 3 policy is true? B) Except for small losses, the insured must repair or replace the damaged property in order to receive full replacement cost.

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Which of the following statements about ʺall-risksʺ coverage is (are) true? I. All losses are covered except those losses specifically excluded.

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Which of the following statements concerning the scheduled personal property endorsement with agreed value loss settlement? I. The endorsement provides ʺall-risksʺ coverage on the scheduled property.

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Which of the following statements is (are) true concerning the home business insurance coverage endorsement? I. It increases the coverage on business personal property at the insured residence from $2,500 to the Coverage C limit.

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Which of the following types of insurance policies can usually be assigned without the insurerʹs consent? I. Life insurance

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XYZ Company insured its building on a replacement cost basis for $450,000 under a property insurance policy that included an 80 percent coinsurance clause. The building had a replacement cost of $500,000 when it sustained a $50,000 loss. How much will XYZ Company receive from its insurer, assuming no deductible applies? $50,000

...

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

KL Insurance Company reported the following information on its accounting statements last year: Premiums Written $90,000,000 Loss Adjustment Expenses $5,000,000 Underwriting Expenses $30,000,000 Premiums Earned $100,000,000 Incurred Losses $70,000,000 What was JKL!s combined ratio last year? A) 100.0 B) 103.3 C) 105.0 D) 108.3

108.3

the expected loss ratio for a class of business is 60 percent. What change would be indicated in the level of rates under the loss ratio method if the actual loss ratio turned out to be 68 percent? A) 6.67 percent B) 13.33 percent C) 25.00 percent D) 33.33 percent

13.33 percent

JKL Insurance Company reported the following information on its accounting statements last year: Premiums Written Loss Adjustment Expenses Underwriting Expenses Premiums Earned Incurred Losses What was JKL!s expense ratio last year? A) 5.0 percent B) 30.0 percent C) 33.3 percent D) 50.0 percent

33.3 percent

MedProf Insurance markets medical malpractice insurance. The company!s combined ratio in 2006 was 95.4. Its expense ratio was 25.4. What was the company!s loss ratio? A) 60.4 B) 70.0 C) 88.2 D) 120.

70.0

JKL Insurance Company reported the following information on its accounting statements last year:Premiums Written Loss Adjustment Expenses Underwriting Expenses Premiums Earned Incurred LossesWhat was JKL!s loss ratio last year? A) 70.0 percent B) 75.0 percent C) 83.3 percent D) 90.0 percent

75.0 percent

13) Damages awarded for losses that can be determined or measured are A) special damages. B) punitive damages. C) general damages D) comparative damages.

A

13) Which of the following statements about state insurance guaranty funds is (are) true? I. They limit the amount that policyholders can collect if an insurer becomes insolvent. II. They are usually funded by general revenues of the states. A) I only B) II only C) both I and II D) neither I nor II

A

14) XYZ, Inc. would suffer serious financial consequences if either of its two major customers were shut down and could not purchase XYZ products. Which of the following types of consequential loss protection would provide protection against this exposure? A) business income from dependent properties B) marine insurance C) leasehold interest

A

15) 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? A) flex-rating law B) prior-approval law C) file-and-use law D) use-and-file law

A

17) John has an auto which is covered for collision losses subject to a $250 deductible. Kate's auto also has collision coverage but her deductible is $500. Which of the following statements describes how a $2,000 collision loss will be paid if it occurs when John borrows Kate's car because his car is in the shop for repairs? A) Kate's policy will pay $1,500, and John's policy will pay $250. B) Kate's policy will pay $1,750, and John's policy will pay nothing. C) John's policy will pay $1,500, and Kate's policy will pay nothing. D) John's policy will pay $1,750, and Kate's policy will pay nothing.

A

23) A credit-based score that is highly predictive of future claims cost is an individual's A) insurance score. B) motor vehicle record score. C) underwriting score. D) CLUE score.

A

25) Heather sued Robert for injuries suffered in an automobile accident. Based upon the facts presented, the jury concluded that Heather was 40 percent at fault in the accident and Robert was 60 percent at fault. Under the common law doctrine of contributory negligence, the jury should award Heather A) nothing. B) 60 percent of her actual damages. C) 100 percent of her actual damages. D) 40 percent of her actual damages

A

27) 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? A) Larry's policy automatically provided $50,000 of liability coverage. B) Larry's policy automatically provided $100,000 of liability coverage. C) Larry had only $25,000 of liability coverage. D) Larry's policy was suspended while he was in the neighboring state.

A

27) Mutual Property Insurance Company has a surplus of $2 million. According to a conservative rule, how much new net premiums can Mutual Property Insurance Company safely write? A) $2 million B) $8 million C) $10 million D) $20 million

A

28) 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 B) premium rebates C) risk-based capital D) admitted assets

A

29) 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, "I will earn a $1,000 commission if you buy this policy. I'll give you $500 of my commission if you buy the policy." In most states, what illegal sales practice will Grace be guilty of if she splits her commission with the purchaser? A) rebating B) churning C) twisting D) backdating

A

31) Jenkins Company purchased a commercial umbrella policy with a $10 million limit and a $100,000 self-insured retention. The insurer required Jenkins Company to carry a $1 million per-occurrence limit on its general liability policy and a $1 million per-occurrence limit on its business auto policy. Jenkins purchased these required limits. A Jenkins driver was negligent while operating a company vehicle and killed another motorist. The court ruled that Jenkins must pay $5 million. How much of this amount will be paid by the umbrella policy? A) $4.0 million B) $5.0 million C) $1.0 million D) $3.9 million

A

32) Rick is risk manager of Herald News, a daily newspaper in a competitive market. Rick wants to make sure that if Herald's printing facility is damaged or destroyed, the paper will continue to be published. What type of insurance can Rick purchase to cover the added cost of continuing to print the paper after a physical damage loss has occurred? A) extra expense coverage B) product liability insurance C) business income from dependent properties coverage D) contingent business income coverage

A

35) Bay Gallery owns a building a Wharf Street. Bay Gallery purchased a Commercial General Liability Policy with no endorsements. All of the following claims would be covered under the policy EXCEPT A) An employee of the gallery accidentally started a fire that caused extensive damage to the building. B) A customer is injured after falling on a slippery floor at the gallery. C) A customer is injured when a painting falls from the wall and strikes the customer. D) An artist sued the gallery for slander after an employee of the gallery said the artist's work looks like it was painted by an intoxicated monkey.

A

40) All of the following are considered to be instrumentalities of transportation and communication for purposes of inland marine insurance EXCEPT A) trains. B) television towers. C) tunnels. D) transmission lines.

A

41) Which of the following is covered under the building and personal property coverage form? A) the insured's stock and inventory when located inside the insured building B) vehicles owned by the insured C) a manufacturing building owned by a key customer or key supplier of the insured. D) aircraft and watercraft owned by the insured

A

42) All of the following are covered under the dwelling coverage (Coverage A) of the Homeowners 3 policy EXCEPT A) the land on which the insured dwelling is located. B) any structure attached to the dwelling. C) materials and supplies intended for alteration or repair of the dwelling. D) materials and supplies intended for construction of a detached garage.

A

43) Which of the following statements about the businessowners policy is (are) true? I. It is designed to meet the insurance needs of large manufacturing firms. II. It is a package policy designed to meet the basic property and liability needs of an insured in a single contract. A) I only B) II only C) both I and II D) neither I nor II

A

5) Which of the following statements about the licensing of insurance companies is (are) true? I. A new capital stock insurer must meet minimum capital and surplus requirements, which vary by state and line of insurance. II. The licensing requirements for insurance companies are less stringent than those imposed on most other types of firms. A) I only B) II only C) both I and II D) neither I nor II

A

6) All of the following persons are insured for personal liability under the homeowners policy EXCEPT A) nonresident employees of the named insured. B) children of the named insured under age 24 who are attending college full time and temporarily residing elsewhere. C) foster children under the age of 21 who reside with the named insured. D) the spouse of the named insured if a resident of the same household.

A

8) Which of the following statements about the business income coverage form is true? A) The form covers loss of business income and extra expenses incurred during restoration. B) Business income is defined as gross earnings before taxes. C) Payroll is excluded unless it is specifically added. D) The form can be used by a manufacturing operation only.

A

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

A combined ratio less than 1 (or 100 percent) indicates that an underwriting loss has occurred

Liability arising out of all of the following are covered under the personal injury endorsement to the homeowners policy EXCEPT A) property damage. B) false arrest. C) libel. D) slander.

A) property damage.

Section II of the homeowners policy has exclusions applying to all of the following EXCEPT A) activities of the named insuredʹs minor children. B) business activities. C) transmission of a communicable disease. D) intentional injuries.

A) activities of the named insuredʹs minor children.

Liability arising out of all of the following are covered under the personal injury endorsement to the homeowners policy EXCEPT A) bodily injury. B) malicious prosecution. C) slander. D) invasion of privacy.

A) bodily injury.

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 covered perils under the personal property coverage (Coverage C) of an unendorsed Homeowners 3 policy EXCEPT A) earthquake. B) theft. C) windstorm. D) explosion.

A) earthquake.

The major difference between the Homeowners 2 policy and the Homeowners 3 policy is the A) insured perils for the dwelling. B) insured perils for personal property. C) type of liability coverage provided. D) amount of coverage for other structures.

A) insured perils for the dwelling.

Deductibles are used in all of the following types of insurance EXCEPT A) life insurance. B) health insurance. C) property insurance. D) automobile insurance.

A) life insurance.

All of the following would appear in the asset section of an insurance company!s balance sheet EXCEPT: A) loss reserves. B) bonds. C) common stock D) real estate.

A) loss reserves

All of the following are examples of intentional torts EXCEPT A) negligence. B) trespass. C) slander. D) assault.

A) negligence.

All of the following situations are excluded from coverage under Section II of the homeowners policy EXCEPT A) the rental of a spare bedroom which is used by the tenant as an office. B) the use of a rented airplane to take a vacation. C) the ownership of a ten-unit apartment house as an investment. D) the performance of professional services by the insured at the residence premises.

A) the rental of a spare bedroom which is used

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 of the following are duties of the mortgagee under the standard mortgage clause EXCEPT A) to reimburse the insurer for any loss payments. B) to notify the insurer of any change in ownership of the property of which the mortgagee is aware. C) to provide a proof of loss form if the insured fails to do so. D) to pay the premium if the insured fails to do so.

A) to reimburse the insurer for any loss payments.

1) All of the following are elements of negligence EXCEPT A) proximate cause between the negligent act and the injury or harm that occurs. B) the ability to pay damages. C) damages or injuries to a claimant. D) the failure to perform a legal duty to use reasonable care

B

12) Under a dram shop law, a business may be held liable for damages resulting from A) the creation of an unsafe work place. B) the sale of alcohol. C) the creation of a hostile work environment. D) the sale of prescription drugs.

B

18) Which of the following is an advantage of federal regulation of insurance over state regulation of insurance? A) greater opportunity for innovation B) more effective treatment of systemic risk C) greater responsiveness to local needs D) more competent regulators

B

2) The right of the states to regulate the business of insurance was first established by A) the South-Eastern Underwriters Association case. B) Paul v. Virginia. C) the Financial Modernization Act. D) the Sherman Act.

B

21) All of the following are general exclusions under Section I of the Homeowners 3 policy EXCEPT A) losses due to earthquake. B) losses resulting from a power failure caused by an insured peril at the residence premises. C) losses due to radiation from a nuclear power plant. D) losses due to the failure of the insured to use all reasonable means to save and preserve property after the time of a loss.

B

24) 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? A) Paul v. Virginia B) South-Eastern Underwriters Association case C) McCarran-Ferguson Act D) Financial Modernization Act

B

26) XYZ Mutual Insurance Company has total assets of $10 million. The policyholders' surplus is $2 million. What are XYZ Mutual's total liabilities? A) $4.0 million B) $8.0 million C) $10.0 million D) $12.0 million

B

33) The regulation of insurers in areas that affect consumers, which include claims handling, underwriting, complaints, advertising, sales practices, and other trade practices is called A) solvency surveillance. B) market conduct regulation. C) combined ratio analysis. D) market share regulation.

B

36) Ted Thomas is risk manager of XYZ Company. He is concerned his company might be sued by current or former employees alleging wrongful termination, failure to promote, racial or gender discrimination, or sexual harassment. What type of liability insurance can Ted purchase to cover these types of claims? A) employer liability insurance B) employment-related practices liability insurance C) directors and officers liability insurance D) workers compensation insurance

B

36) Which of the following statements concerning the proposed optional federal charter for life insurers is (are) true? I. Large insurers operating in many states would more likely prefer a state charter while smaller, regional, insurers would more likely choose a federal charter. II. Proponents of the federal charter argue that it would speed the development and approval of new products. A) I only B) II only C) both I and II

B

37) Which of the following is a method used to help ensure the solvency of insurers? A) commercial lines deregulation B) risk-based capital standards C) use of credit-based insurance scores D) use of no filing required rating laws

B

38) A score derived from an individual's credit history and other factors that is used by many auto and homeowners insurers for underwriting and rating purposes is called a(n) A) CLUE score. B) insurance score. C) expense ratio score. D) combined ratio score.

B

39) All of the following are arguments in favor of using an applicant's credit record in personal lines underwriting EXCEPT A) Most consumers have good credit records and benefit when credit history is used as a rating factor. B) Use of credit data in underwriting and rating eliminates price discrimination against minority groups when they purchase insurance from insurers. C) Underwriting and rating may be more consistent if applicants' credit histories are considered. D) There is high correlation between an applicant's credit record and future claims experience.

B

39) Which of the following statements about monetary damages awarded by a court is (are) true? I. The purpose of general damages is to provide benefits for medical expenses or loss of earnings. II. The purpose of punitive damages is to punish the tortfeasor so that others are deterred from committing the same wrongful act. A) I only B) II only C) both I and II D) neither I nor II

B

4) 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

41) A systemic risk is a risk that A) can be eliminated through diversification. B) can be the cause of the collapse of an entire system. C) can be insured privately. D) can be easily contained so that it does not spread.

B

44) One provision of the Dodd-Frank Act was creation of the Financial Stability Oversight Council. This council is charged with identifying nonbank financial companies that could increase the risk of collapse of the entire financial system. This risk is called A) market risk. B) systemic risk. C) diversifiable risk. D) enterprise risk.

B

44) The Commercial General Liability (CGL) Policy covers liability arising out of which of the following loss exposures? I. Bodily injury of an employee of the insured arising out of and in the course of employment II. Bodily injury of a customer injured by a defective product manufactured by the insured A) I only B) II only C) both I and II D) neither I nor II

B

45) The Dodd-Frank Act created a federal body with some limited regulatory authority. For example, the organization can represent the federal government in international negotiations regarding insurance and it can preempt state law where it conflicts with negotiated international agreements. This body is called the A) National Insurance Bureau. B) Federal Office of Insurance. C) Department of International Insurance. D) International Insurance Bureau.

B

5) All of the following statements about aviation insurance are true EXCEPT A) Aviation insurance is a highly-specialized market with relatively few insurers. B) Liability coverage applies to liability arising out of a workers compensation law. C) Liability coverage also applies to bodily injury arising out of the premises where the aircraft is stored. D) Physical damage coverage can be written on an "all-risks" basis.

B

Fundamental purposes of the principle of indemnity include which of the following? I. To reduce physical hazards. II. To prevent the insured from profiting from insurance. A) I only B) II only C) both I and II D) neither I nor II

B) II only

The Sarbanes-Oxley Act requires which of the following? I. Accounting firms auditing a companyʹs books must provide other major services to the firm besides auditing services. II. The companyʹs Chief Executive Officer (CEO) must swear to the accuracy of quarterly and annual financial reports. 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

B) II only

Which of the following statements about consideration in an insurance contract is (are) true? I. The insuredʹs total consideration is submission of a completed application. II. The insurerʹs consideration is the promise to do those things specified in the policy. 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 monetary damages awarded by a court is (are) true? I. The purpose of general damages is to provide benefits for medical expenses or loss of earnings. II. The purpose of punitive damages is to punish the tortfeasor so that others are deterred from committing the same wrongful act. 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 insurerʹs obligation to provide a legal defense under the personal liability coverage (Coverage E) of the homeowners policy is (are) true? I. The insurer agrees to defend the insured only if the suit is not groundless, false, or fraudulent. II. The insurerʹs obligation to defend the insured ceases after the amount paid for damages from an occurrence equals the policy limit. 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 principle of insurable interest is (are) true? I. It makes it difficult to measure the amount of an insuredʹs loss. II. It reduces moral hazard. A) I only B) II only

B) II only

Which of the following statements is (are) true regarding how the Homeowners 3 policy handles the peril of collapse? I. Collapse is specifically excluded, and there are no exceptions to the exclusion. II. Collapse that is caused by a Coverage C peril is covered. A) I only B) II only C) both I and II D) neither I nor II

B) II only

Which of the following statements regarding watercraft liability under Section II of an unendorsed HO-3 policy is (are) true? I. No coverage is available for watercraft liability. II. Liability arising out of the use of watercraft that are under certain length and horsepower limits is covered. A) I only B) II only C) both I and II D) neither I nor II

B) II only

All of the following statements about the Homeowners 6 (unit-owners form) policy are true EXCEPT A) It includes personal liability coverage. B) It covers personal property on an ʺall-risksʺ basis. C) It provides limited coverage for improvements and alterations. D) It provides limited coverage for loss assessments.

B) It covers personal property on an ʺall-risksʺ basis.

Which of the following statements describes how losses will be settled if a property insurance policy is written on a replacement cost basis? B) Losses are settled without a deduction for depreciation.

B) Losses are settled without a deduction for depreciation.

What is the legal significance of a material misrepresentation in an insurance application? B) The contract is voidable at the insurerʹs option.

B) The contract is voidable at the insurerʹs option.

Michelle had four matching end tables in her home. A fire damaged the home, destroying two of the end tables. Michelleʹs home was covered by an unendorsed Homeowners 3 policy. Which of the following is true with regard to the settlement for the end tables in this case? A) Loss to a pair or set is excluded under the policy. B) The insurer will pay the difference in actual cash value of the property before and after the loss. C) The insurer will pay the replacement cost of the loss. D) If a partial loss to a pair or set occurs, the insurer is liable for replacement of the entire pair or set.

B) The insurer will pay the difference in actual cash value of the property before and after the loss.

All of the following are examples of tort reform proposals EXCEPT A) modifying the collateral source rule. B) eliminating caps on noneconomic damages. C) regulation of attorney fees. D) imposing penalties to deter frivolous lawsuits.

B) eliminating caps on noneconomic damages.

Reggie just purchased a home. A friend told him to consider insurance coverage for natural disasters when insuring the home. Losses from all of the following perils are covered under an unendorsed Homeowners 3 policy EXCEPT A) tornadoes. B) floods. C) hurricanes. D) forest fires.

B) floods.

Which of the following losses would be covered under the personal liability coverage (Coverage E) of an unendorsed Homeowners 3 policy? A) liability arising out of the manufacture and sale of illegal narcotics B) liability arising out of damage to a neighborʹs property that occurred over time C) liability arising out of a business operated in the home. D) liability arising out of bodily injury to an insured

B) liability arising out of damage to a neighborʹs property that occurred over time

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? A) warranty B) misrepresentation C) waiver D) concealment

B) misrepresentation

Common situations involving strict liability include all of the following EXCEPT A) blasting operations. B) operating a motor vehicle. C) work-related injuries under workers compensation. D) crop dusting.

B) operating a motor vehicle.

All of the following are covered under the dwelling coverage (Coverage A) of the Homeowners 3 policy EXCEPT A) any structure attached to the dwelling. B) the land on which the insured dwelling is located. C) materials and supplies intended for alteration or repair of the dwelling. D) materials and supplies intended for construction of a detached garage.

B) the land on which the insured dwelling is located.

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.

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 A) binder. B) warranty. C) waiver. D) deductible.

B) warranty.

Which of the following statements is (are) true concerning the use of an individualʹs credit history as an insurance rating factor? I. Individuals with poor credit histories, as a group, generally file more homeowners claims than do individuals with good credit histories. II. The use of credit history as an insurance rating factor is controversial.

Both

1) Reasons for regulation of insurance include which of the following? I. Maintaining insurer solvency II. Ensuring reasonable rates A) I only B) II only C) both I and II D) neither I nor II

C

10) Which of the following statements about the uninsured motorists coverage of the PAP is true? A) Unless higher amounts are purchased, the maximum benefit is normally limited to $1,000. B) The coverage usually applies only to property damage. C) The coverage applies only if the uninsured motorist is legally liable. D) A covered person's only recourse is to sue the insurer if there is a disagreement over the amount of damages.

C

10) Which of the following statements about the use of risk-based capital requirements is (are) true? I. Insurers must have a certain amount of capital depending on the riskiness of their investments and insurance operations. II. Insurers may be required to take certain actions depending on how much capital they have relative to their risk-based capital requirements. A) I only B) II only C) both I and II D) neither I nor II

C

12) Which of the following statements about the regulation of life insurance companies is (are) true? I. The percentage of assets a life insurance company may invest in a specific type of asset (e.g., stocks or bonds) is generally limited by law. II. The purpose of limiting the accumulation of surplus is to prevent an insurer from increasing its surplus at the expense of policyowner dividends. A) I only B) II only C) both I and II D) neither I nor II

C

23) The number of title insurance companies operating in State Z is relatively low. Recently, the largest of these companies (50 percent market share) acquired the second largest company (30 percent market share). Immediately after the acquisition, the insurer raised premiums by 75 percent. This scenario demonstrates which of the following rationales for the regulation of insurance? A) maintain insurer solvency B) prohibit unfair sales practices by agents C) ensure reasonable rates D) make insurance available

C

24) David has a Homeowners 3 policy that provides $280,000 of insurance on his dwelling, which has a current replacement value of $400,000. Ignoring any deductible, how much will David collect if a kitchen with a replacement value of $24,000 but an actual cash value of $18,000 is destroyed in a fire? A) $20,000 B) $24,000 C) $21,000 D) $18,000

C

28) Joyce was injured by an uninsured drunk driver while she was riding in a friend's 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? A) Each policy will pay $35,000. B) Joyce's policy will pay $50,000, and the friend's policy will pay nothing. C) The friend's policy will pay $50,000, and Joyce's policy will pay $20,000. D) Joyce's policy will pay $50,000, and the friend's policy will pay $20,000.

C

32) 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 A) prior approval. B) file-and-use. C) use-and-file. D) flex rating.

C

33) ABC Company purchased an ISO Commercial General Liability Policy. The agent who sold ABC the coverage noted that the coverage trigger in this policy was different from the trigger in the previous policy. The new policy covers only those claims which are first reported during the policy period, provided the event occurred after a retroactive date. This type of policy is known as A) occurrence coverage. B) accident only coverage. C) claims-made coverage. D) extended reporting coverage.

C

34) The National Association of Insurance Commissioners (NAIC) administers an "early warning system" 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 A) the risk-based capital requirements. B) an insurance guaranty fund. C) the Insurance Regulatory Information System (IRIS). D) the assessment method.

C

4) 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 friend's auto A) I only B) II only C) both I and II D) neither I nor II

C

40) 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 insurer's license to do business in his or her state.

C

43) To correct abuses in the financial services industry, Congress passed an Act in 2010 that included numerous provisions to reform the financial services industry. This Act was the A) Financial Modernization Act. B) McCarran-Ferguson Act. C) Dodd-Frank Act. D) Biggert-Waters Act.

C

7) Which of the following statements about physicians, surgeons, and dentists liability insurance is true? A) Liability coverage is restricted to accidental acts. B) The policy eliminates the need for medical practitioners to purchase general liability insurance. C) The policy covers the physician for the negligent acts of an employee. D) The insurer must obtain the consent of medical practitioners before the insurer can settle claims.

C

47) One method of ensuring the solvency of insurers is a periodic review, every three to five years, of insurers that operate on a multistate basis. This review is coordinated by the NAIC. This review is called a(n) A) annual report. B) early warning system. C) field examination. D) inspection report.

C

51) Ellen believes the value of the loss to her home is $30,000. The insurer has offered $18,000 to settle the loss. If Ellen and the insurer cannot agree on the value of the loss, which homeowners policy provision specifies how this dispute will be settled? A) mortgage clause B) insurer's option C) appraisal clause D) loss payment clause

C

Dave is an agent for Easy Pay Insurance. Easy Pay insures only the highest-quality applicants. Dave wanted to earn more commissions, so he sold some policies to applicants he knew were below-average risks. When these policyowners started filing claims, Easy Pay tried to deny the claims stating that Dave had not acted appropriately. Which general rule of agency makes Easy Pay responsible for the claims of the higher-than-average risk policyowners? A) There is no presumption of an agency relationship. B) Agents should be compensated based on the quality of the business they generate. C) A principal is responsible for the acts of its agents who are acting within the scope of their authority.

C) A principal is responsible for the acts of its agents who are acting within the scope of their authority.

Helen and John both own automobiles on which they carry liability insurance. If Helen is negligent and has an accident while driving Johnʹs car, how will each insurer respond to any liability judgment against Helen? A) The insurers will pay the judgment on a pro rata basis. B) Johnʹs insurer will pay on an excess basis if Helenʹs insurance is insufficient to cover the judgment. C) Helenʹs insurance will pay on an excess basis if Johnʹs insurance is insufficient to cover the judgment.

C) Helenʹs insurance will pay on an excess basis if Johnʹs insurance is insufficient to cover the judgment.

Which of the following statements about the additional coverages included in Section II of the homeowners policy is true? C) Interest that accrues on a judgment after the judgment is awarded but before the judgment is paid is covered under claims expenses.

C) Interest that accrues on a judgment after the judgment is awarded but before the judgment is paid is covered under claims expenses.

Tom is planning to build a home. He is weighing many factors, including construction materials, location, and other considerations. Which of the following statements is true with regard to homeowners insurance and Tomʹs new home? A) The higher the construction costs are in the area, the lower Tomʹs homeowners insurance premiums will be. B) The lower the homeowners deductible selected, the lower the premium will be. C) Older homes cost more to insure than newer homes. D) A wood frame home costs less to insure than a brick home.

C) Older homes cost more to insure than newer homes.

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.

Why can an insurer refuse to pay a claim if an insured fails to abide by the policy provisions? C) because insurance contracts are conditional

C) because insurance contracts are conditional

Tom and Tammy Evans were ready to purchase a home. The home was to serve as collateral for their mortgage loan. Two insurers declined to insure the home, citing ʺan adverse CLUE report.ʺ Why would an insurer reject a homeowners insurance application because of an adverse CLUE report? A) because the previous owner had defaulted on the mortgage loan B) because the home is located in an area where the zoning law had been changed C) because there had been previous property insurance claims filed on the home D) because the home is located in an area that does not have a certified fire department

C) because there had been previous property insurance claims filed on the home

Alternative techniques for resolving legal disputes without litigation include which of the following? I. Arbitration II. Mediation A) I only B) II only C) both I and II D) neither I nor II

C) both I and II

Factors that affect the cost of homeowners insurance include which of the following? I. Construction material II. Deductible amount A) I only B) II only C) both I and II D) neither I nor II

C) both I and II

Persons insureds under Section I of the Homeowners 3 policy include which of the following? I. A spouse of the named insured if living in the same household II. The named insuredʹs children who are under age 24 and who are full-time college students A) I only B) II only C) both I and II D) neither I nor II

C) both I and II

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. A) I only B) II only C) both I and II

C) both I and II

Situations under which parents can be held liable for the actions of a child include which of the following? I. The child uses a parentʹs gun to injure someone. II. The child is acting as an agent of the parent. A) I only B) II only C) both I and II D) neither I nor II

C) both I and II

Which of the following are legal obligations of a property owner with respect to an invitee? I. The property owner must warn an invitee of any unsafe conditions. II. The property owner must inspect the premises and eliminate any dangerous conditions revealed by the inspection. A) I only B) II only C) both I and II D) neither I nor II

C) both I and II

Which of the following is (are) included among the duties of an insured following a loss covered under the Homeowners 3 policy? I. To file a proof of loss within a specified time period after the insurerʹs request. II. To prepare an inventory of damaged personal property. A) I only B) II only C) both I and II D) neither I nor II

C) both I and II

Which of the following persons is (are) eligible for benefits under medical payments to others (Coverage F) of the homeowners policy? I. A friend who slips and falls on a wet patio while visiting the named insured. II. A neighborhood child who is severely scratched by a cat in the care of the named insured. A) I only B) II only C) both I and II D) neither I nor II

C) both I and II

All of the following are additional coverages under Section I of the Homeowners 3 policy EXCEPT A) the reasonable expenses of removing debris of covered property after an insured loss. B) fire department service charges for which the insured is liable by contract or agreement. C) damage to trees and shrubs caused by a windstorm. D) losses incurred from the unauthorized use of a stolen credit card.

C) damage to trees and shrubs caused by a windstorm.

Shareholders and employees harmed by the negligent acts and deceptive statements of company leaders may file lawsuits against the company leaders. Company leaders are covered for such claims under which type of insurance? A) employment practices liability insurance B) employee benefit liability insurance C) directors and officers liability insurance

C) directors and officers liability insurance

A provision in a disability income insurance policy that requires a person to be disabled for 60 days before receiving benefits is an example of a(n) A) corridor deductible. B) grace period. C) elimination period. D) probationary period.

C) elimination period.

The doctrine of respondeat superior applies to a(n) A) parentʹs liability for a negligent child. B) pet ownerʹs liability for the pet. C) employerʹs liability for a negligent employee. D) manufacturerʹs liability for a faulty product.

C) employerʹs liability for a negligent employee.

Frank asked his companyʹs employee benefits director if his group health coverage could be converted to individual coverage. The benefits director said, ʺYes, you can convert to an individual policy, and the coverage is identical to your group coverage.ʺ Frank quit his job and converted to an individual policy. Six months later he filed a claim. He was dismayed to learn the conversion policy was limited compared to the group coverage, and his claim was denied. What legal doctrine will allow Frank 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? A) adhesion B) concealment C) estoppel D) subrogation

C) estoppel

Mike and Susan built their ʺdream home.ʺ They insured their home for its full replacement cost. They also added an endorsement that will pay up to an additional 20 percent of the policy limit in case the cost of rebuilding the home after a loss is greater than the policy limit. The basis under which Mike and Susan insured their home is called A) actual cash value. B) valued policy coverage. C) extended replacement cost. D) guaranteed replacement cost.

C) extended replacement cost.

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 A) intrinsic value method. B) valued policy method. C) fair market value method.

C) fair market value method.

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

All of the following persons are insured for personal liability under the homeowners policy EXCEPT A) children of the named insured under age 24 who are attending college full time and temporarily residing elsewhere. B) foster children under the age of 21 who reside with the named insured. C) nonresident employees of the named insured. D) the spouse of the named insured if a resident of the same household.

C) nonresident employees of the named insured.

Chris applied for life insurance and paid the first premium on Monday. She was given an insurability premium receipt which specified that coverage was effective on the date of the application or the date of the medical exam, whichever is later. She took the medical exam the following Thursday. She was found to be in perfect health. On which day was her coverage effective? A) on Monday, when she completed the application and paid the first premium B) on Wednesday, two days after completing the application and paying the first premium C) on Thursday when she passed the medical exam

C) on Thursday when she passed the medical exam

All of the following are additional coverages provided under Section I of the Homeowners 3 policy EXCEPT A) reasonable repairs. B) debris removal. C) personal liability. D) property removal.

C) personal liability.

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

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? A) the principle of utmost good faith B) the principle of insurable interest C) the principle of subrogation

C) the principle of subrogation

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?

Conversion provision

11) Which of the following property is covered under the personal property coverage (Coverage C) of the Homeowners 3 policy? A) a pet iguana owned by the named insured's spouse B) a stamp collection insured under a separate policy C) a motor vehicle owned by the named insured D) a bicycle owned by a foster child living with the named insured

D

14) Under one type of rate regulation, insurers do not have to register their rates with state regulatory authorities. 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 A) a flex-rating law. B) a prior-approval law. C) a file-and-use law. D) no filing required.

D

16) 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 A) bait and switch. B) rebating. C) retaliating. D) twisting.

D

19) Which of the following is an advantage of state regulation of insurance over federal regulation of insurance? A) uniformity of laws B) greater efficiency C) more effective in negotiating international agreements pertaining to insurance D) quicker response to local insurance problems

D

20) Which of the following statements about the Homeowners 3 policy is (are) true? I. Losses to the dwelling are always settled on an actual cash value basis. II. Coverage on personal property is limited to $5,000. A) I only B) II only C) both I and II D) neither I nor II

D

3) What is the effect of the optional agreed value provision in the building and personal property coverage form? A) It provides replacement cost coverage. B) It increases insured values along with inflation. C) It reduces the deductible to $50. D) It suspends the coinsurance clause.

D

30) An employee of Nelson Manufacturing was injured by a defective machine Nelson purchased from Clark Corporation. The employee's tort action against Clark was successful. Clark, in turn, sued Nelson, alleging that Nelson failed to provide proper operating instructions to the employee. This claim (Clark vs. Nelson) is covered under Part Two of Nelson's worker compensation and employer liability policy. Such claims are called A) mass tort cases. B) absolute liability cases. C) joint-and-several liability cases.

D

30) State X's premium tax rate is 2 percent. State Y's 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 A) tax tariff. B) guaranty fund assessment. C) risk-based capital requirement. D) retaliatory tax law.

D

35) Which of the following statements is (are) true regarding the quality of insurance regulation? I. The quality of insurance regulation is uniform from state to state. II. All evidence suggests federal regulation of insurance would improve the quality of regulation. A) I only B) II only C) both I and II D) neither I nor II

D

38) Liability arising out of which of the following is covered under the personal injury endorsement to the homeowners policy? A) professional liability B) property damage C) bodily injury D) slander

D

48) The major argument in favor of an optional federal charter for insurers is that A) small insurers need a national charter to be competitive with large insurer. B) a federal charter will prevent insurer insolvencies. C) a federal charter will provide greater oversight of insurer market practices. D) national insurers are at a competitive disadvantage under the present system.

D

8) Which of the following is considered a nonadmitted asset for an insurer? A) cash B) preferred stocks C) real estate D) office furniture

D

Which of the following statements is true regarding the Homeowners 3 policy and identity theft? A) Identity theft is covered under Coverage D -- Loss of Use. B) Identity theft is covered under Coverage C -- Personal Property. C) Identity theft is covered under Coverage E -- Personal Liability. D) Identity theft is covered by adding an endorsement.

D) Identity theft is covered by adding an endorsement.

All of the following statements about conditions under a homeowners policy are true EXCEPT A) If an insurer broadens coverage without an additional premium during the policy period, the broadened coverage applies immediately to the present policy. B) A waiver or change in any policy provision must be approved in writing by the insurer to be valid. C) The insurer must give written consent for an assignment of the policy to be valid. D) If the named insured dies, coverage automatically ceases with respect to any property of the deceased.

D) If the named insured dies, coverage automatically ceases with respect to any property of the deceased.

Jacob sold his house to Shelia for $140,000 in cash. Jacob ʺthrew inʺ insurance on the house as part of the deal and did not bother telling the insurer that there was a new owner. Four months after Shelia purchased the home, a windstorm damaged the roof. Which of the following legal characteristics of insurance contracts could the insurer use to legally deny payment for the damage to the roof? A) Insurance contracts are unilateral contracts. B) Insurance contacts are contracts of adhesion. C) Insurance contracts are aleatory contracts. D) Insurance contracts are personal contracts.

D) Insurance contracts are personal contracts.

Gail lives in southern Illinois, near the New Madrid Fault Line. She added an earthquake endorsement to her Homeowners 3 policy. All of the following statements about the endorsement are true EXCEPT A) The deductible is expressed as a percentage of the coverage limit rather than as a dollar amount. B) The endorsement also covers landslides and volcanic eruptions. C) Aftershocks occurring within 72 hours of an earthquake are considered part of the same occurrence. D) The endorsement also covers flood losses.

D) The endorsement also covers flood losses.

What is the practical effect of an insurance policy being a contract of adhesion? A) The insurer can refuse to pay claims unless the insured has complied with all policy provisions. B) The insured can assign the policy only with the insurerʹs consent. C) The insurer can sue the insured for failure to pay any premiums. D) The policy is interpreted in the insuredʹs favor if the policy contains any ambiguities or uncertainties.

D) The policy is interpreted in the insuredʹs favor if the policy contains any ambiguities or uncertainties.

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

D) because insurance contracts are contracts of adhesion

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.

A contract in which the values exchanged are not equal because chance is involved is called a(n) A) contract of adhesion. B) unilateral contract. C) conditional contract. D) aleatory contract.

D) aleatory contract.

A total loss under a valued policy is settled on the basis of the A) market value of the loss. B) actual cash value of the loss. C) replacement value of the loss. D) amount of insurance covering the loss.

D) amount of insurance covering the loss.

All of the following may give rise to imputed negligence EXCEPT A) employer-employee relationships. B) joint business ventures. C) vicarious liability laws. D) attractive nuisance situations.

D) attractive nuisance situations.

Janet hit a wall causing a large dent in the fender of her car. She was busy at work and delayed reporting the damage to her insurer for 9 months. The insurer denied the claim, stating, ʺAlthough such a loss is usually covered, you are required under the terms of the contract to provide prompt notification in case of loss.ʺ The prompt notification requirement is an example of a(n) A) declaration. B) definition. C) insuring agreement. D) condition.

D) condition.

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.

Which of the following types of water damage is covered under an unendorsed Homeowners 3 policy? A) damage from flood B) damage from water backing up through a drain C) damage from water below the surface of the ground that seeps into a basement D) damage from water that overflows from a malfunctioning washing machine

D) damage from water that overflows from a malfunctioning washing machine

All of the following losses are subject to special limits of liability under the Homeowners 3 policy EXCEPT the A) theft of firearms. B) destruction by fire of property used for business purposes. C) storm damage to a boat at a marina. D) destruction of jewelry by fire.

D) destruction of jewelry by fire.

All of the following are considered insured locations for medical payments to others (Coverage F) under a homeowners policy EXCEPT: A) a new vacation home purchased by an insured during the policy period. B) a motel room where an insured is temporarily residing. C) a hall rented by the insured for her daughterʹs graduation party. D) farmland owned by the insured.

D) farmland owned by the insured.

James was injured in an auto accident caused by another motoristʹs negligence. He received severe facial lacerations and injured his back in the accident. In payment for his pain, suffering, and disfigurement, losses which cannot be specifically itemized, James will receive A) punitive damages. B) special damages. C) imputed damages. D) general damages.

D) general damages.

Lu would like to save money on her homeowners premium. All of the following steps will help her to reduce her homeowners premium EXCEPT A) raising the deductible in the homeowners policy to a higher amount. B) shopping around a homeowners policy. C) installing burglar alarms, smoke detectors, and dead-bolt locks. D) insuring the value of the land beneath the house.

D) insuring the value of the land beneath the house.

Francis opened a store. She knows that customers who come to the store may be injured on the premises and hold her responsible for their injuries. Under common law, business customers in the store Francis opened are considered A) aliens. B) licensees. C) trespassers. D) invitees.

D) invitees.

Under the Homeowners 3 policy, all of the following are options of the insurer for settling claims EXCEPT A) paying the claim in cash. B) replacing the property. C) repairing the property. D) paying the claim with insurance company stock.

D) paying the claim with insurance company stock.

Following catastrophic hurricane losses, South Coast Insurance Company changed its deductible provision. Rather than using a specified dollar value, $250 for example; the dollar value of the deductible increases with the size of the loss. The type of deductible that South Coast changed to is called a(n) A) calendar-year deductible. B) corridor deductible. C) straight deductible. D) percentage deductible.

D) percentage deductible.

The purpose of other-insurance provisions is to A) eliminate the need for deductibles. B) penalize those insureds who carry inadequate amounts of insurance. C) specify who will pay losses if the insurer is bankrupt. D) preserve the principle of indemnity.

D) preserve the principle of indemnity.

A situation in which a person is held legally liable even though fault or negligence cannot be proven is an example of A) general damages. B) comparative negligence. C) an intentional tort. D) strict liability.

D) strict liability.

Jan was injured in a work-related auto accident. She sued the other driver, and the case went to court. While questioning Jan, the defendantʹs lawyer asked if her injuries and lost earnings were covered under workers compensation. Janʹs lawyer objected to the question. The judge ruled the question was improper and instructed the jury to disregard the question. Based on the judgeʹs reaction to the question, we can conclude that which of the following rules is in force where this trial took place? A) the joint and several liability rule B) the last clear chance rule C) the comparative negligence rule D) the collateral source rule

D) the collateral source rule

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.

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.

45) 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.

The voluntary relinquishment of a legal right is called A) subrogation. B) adhesion. C) estoppel. D) waiver.

D) waiver.

David owns a liquor store in a high-crime area. In order to obtain a reduced insurance premium, David promised to have a burglar alarm operating at the store when the store was closed. This agreement, which was incorporated into the insurance contract, is an example of a A) representation. B) unilateral contract. C) contract of adhesion. D) warranty.

D) warranty.

Ericʹs property was damaged in an accident. He phoned his agent to see if the loss was covered under his property insurance policy. The agent said, ʺAs long as the cause of loss is not specifically excluded in the policy, the loss is covered.ʺ Based on the agentʹs answer, what type of insuring agreement appears in the policy? A) unconditional coverage B) named-perils coverage C) extended-perils coverage D) ʺall-risksʺ coverage

D) ʺall-risksʺ coverage

One of the ʺTips for Buying a Homeowners Policyʺ is to consider purchasing a personal umbrella policy. What coverage is provided by a personal umbrella policy? Excess liability coverage and coverage for some liability claims excluded by underlying policies

Excess liability coverage and coverage for some liability claims excluded by underlying policies

Which of the following statements about Medigap policies is (are) true? I. Insurers are required to have an open enrollment period of 6 months from the date an applicant first enrolls in Medicare Part B and is age 65 or older. II. Most policies are of limited value because they largely duplicate benefits already provided by Medicare.

I only

Which of the following statements about experience rating is (are) true? I. The insured!s past loss experience is used to determinethe premium for the next policy period. II. Its use is generally limited to small firms whose actual experience lacks credibility. A) I only B) II only C) both I and II D) neither I nor II

I only

Which of the following statements about problems and issues in workers compensation insurance is (are) true? I. The cost of medical care under workers compensation continues to rise. II. Enactment of workers compensation statutes has eliminated litigation with respect to work-related illnesses and injuries.

I only

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. II. By all measures, the property and casualty insurance industry is highly profitable when compared to other industries. A) I only B) II only C) both I and II D) neither I not II Answer: A

I only

Which of the following statements about the medical insurance (Part B) portion of Medicare is (are) true? I. Participation in Part B of Medicare is voluntary. II. It is provided at no cost to anyone who is fully insured under Medicare.

I only

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. II. They are payable even after the limit of liability is exhausted

I only

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. A) I only B) II only C) both I and II

II only

Which of the following statements about taxation of Social Security retirement benefits under federal law is (are) true? I. Social Security retirement benefits are never considered taxable income. II. Up to 85 percent of Social Security retirement benefits may be considered taxable income, depending on the amount of other income received by the beneficiary.

II only

Which of the following statements about the Social Security cost-of-living adjustment is (are) true? I. The amount of the adjustment is limited to a maximum of 2.5 percent annually. II. Increases are based on changes in the consumer price index.

II only

Which of the following statements about the role of physicians with respect to Medicare claims is (are) true? I. Physicians who do not accept an assignment of Medicare claims can charge as much as 200 percent of the Medicare-approved fee. II. Physicians who accept assignment agree to accept the Medicare-approved amount as payment in full.

II only

Which of the following statements is (are) true with respect to the Medicare Advantage Plans? I. These plans replace the original Medicare program, Parts A and B, which are no longer available to new retirees. II. These plans provide an opportunity for retirees to receive Medicare coverage through private health care plans.

II only

All of the following statements about regulatory objectives of insurance rate making are true EXCEPT: A) One purpose of rate adequacy is to maintain the solvency of insurers. B) Rates unfairly discriminate if loss exposures that are similar with respect to losses and expenses are charged substantially different rates. C) Insurers know in advance if the coverages marketed will be profitable, so rate regulation is not needed. D) Rates are excessive if policyholders are paying substantially more than the actual value of their protection.

Insurers know in advance if the coverages marketed will be profitable, so rate regulation is not needed.

Which of the following statements about judgment rating is true? A) It involves the manual rating of exposures. B) It is used when the loss exposures are so diverse that a class rate cannot be calculated. C) It is a form of experience rating. D) It is only used when credible loss statistics are available.

It is used when the loss exposures are so diverse that a class rate cannot be calculated.

Which of the following statements about yearly renewable term insurance is (are) true? I. It requires evidence of insurability for renewal. II. It is most appropriate when an insured needs lifetime protection. A) I only B) II only C) both I and II D) neither I nor II

Neither I or II

31) 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 Monopoly!s 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.

Rates must not be excessive.

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 three times the average premium for applicants from the other five zip codes. Which regulatory objective is not being met given XYZ!s premium structure? A) Rates must be adequate. B) Rates must not unfairly discriminate. C) Rates must be responsive. D) Rate must not be excessive.

Rates must not unfairly discriminate.

Which of the following statements about retrospective rating is true? A) The premium for the current period is determined by the loss experience for prior periods. B) The premium for the current period is determined by the loss experience during the current period. C) The premium for future periods is determined by the average loss experience for the current and previous periods. D) The premium for future periods is determined by the loss experience for the current period.

The premium for the current period is determined by the loss experience during the current period

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.

The rating system should be independent of long-run changes in economic conditions.

Ann is considering the purchase of a life insurance policy with these 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. Ann is considering buying

Universal life insurance

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

XYZ Insurance Company uses class rating to determine the rate to charge for insurance. For one type of insurance, the pure premium XYZ actuaries calculated is $75 per unit. If XYZ!s expense ratio is 25 percent, what is the gross rate for this coverage? A) $37.50 B) $55.25 C) $75.00 D) $100.00

XYZ Insurance Company uses class rating to determine the rate to charge for insurance. For one type of insurance, the pure premium XYZ actuaries calculated is $75 per unit. If XYZ!s expense ratio is 25 percent, what is the gross rate for this coverage? A) $37.50 B) $55.25 C) $75.00 D) $100.00

A contingent beneficiary in a life insurance policy has the right to A) receive the policy proceeds if the primary beneficiary dies before the insured. B) share the policy proceeds with the primary beneficiary. C) change the beneficiary designation under specified circumstances. D) exercise policy rights if the insured is incapacitated.

a

A dividend option that allows the policy owner to purchase 1-year term insurance is referred to as the A) fifth dividend option. B) policy loan dividend option. C) paid-up additions dividend option. D) family protection dividend option.

a

All of the following persons are eligible for a benefit under the retirement portion of the Social Security program EXCEPT A) a divorced spouse, age 55, who was married to the retired worker for 6 years. B) a retired worker's 63 year-old spouse who is no longer caring for children. C) a retired worker's 52 year-old spouse who is caring for a 12 year-old daughter of the retired worker. D) a retired worker's unmarried 20 year-old son who has been severely disabled because of an automobile accident while he was in elementary school

a

The policy reserve at the end of any given policy year is called the A) terminal reserve. B) unearned premium reserve. C) mean reserve. D) initial reserve.

a

All of the following statements about current assumption whole life insurance are true EXCEPT A) It is a form of participating whole life insurance that pays annual dividends. B) An accumulation account is credited with an interest rate based on present market conditions and company experience. C) Under the low-premium version, the premium is subject to change after an initial guaranteed period. D) Under the high-premium version, the premium may vanish after a period of time.

a

All of the following statements about the interest settlement option are true EXCEPT A) The minimum guaranteed interest rate is usually equal to the prime rate. B) The interest can be paid monthly, quarterly, semiannually, or annually. C) The beneficiary may be allowed to withdraw part or all of the proceeds. D) The beneficiary may be allowed to change to another settlement option.

a

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

a

An immediate life annuity offers all of the following benefits EXCEPT A) Interest income can be earned during the long deferral period until annuity payments begin. B) Simplicity for the purchaser as he or she does not have to manage investment funds. C) Security for the purchaser as stable lifetime income that cannot be outlived is provided. D) The principal is safe as the funds are guaranteed by the assets of the insurer

a

Brad funded a life annuity through installment payments. At age 60, he decided to elect an annuity settlement option and to begin to receive payments. Which of the following life income options will provide Brad with the highest monthly income? A) life annuity (no refund) B) life income with payments guaranteed for 5 years C) life income with payments guaranteed for 10 years D) installment refund annuity

a

Brad owns a cash value life insurance policy. Last year, the cash value increased by $300. Brad received $100 in policyowner dividends on the policy last year. Brad was the beneficiary named in his grandmother's $50,000 life insurance policy. When she died this past year, Brad received $50,000. How much taxable income relating to life insurance must Brad report for federal income tax purposes? A) $0 B) $100 C) $400 D) $50,400

a

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? A) incontestable clause B) entire contract clause C) ownership clause D) change-of-plan provision

a

Dave purchased a life insurance policy. The policy is nonparticipating and the cash values are based on the insurer's 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

a

David purchased a $100,000 participating whole life policy. The annual premium is $2,280. Projected dividends for the first 20 years are $15,624. The cash value after 20 years will be $35,260. If the premiums were invested at 5 percent for 20 years, the premiums would grow to $79,156. If the dividends were accumulated at 5 percent for 20 years, they would grow to be $24,400. The amount to which $1 deposited annually will accumulate in 20 years at 5 percent is $34.719. Based on this information, what is the surrender cost per thousand per year of David's policy over the 20-year period? A) $5.62 B) $13.75 C) $15.77 D) $27.38

a

Donna is single and earns $30,000 annually. She is covered under her employer's retirement plan. Donna would like to start a traditional IRA and contribute $3,000 this year. Which of the following describes her ability to establish a traditional IRA and the tax treatment of her contribution? A) Her contribution is fully tax deductible. B) Her contribution is partially tax deductible. C) No portion of the contribution is tax deductible. D) Donna is not eligible to establish a traditional IRA, so no contribution can be made

a

EFG Company experienced a reduced demand for its products during a recession. EFG managers were considering laying off some workers when the personnel director said, "Let's not lay off these workers. If we do, our unemployment insurance premiums will increase. The state considers employment stability when determining our premium." Considering the firm's employment record when determining the rate to charge for unemployment insurance is called A) experience rating. B) class rating. C) schedule rating.

a

Insurers offering variable annuities charge a number of expenses. One category of expenses is to pay the fund manager and to pay brokerage fees. This expense is the A) investment management charge. B) administrative charge. C) surrender charge. D) front-end load.

a

Juanita paid a life insurer $45,000 in exchange for an immediate life annuity. Juanita will receive $500 per month from the insurer, and her life expectancy is 15 years (180 months). Assume that Juanita receives 12 monthly payments of $500 the first year. How much taxable income must she report? A) $3,000 B) $4,000 C) $4,500 D) $6,000

a

Mary is interested in comparing life insurance policies. Rather than looking at the cost per thousand, she would like to compare the rate of return earned on the savings portion of the policy. Which of the following would be of the most interest to Mary? A) the policy's Linton Yield B) the policy's surrender cost C) the policy's traditional net cost D) the policy's net payment cost

a

Some life insurers sell insurance directly to the public by using telephone representatives or fee-only financial planners. As the marketing expenses are substantially lower, the insurer can pass the savings on to the purchaser. The life insurance sold in this manner is called A) low-load life insurance. B) preferred risk life insurance. C) ordinary life insurance. D) industrial life insurance.

a

Stan paid an insurance company $50,000 for an annuity when he was 50 years old. At age 62,Stan plans to begin to receive payments from the insurer. Based on the description provided, this annuity can be described as a(n) A) deferred annuity. B) life annuity with guaranteed payments. C) immediate annuity. D) variable annuity.

a

The gross premium is defined as A) the net premium plus the loading allowance. B) the terminal reserve plus the commission. C) the net premium minus expenses. D) the sum of all acquisition expenses.

a

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? A) absolute assignment B) extended term nonforfeiture option C) reinstatement D) collateral assignment

a

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

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. II. Benefits under a long-term care rider are for home health care only. A) I only B) II only C) both I and II D) neither I nor II

a

Which of the following statements about an indeterminate-premium whole life insurance policy is (are) true? I. It permits the insurer to adjust premiums based on anticipated future experience. II. It allows policyholder dividends to be used to lower premiums. A) I only B) II only C) both I and II D) neither I nor II

a

Which of the following statements about assignments of life insurance policies is (are) true? I. Under a collateral assignment, the policy owner assigns a life insurance policy to secure a loan. II. Under an absolute assignment, only limited ownership rights in a policy are transferred. A) I only B) II only C) both I and II D) neither I nor II

a

Which of the following statements about endowment insurance policies is (are) true? 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. II. The use of endowment insurance has increased in recent years because of its favorable tax treatment. A) I only B) II only C) both I and II D) neither I nor II

a

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. II. The cash value of a policy must always exceed the policy's legal reserve. A) I only B) II only C) both I and II D) neither I nor II

a

Which of the following statements about the assignment of a life insurance policy is true? A) The insurer must be notified of any assignment or the death proceeds will be paid to the named beneficiary. B) Under an absolute assignment, the only right transferred to a new owner is the right to change the beneficiary designation. C) As long as a collateral assignment exists, a creditor will receive the entire death benefit even if the loan has been repaid. D) Assignment may be made only with the permission of the insurer and the beneficiary.

a

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. II. A change to a higher premium policy requires evidence of insurability. A) I only B) II only C) both I and II D) neither I nor II

a

Which of the following statements about the needs approach for estimating the amount of life insurance to purchase is (are) true? I. it invoolves an analysis of various family needs which must be met if a family bread winner dies. II. It use is appropriate only if a person currently has no life insurance protection. A) I only B) II only C) Both I and II D) Neither I or II

a

Which of the following statements about the use of interest-adjusted cost data for comparing life insurance policies is (are) true? I. Using interest-adjusted cost data provides a more accurate measure of the cost of life insurance than is provided if the time value of money is ignored. II. Its use is most appropriate in deciding between policies when the cost variation is very small. A) I only B) II only C) both I and II D) neither I nor II

a

Which of the following statements about the yearly-rate-of-return method (also known as the Belth method) of calculating the yearly rate of return for a life insurance policy is (are) true? I. The formula requires the use of benchmark prices per $1,000 of protection. II. The main drawback of the formula is its complexity, necessitating the use of a computer to calculate the rate of return. A) I only B) II only C) both I and II D) neither I nor II

a

Which of the following statements is (are) true regarding taxation of life insurance? I. Life insurance proceeds paid in a lump-sum to a designated beneficiary are received free of federal income taxes. II. The policyowner must pay taxes annually on the amount by which the cash value of his or her life insurance policy has increased. A) I only B) II only C) both I and II D) neither I nor II

a

Which of the following statements is (are) true with respect to a joint-and-survivor annuity? I. Some joint-and-survivor annuities reduce the income payment after the first annuitant dies. II. No payments are made after the first annuitant dies. A) I only B) II only C) both I and II D) neither I nor II

a

Which of the following statements is (are) true with respect to an equity-indexed annuity? I. The maximum percentage gain is usually capped. II. There is no downside protection against loss of principal if the annuity is held to term. A) I only B) II only C) both I and II D) neither I nor II

a

Which of the following statements is true with regard to the Medicare program? A) While Social Security old-age benefits are available at age 62, Medicare Part A benefits are not available, in most cases, until age 65. B) If an individual delays collecting Social Security old-age benefits until after the full retirement age, he or she is not eligible for Medicare benefits until he or she begins to collect old-age benefits. C) Part B of Medicare is funded through a payroll tax. D) Beneficiaries must pay a monthly premium for Medicare Part A coverage

a

Which of the following statements regarding individual retirement account s (IRAs) is (are) true? I. If an individual's only income during the year is from investments, he or she cannot make an IRA contribution. II. The funds in the IRA can be used to purchase life insurance on the owner. A) I only B) II only C) both I and II D) neither I nor II

a

Which of the following would help to reduce the long-range OASDI actuarial deficit ? A) increasing the payroll tax rate B) increasing benefits C) reducing the taxable wage base D) increasing the cost of living adjustment

a

Which statement is true concerning the economic problem of premature death in the United States? I. The economic impact of premature death of the breadwinner varies for different types of families. II. Increased life expectancy has increased the economic problem of premature death over time. A) I only B) II only C) both I and II D) neither I nor II

a

Why might the use of "grades" assigned by a life insurance company rating organization not be a reliable guide for consumers? I. There are wide variations in grades given by the different rating organizations. II. They ignore factors such as profitability and quality of investments. A) I only B) II only C) both I and II D) neither I nor II

a

what happens to the premiums for yearly renewable term insurance as insured gets older? A) They increase at an increasing rate. B) They increase at a decreasing rate. C) They decrease at a constant rate. D) They remain level.

a

All of the following are covered autos under the liability section of the PAP EXCEPT

a nonowned van which is driven by the insured on a regular basis.

All of the following are permissible IRA investments EXCEPT A) mutual funds. B) life insurance. C) individual stocks. D) bonds.

b

) Which of the following statements about a decreasing term insurance policy is true? A) The face amount of the policy decreases during the policy period, and the premium increases. B) The face amount of the policy decreases during the policy period, but the premium remains level. C) The premium decreases during the policy period, but the face amount remains constant. D) Both the premium and the face amount of the policy decrease gradually over the policy period.

b

) Which of the following statements describes how the net payment cost index differs from the surrender cost index? A) Dividends are ignored. B) The cash value is ignored. C) Premiums are not accumulated at a specified interest rate. D) Dividends are not accumulated at a specified interest rate.

b

Al was named the beneficiary in his mother's life insurance policy. His mother died during the contestable period. The insurer denied payment, citing a material misrepresentation on the application. Al believes the insurer should pay the claim because the misrepresentation occurred on the application, and the application is not part of the formal agreement between the insurer and the policyholder. Which provision protects the insurer by making the application part of the formal agreement between the parties to the contract? A) incontestable clause B) entire contract clause C) ownership clause D) reinstatement clause

b

All of the following are circumstances under which withdrawals from a traditional IRA may be made prior to age 59.5 without incurring a substantial penalty EXCEPT A) The withdrawal is in substantially equal installments paid over the individual's life expectancy. B) The withdrawal is used to pay living expenses after unemployment insurance benefits cease. C) The withdrawal is used to pay unreimbursed medical expenses that exceed 7.5 percent of adjusted gross income. D) The withdrawal is because of income needed due to the individual's disability.

b

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

All of the following changes would reduce the long-range deficit for the Social Security program EXCEPT A) increase the OASDI taxable wage base. B) delay scheduled increases in the full retirement age. C) make all OASDI benefits fully taxable. D) use general revenues of the federal government to help pay benefits.

b

All of the following information is needed to caclulate a person's human life value Except A) the person's average annual earnings over his or her productive lifetime. B) the person's estimated Social Security Benefits after retirement. C) the person's cost of self-maintenance. D) the number of years from the person's present age to the expected retirement age.

b

All of the following persons are eligible for survivor benefits under Social Security EXCEPT A) dependent parents age 62 or older. B) unmarried children between the ages of 18 and 22 who are attending college. C) a surviving spouse age 60 or older. D) a surviving spouse with eligible children younger than age 16.

b

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

All of the following statements about the Medicare Prescription Drug Plan are true EXCEPT A) Medicare prescription drug coverage is available to all Medicare beneficiaries. B) Medicare prescription drug coverage is funded exclusively through the Part A payroll tax. C) The Medicare prescription drug program provides financial help for beneficiaries with limited income and financial resources. D) In addition to the initial deductible, there is a coverage gap where the beneficiary must pay the entire cost of prescription drugs.

b

All of the following statements about the surrender cost index for measuring the cost of life insurance are true EXCEPT A) It is based on a specific time period, such as 10 or 20 years. B) It takes into account the settlement options available in the policy. C) It requires that annual premiums be accumulated at a specified interest rate. D) It takes the amount and timing of each dividend into consideration.

b

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? A) nothing, because the policy is void B) the premiums paid for the policy C) the policy's cash value D) the face value of the policy

b

Becky is considering the purchase of a whole life policy on her own life. She is concerned that if she becomes disabled, paying premiums will become a burden. Which provision can Becky attach to her life insurance policy to address this concern? A) guaranteed purchase option B) waiver-of-premium provision C) accidental death benefit rider D) accelerated death benefits rider

b

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? A) nothing B) less than the policy face value C) the policy face value D) more than the policy face value

b

Beth purchased a $50,000 nonparticipating whole life insurance policy. The annual premium was $1,278. The cash value of the policy after 10 years will be $13,740. The future value of $1 deposited at the start of the year for 10 years, assuming 5 percent interest, is $13.207. What is the surrender cost of this policy, per thousand per year, over the first 10 years the policy is in force? A) $4.48 B) $4.75 C) $4.92 D) $5.16

b

Beth was injured at work and is eligible to receive workers compensation benefits. All of the following benefits are provided under workers compensation EXCEPT A) disability income. B) retirement benefits. C) rehabilitation. D) medical care.

b

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? A) waiting period B) grace period C) guaranteed purchase option D) reinstatement clause

b

Cassie, age 62, paid a life insurer $100,000 in exchange for a life annuity. If Cassie dies before receiving 120 monthly payments from the insurer, the remaining payments will be made to a beneficiary. If Cassie dies after receiving 120 payments, no additional payments are made by the insurer. Cassie has purchased a A) variable annuity. B) life annuity with guaranteed payments. C) installment refund annuity. D) cash refund annuity.

b

Dale, age 65, was dismayed to learn about all of the deductibles, co-pays, limits, and exclusions in the Medicare program. Dale bought a type of health insurance specifically designed to supplement Medicare, and selected his coverage from among 10 standard policies that private insurers offer. What type of health insurance did Dale purchase? A) long-term care insurance B) Medigap insurance C) major medical insurance D) viatical insurance

b

Daryl, age 42, quit his job. His employer offered a defined contribution pension plan, and the balance in the account was $30,000 when Daryl quit. He can avoid immediate taxation of these funds by A) taking a lump-sum distribution. B) using an IRA rollover account. C) receiving the money through four equal installments. D) using the funds to purchase common stock issued by the former employer.

b

David purchased a $100,000 participating whole life policy. The annual premium is $2,280. Projected dividends for the first 20 years are $15,624. The cash value after 20 years will be $35,260. If the premiums were invested at 5 percent for 20 years, the premiums would grow to $79,156. If the dividends were accumulated at 5 percent for 20 years, they would grow to be $24,400. The amount to which $1 deposited annually will accumulate in 20 years at 5 percent is $34.719. Based on this information, what is the traditional net cost per thousand per year of David's policy over the 20-year period? A) -$1.52 B) -$2.64 C) $5.17 D) $9.75

b

Frank is doing some life insurance planning. A financial advisor said, "be sure to consider Social Security when examining sources of funds available for family support if you die." The financial advisor was referring to which Social Security benefit? A) retirement benefits B) survivor benefits C) disability benefits D) health insurance benefits

b

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% is the appropriate interest (discount) rate. The present value of one dollar payable for 20 years at a discount rate of 5% is $12.46. What is Julian's human life value? A) 184,600 B) 249,200 C) 360,800 D) 400,000

b

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? A) cash value B) reduced paid-up insurance C) paid-up additions D) extended term insurance

b

Lisa does not want her life insurance policy included in her gross estate when she dies. Lisa can remove the life insurance policy from her estate if she does which of the following more than 3 years before she dies? A) borrow the cash value of the policy B) make an absolute assignment of the policy to someone else C) change the beneficiary to someone who does not have insurable interest D) select a lump sum settlement option and name her estate the beneficiary

b

Malcolm would like to purchase life insurance. He is concerned that he might need additional life insurance in the future and that he might be uninsurable at that time. What provision can Malcolm add to his life insurance policy that will permit him to purchase additional life insurance at specified times in the future without providing evidence of insurability? A) double indemnity rider B) guaranteed purchase option C) waiver-of-premium provision D) accelerated death benefits rider

b

Paul is shopping for a life insurance policy. An agent asked Paul if he would like to purchase a participating policy. What is a "participating" policy? A) a policy which has a cash value B) a policy which pays dividends C) a policy which invests in common stock D) a policy which provides for an increasing death benefit

b

The fundamental purpose of a variable annuity is A) to provide funding flexibility to the purchaser. B) to provide a hedge against inflation. C) to fund the purchase of cash value life insurance. D) to guarantee a fixed-dollar benefit throughout retirement.

b

The practice of buying the life insurance policy of a terminally ill insured at a discount is referred to as A) collateral assignment. B) viatical settlement. C) catastrophic illness conversion. D) grace period transaction

b

The purchase of term insurance is justified by which of the following circumstances? I. The insured wants to save money through the policy for a specific need. II. The insured has a temporary need for life insurance protection. A) I only B) II only C) both I and II D) neither I nor II

b

To calculate a human life value, it is necessary to deduct certain costs from a person's average annual earnings. These costs include A) funeral costs. B) income taxes. C) investment income. D) pension benefits after retirement.

b

Tony is 48 years old. He earned the maximum taxable wage base under Social Security annually between the time when he was 26 and when he was 40. At age 40, he dropped out of the workforce to care for children as his wife had a high-paying job. Which statement is true regarding Tony's insured status under Social Security? A) Tony is fully insured and currently insured. B) Tony is fully insured, but not currently insured. C) Tony is currently insured, but not fully insured. D) Tony is neither fully insured nor is he currently insured.

b

Under one type of Medicare Advantage Plan, members of the plan can see any doctor or health services provider that accepts Medicare patients. If members receive care outside the network of member physicians and care facilities, they must pay higher out-of-pocket costs. This type of Medicare Advantage Plan is a A) Medicare HMO. B) Medicare PPO. C) Medicare Special Needs Plan.

b

Under the Medicare Prescription Drug Program, a coverage gap (also called a "donut hole") exists after the beneficiary and drug plan pay a certain amount for covered drugs. The coverage gap refers to A) the large, up-front deductible that must be satisfied if the patient has a prescription for a covered brand-name drug. B) the temporary gap in coverage that begins when the beneficiary and drug plan pay a certain amount for covered drugs during the year and ends when the catastrophic limit is reached and coverage resumes. C) the temporary gap in coverage that begins after beneficiaries reach the lifetime limit on catastrophic drug expenses and ends when a new deductible is met and coverage resumes. D) the temporary gap in coverage that begins when prescription benefits terminate for beneficiaries who attain age 68 and resumes when beneficiaries attain age 72.

b

Under the traditional net cost method, the net cost of life insurance for a given period (e.g., 20 years) is determined by which of the following formulas? A) the total premiums for the period less the policy reserve at the end of the period. B) the total premiums for the period less the sum of the total dividends received during the period and the cash value at the end of the period. C) the sum of the total premiums and dividends for the period less the cash value at the end of the period. D) the sum of the total dividends received during the period and the cash value at the beginning of the period less the total premiums paid for the period.

b

When using the needs approach, several "special needs" 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) A) estate clearance fund. B) emergency fund. C) readjustment period fund. D) mortgage redemption fund

b

Which method of analyzing the cost of life insurance does not consider the cash value of the policy in the analysis? A) traditional net cost method B) net payment cost index C) the Linton Yield D) the surrender cost index

b

Which of the following expenses is covered under the medical insurance (Part B) portion of the Medicare program? A) a long-term stay in rest home B) the fee charged by a surgeon for an operation C) the cost of semis-private room during a hospital stay D) routine prescription drugs outside of the hospital

b

Which of the following persons can establish a traditional IRA? I. Persons whose only income received is from investments. II. Employed persons under age 70.5 who are not active participants in an employer-sponsored retirement plan. A) I only B) II only C) both I and II D) neither I nor II

b

Which of the following statements about a typical accidental death benefit rider is (are) true? I. Death must occur within 14 days of the covered accident. II. The accidental death must occur prior to some specified age. A) I only B) II only C) both I and II D) neither I nor II

b

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

Which of the following statements about benefits provided by workers compensation programs is true? A) Occupational disability and nonoccupational disability are covered. B) Death benefits and benefits to eligible survivors are payable if a worker is killed on the job. C) Medical benefits are usually subject to deductibles, coinsurance, and numerous exclusions. D) Retirement benefits are payable to retired workers through workers compensation.

b

Which of the following statements about converting a traditional IRA to a Roth IRA is (are) true? I. Such conversions can be done with no income tax consequences. II. Qualified distributions from a Roth IRA after a conversion are received tax-free. A) I only B) II only C) both I and II D) neither I nor II

b

Which of the following statements about dividend options is (are) true? I. The interest on dividends left to accumulate with the insurer is not considered to be taxable income. II. Paid-up additions are additional units of whole life insurance. A) I only B) II only C) both I and II D) neither I nor II

b

Which of the following statements about industrial life insurance (also called home service life insurance) policies is true? A) Most policies have a face value exceeding $100,000. B) Most industrial life insurance policies are cash value coverage. C) Industrial life insurance is group term insurance coverage marketed to employers. D) This popular product accounts for over 40 percent of the life insurance sold today.

b

Which of the following statements about second-to-die life insurance is (are) true? I. The insurance is a form of endowment coverage. II. The premium is lower than the combined cost of purchasing a life insurance policy on each insured. A) I only B) II only C) both I and II D) neither I nor II

b

Which of the following statements about the ownership of a life insurance policy is (are) true? I. Under the ownership clause, the policyowner and beneficiary equally share all contractual rights in the policy while the insured is living. II. The policyowner can designate a new owner by filing an appropriate form with the insurance company. A) I only B) II only C) both I and II D) neither I nor II

b

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 policy's 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

Which of the following statements about variable universal life insurance is (are) true? I Variable universal life insurance has fixed premium payments. II. Variable universal life insurance allows the policy owner to decide where the premiums are invested. A) I only B) II only C) both I and II D) neither I nor II

b

Which of the following statements is (are) true concerning the automatic premium loan provision? I. Unlike other policy loans, interest is not charged on automatic premium loans. II. The basic purpose of an automatic premium loan is to prevent a life insurance policy from lapsing. A) I only B) II only C) both I and II D) neither I nor II

b

Which of the following statements is (are) true regarding the Roth IRA? I. Roth IRA contributions are tax deductible. II. Roth IRA investment income accumulates income-tax free. A) I only B) II only C) both I and II D) neither I nor II

b

Which of the following statements is (are) true regarding the taxation of distributions from individual annuities? I. Individual annuity distributions are never taxable. II. Once the annuitant has recovered the premiums he or she paid for the annuity, the entire annuity distribution is taxable. A) I only B) II only C) both I and II D) neither I nor II

b

Which of the following statements is (are) true with regard to Roth IRAs? I. The portion of a Roth IRA distribution that is attributable to investment income is taxable. II. There is a maximum income level above which Roth IRA contributions are not allowed. A) I only B) II only C) both I and II D) neither I nor II

b

Which of the following statements is true regarding the results of studies by LIMRA and New York Life Insurance Company on the adequacy of life insurance owned by households in the United States? I. The average household is adequately insured against the risk of premature death. II. The average household is significantly underinsured against the risk of premature death. A) I only B) II only C) both I and II D) neither I nor II

b

Which of the following statements is/are true concerning the joint and survivor annuity settlement option? I. Under this option, payments begin after the first annuitant dies. II. This settlement option is often selected by married couples. A) I only B) II only C) both I and II D) neither I nor II

b

Which of the following statements regarding the Emergency Unemployment Compensation (UEC) program is true? A) EUC benefits are limited to individuals who have exhausted regular state benefits and have annual incomes below the federal poverty level. B) EUC benefits are funded entirely by the federal government. C) EUC benefits are limited to employees who have lost their job because of a labor dispute. D) EUC benefits are available on a case-by-case based and awarded at the discretion of the Secretary of Labor.

b

Which of the following statements regarding the taxation of individual annuities is (are) true? I. The exclusion ratio is the percentage of the annuity income that is taxable. II. After the net cost of the annuity has been paid to the annuitant, the total annuity payment is taxable. A) I only B) II only C) both I and II D) neither I nor II

b

With an equity-indexed annuity, what name is given to the method of crediting excess interest to the annuity? A) the capitation method B) the indexing method C) the distribution method D) the earnings method

b

a whole life insurance policy in which premiums are reduced for an initial period and are higher thereafter is an example of a A) level-term policy. B) modified life policy. C) limited-payment whole life policy. D) variable life policy.

b

which of the following statements about the capital retention approach for determinig 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 or II

b

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

blackout period

The period during which a surviving spouse is ineligible for Social Security benefits is referred to as the

blackout period

In addition to most persons over age 65, which of the following persons is (are) eligible for Medicare benefits? I. Persons under age 65 who have been entitled to Social Security disability benefits for at least 24 months II. Persons under 65 who need long-term kidney dialysis treatment or a kidney transplant

both

Objectives of unemployment insurance include which of the following? I. To help unemployed workers find jobs. II. To encourage employers to stabilize employment.

both

Which of the following statements about problems arising from the use of a coinsurance clause is (are) true? I. The amount of insurance should be periodically evaluated to avoid a coinsurance penalty because of inflation. II. An agreed value coverage option is one method used to solve the problem of values that fluctuate throughout the policy term.

both

Which of the following statements about the coverage of health care services under Part A of Medicare is (are) true? I. Services in the patient's home are covered if the patient requires skilled care and meets certain conditions. II. Hospice care is available for beneficiaries with a terminal illness.

both

Which of the following statements about the financing of the Social Security program is (are) true? I. Although the self-employed pay an OASDI tax rate that is twice the employee rate, they are allowed certain deductions that reduce the effective tax rate. II. The earnings base on which OASDI taxes are paid increases annually based on changes in average wages in the national economy.

both

Which of the following statements about the problems and issues of unemployment insurance programs is (are) true? I. Many state programs are inadequately financed. II. Only a small portion of the total unemployed receive benefits at any time.

both

Which of the following statements about torts is (are) true? I. The person who is injured or harmed by a tort is called a plaintiff or claimant. II. The punishment for committing a tort is damages in the form of money.

both

Actuaries at Term Life Insurance Company calculated the net single premium per thousand for a five-year term policy for a man age 32 to be $5.04. To calculate the net level premium for this policy, the net single premium should be A) divided by 5. B) divided by the future value life annuity due factor for $1 for five years. C) divided by the present value life annuity due factor for $1 for five years. D) divided by the present value ordinary life annuity factor for $1 for five years.

c

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. A) I only B) II only C) both I and II D) neither I nor II

c

All of the following provisions under the Affordable Care Act have an impact on the current Medicare Program EXCEPT A) free preventative care for seniors. B) additional funding to reduce fraud in the Medicare Program. C) free rest home care for beneficiaries over age 90. D) rebates for the Part D coverage gap (donut hole).

c

All of the following statements about the Medicare prescription drug benefit are true EXCEPT A) Beneficiaries are required to pay a monthly premium for the benefit. B) The plan provides protection against catastrophic prescription drug expenditures. C) Coverage is limited to when a beneficiary is hospitalized or a resident of rest home. D) The plan has a coverage gap before a beneficiary has coverage for catastrophic costs

c

All of the following statements about the automatic premium loan provision in a life insurance policy are true EXCEPT A) Its purpose is to prevent a policy from lapsing because of nonpayment of premium. B) The premium loan requires interest to be paid at a stated contractual rate. C) If the provision is used, the insured must show evidence of insurability to resume regular premium payments. D) The policy proceeds will be reduced if the premium loans are not repaid by the time of death.

c

All of the following statements about the income tax treatment of individually-purchased life insurance are true EXCEPT A) policyowner dividends are received tax-free. B) the annual increase in cash value is not taxable while the policy remains in force. C) premiums paid for individual life insurance are a tax deductible expense. D) life insurance proceeds paid to a beneficiary in a lump-sum are received tax-free.

c

All of the following statements about universal life insurance are true EXCEPT A) Interest is credited to the policy's cash value each month. B) Any withdrawal of a policy's cash value reduces the amount of the death benefit. C) Interest credited to a policy's cash value is taxable for the policy owner in the year credited. D) The policy owner can add to a policy's cash value at any time subject to policy guidelines.

c

Which of the following types of families is likely to have the least need for a large amount of life insurance? A) blended family B) traditional family C) single person family D) sandwich family

c

As an alternative to the Original Medicare Plan, beneficiaries can elect to enroll in private health insurance plans that cover all services that the Original Medicare Plan covers except hospice care. These private health insurance plans that are an alternative to the Original Medicare Plan are called A) Medigap Insurance Programs. B) PACE Programs. C) Medicare Advantage Plans. D) Medicare Prescription Drug Plans.

c

Beth purchased a $50,000 nonparticipating whole life insurance policy. The annual premium was $1,278. The cash value of the policy after 10 years will be $13,740. The future value of $1 deposited at the start of the year for 10 years, assuming 5 percent interest, is $13.207. What is the traditional net cost of this policy, per thousand per year, over the first 10 years the policy is in force? A) -$2.86 B) -$2.14 C) -$1.92 D) -$0.88

c

Consumer experts typically recommend all of the following rules when buying life insurance EXCEPT A) Consider the financial strength of the insurer. B) Deal with a competent agent. C) Ignore all factors other than cost. D) Shop around for a low-cost policy

c

David purchased a $100,000 participating whole life policy. The annual premium is $2,280. Projected dividends for the first 20 years are $15,624. The cash value after 20 years will be $35,260. If the premiums were invested at 5 percent for 20 years, the premiums would grow to $79,156. If the dividends were accumulated at 5 percent for 20 years, they would grow to be $24,400. The amount to which $1 deposited annually will accumulate in 20 years at 5 percent is $34.719. Based on this information, what is the net payment cost per thousand per year of David's policy over the 20-year period? A) $5.62 B) $13.75 C) $15.77 D) $27.38

c

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. A) I only B) II only C) both I and II D) neither I nor II

c

Each of the following helps to reduce federal estate taxes EXCEPT A) the marital deduction. B) the applicable unified tax credit amount. C) life insurance policies in which the deceased had an incident of ownership. D) expenses such as the cost of the funeral, estate settlement costs, and probate costs.

c

Insurers offering variable annuities charge a number of fees and expenses. One category of fees and expenses is charged to cover the cost of record keeping, paperwork, and periodic reports to annuity owners. This expense is the A) investment management charge. B) surrender charge. C) administrative charge. D) front-end load.

c

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? A) lump sum B) fixed amount C) fixed period D) interest option

c

Juanita paid a life insurer $45,000 in exchange for an immediate life annuity. Juanita will receive $500 per month from the insurer, and her life expectancy is 15 years (180 months). What is the exclusion ratio in this case? A) 33.33 percent B) 40.00 percent C) 50.00 percent D) 66.67 percent

c

Life annuity payments are made up of all of the following EXCEPT A) return of premiums. B) interest earnings. C) unliquidated principal of annuitants who live too long. D) unliquidated principal of annuitants who die early.

c

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

Lynn calculated the future value of the first twenty premiums she will pay under her nonparticipating whole life insurance policy. Then she subtracted the cash value after 20 years. Next, she divided this value by the future value annuity due factor for 20 years to arrive at an annual cost of insurance. Finally, she divided the annual cost by the number of thousands of dollars of life insurance purchased to arrive at the cost per thousand per year. Lynn calculated the A) traditional net cost per thousand per year. B) the Linton Yield. C) the surrender cost per thousand per year. D) the net payment cost per thousand per year.

c

Major factors that must be considered in determining the cost of life insurance include all of the following EXCEPT A) time value of money. B) premiums paid. C) settlement options. D) dividends.

c

Marion owns substantial financial assets. She was surprised that she qualified for Social Security retirement benefits when she retired because of her high investment income. What characteristic of social insurance programs is Marion overlooking with respect to her Social Security retirement benefits? A) Social insurance programs are financially self-supporting. B) Social insurance program benefits are loosely related to earnings. C) Social insurance benefits are not means tested. D) Full funding of social insurance programs is unnecessary.

c

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. A) I only B) II only C) both I and II D) neither I nor II

c

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 A) I only B) II only C) both I and II D) neither I nor II

c

The National Association of Insurance Commissioners (NAIC) has drafted a "Life Insurance Policy Illustration" model law that most states have adopted. Which of the following statements concerning this model law is true? I. The policy illustration must include a narrative summary describing the basic characteristics of the policy. II. The policy illustration must include a numeric summary showing the premium outlay, the value of the accumulation account, the cash surrender value, and the death benefit. A) I only B) II only C) both I and II D) neither I nor II

c

The cost-of-living rider typically bases increases in the policy face value on changes in the A) gross national product. B) interest rate for short-term U.S. government securities. C) consumer price index. D) national wage level

c

The difference between the present value of future benefits payable under a life insurance policy and the present value of net premiums for the policy is the policy's A) retrospective reserve. B) policyholders surplus. C) prospective reserve. D) admitted assets.

c

The first step in "shopping for life insurance" is to A) estimate the amount of life insurance to purchase. B) decide whether you want a policy which pays dividends. C) determine if you need life insurance. D) decide on the best type of life insurance for you.

c

The human life value is defined as the A) present value of a deceased breadwinner's future gross income. B) future value of a deceased breadwinner's past earnings. C) present value of the family's share of a deceased breadwinner's future earnings. D) future value of the family's share of a deceased breadwinner's future earnings.

c

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

To level a net single premium (NSP), the NSP is divided by A) the maximum number of years the premium could be paid. B) the ordinary life annuity factor for the premium payment period. C) the present value of a life annuity due of $1 for the premium payment period. D) the deferred life annuity factor for the premium payment period.

c

What major feature distinguishes a participating policy from a nonparticipating policy? A) the availability of a waiver-of-premium provision B) the existence of settlement options C) the payment of dividends D) the method by which beneficiaries can be named

c

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

Which of the following statements about beneficiary designations is true? A) A primary beneficiary is entitled to the death proceeds of a life insurance policy only if the contingent beneficiary dies before the insured. B) If a revocable beneficiary designation is used, the insured must obtain the beneficiary's permission to exercise most policy rights. C) The effect of a class beneficiary is to divide death proceeds equally among the members of a particular group. D) Naming the insured's estate as primary beneficiary is the best way to avoid probate expenses, inheritance taxes, and claims of creditors

c

Which of the following statements about life insurance policy loans is true? A) Loans are only permitted for specific reasons listed in the policy. B) They are forgiven if the insured dies before the loans are repaid. C) The policy owner must pay interest on a life insurance policy loan. D) They must be repaid on the basis of a schedule determined at the time of the loan.

c

Which of the following statements about life insurance settlement options is true? A) Under the fixed period option, the beneficiary normally has the right to make partial withdrawals in case of emergency. B) Under the fixed period option, any remaining proceeds revert to the insurer if the beneficiary dies before the end of the fixed period. C) Under the fixed amount option, the beneficiary can be given the right to increase or decrease the fixed amount. D) Under the fixed amount option, any interest credited in excess of the guaranteed rate increases the amount of each periodic payment.

c

Which of the following statements about nonforfeiture options found in life insurance policies is true? A) Under the reduced paid-up option, the paid-up policy is term insurance. B) Under the extended term option, the amount of term insurance is less than the face value of the surrendered cash value policy. C) Under the reduced paid-up option, no additional premiums must be paid. D) Unless the policy owner has selected another nonforfeiture option, the cash value option goes into effect automatically.

c

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. A) I only B) II only C) both I and II D) neither I nor II

c

Which of the following statements about the Linton yield is (are) true? I. It is based on the assumption that a cash-value policy can be viewed as a combination of insurance protection and a savings fund. II. It is the average compound annual rate of return required to make the savings deposits in a life insurance policy equal to the policy's guaranteed cash value at the end of a specified period. A) I only B) II only C) both I and II D) neither I nor II

c

Which of the following statements about the entire contract clause is true? A) It allows the insurer to change the policy terms without the insured's consent. B) It specifies that all statements in the application are considered warranties. C) It specifies that the life insurance policy and the attached application constitute the complete agreement between the parties. D) It prevents the insurance company from contesting a policy after it has been in force for two years during the lifetime of the insured.

c

Which of the following statements about the financing of unemployment insurance benefits is true? A) Each state maintains its own trust fund at the state level, and the state pays qualified beneficiaries from the trust fund the state administers. B) While experience rating is used for other types of insurance, it is not used in unemployment insurance. C) Part of an employer's contribution is used for administrative expenses, to fund extended benefits, and to maintain a loan fund that can be drawn upon if the state's account is depleted. D) Most state programs are financed primarily by payroll taxes paid by employees.

c

Which of the following statements about the guaranteed purchase option is true? A) It is usually available with term insurance policies. B) The premium when an option is exercised is based on the insured's age at the time the original policy was issued. C) The option permits the insured to purchase specified amounts of life insurance in the future even if the insured has become uninsurable. D) If a guaranteed purchase option expires without being used, it can simply be exercised at a later date.

c

Which of the following statements about the traditional net cost method of measuring the cost of life insurance is (are) true? I. The traditional net cost method does not consider the time value of money. II. The traditional net cost method can show that life insurance has a negative cost. A) I only B) II only C) both I and II D) neither I nor II

c

Which of the following statements about the withdrawal of funds from a traditional IRA is true? A) Withdrawals of deductible contributions between the ages of 59.5 and 65 are subject to a tax penalty unless they are withdrawn because of specified circumstances such as death or long-term disability. B) Amounts attributable to nondeductible contributions are fully taxable as ordinary income when received. C) Withdrawals must begin no later than April 1 of the year following the calendar year in which an individual attains age 70.5. D) Withdrawals must be taken in the form of an annuity

c

Which of the following statements about unemployment insurance benefits is true? A) Benefits are a flat amount regardless of a worker's previous wages. B) Because of federal legislation, the maximum benefit is the same in all states. C) Most states pay regular benefits for a maximum duration of 26 weeks. D) Under the extended benefits program, the federal government continues benefit payments for up to 3 years for workers who have exhausted their regular benefits.

c

Which of the following statements about workers compensation programs is true? A) Injured workers must prove the employer was responsible for their injuries to collect benefits. B) Workers compensation disability income benefits (amount and duration) are uniform from state to state. C) Options available for complying with the law may include one or more of the following: self-insurance, private insurance, or insurance through a state fund. D) Most states have elective laws whereby the employer can choose whether or not to provide workers compensation coverage to employees.

c

Which of the following statements is (are) true about the federal estate tax? I. The gross estate can be reduced by a number of deductions. II. If the person who died had any ownership interest in a life insurance policy at the time of death, the proceeds are included in the gross estate for federal estate tax purposes. A) I only B) II only C) both I and II D) neither I nor II

c

Which of the following statements is (are) true with regard to IRAs? I. Contribution limits are higher for workers aged 50 and older. II. A spouse who does not work outside of the home may make a fully deductible contribution to a traditional IRA even if his or her spouse is covered by a retirement plan at work. A) I only B) II only C) both I and II D) neither I nor II

c

Which of the following statements is (are) true with regard to the inflation-indexed annuity option? I. The initial monthly payment is lower than the initial payment a fixed annuity would have provided if purchased at the same age. II. Periodic payments to the annuitant are adjusted for inflation. A) I only B) II only C) both I and II D) neither I nor II

c

Which of the following statements is (are) true with regard to using interest-adjusted cost data when shopping for life insurance? I. Cost indexes apply to new policies and should not be used to determine whether to replace a policy. II. Cost indexes should only be used to compare similar plans of insurance. A) I only B) II only C) both I and II D) neither I nor II

c

Which of the following statements is (are) true with respect to the cash (lump sum) annuity settlement option? I. The taxable portion of the distribution is subject to federal and state income taxes. II. The option results in adverse selection against the insurer as those in poor health are more likely to take cash than to annuitize the funds. A) I only B) II only C) both I and II D) neither I nor II

c

Which of the following statements is (are) true with respect to variable annuities? I. The price at which accumulation units can be purchased fluctuates during the funding period. II. The value of annuity units fluctuates over time. A) I only B) II only C) both I and II D) neither I nor II

c

Which of the following statements is true concerning traditional and Roth IRAs? A) The investment income portion of Roth IRA distributions must be reported as taxable income. B) Roth IRA contributions are tax deductible. C) There are minimum distribution requirements for traditional IRAs. D) There are no limits on the tax deductibility of traditional IRA contributions once the account owner has reached age 50

c

Which of the following statements is true with regard to the adequacy of IRA funds during retirement? I. To assure lifetime income, the IRA funds can be used to purchase a life annuity. II. The duration of IRA benefit payments depends on the rate of return earned on the invested assets after retirement and the withdrawal rate. A) I only B) II only C) both I and II D) Neither I nor II

c

the net amount at risk for an ordinary life insurance policy is the difference between the A) present value of future benefits and the present value of future premiums. B) face amount of the policy and the total premiums that have been paid. C) face amount of the policy and the legal reserve. D) annual premium and the annual policyholder dividend.

c

A loss reserve established for each individual claim when it is reported to a property and casualty insurance company is call a(n): A) admitted asset. B) incurrred-but-not-reported (IBNR) reserve. C) unearned premium reserve. D) case reserve.

case reserve.

A property and casualty insurer!s loss reserve includes estimates for all of the following EXCEPT : A) claims anticipated but not yet incurred. B) claims reported and adjusted but notyet paid. C) claims reported and filed but not yet adjusted. D) claims incurred but not yet reported to the company.

claims anticipated but not yet incurred

Consumer experts typically recommend which of the following rules for purchasing life insurance? I. Avoid policies which pay dividends. II. Purchase life insurance equal to ten times your annual salary. A) I only B) II only C) both I and II D) neither I nor II

d

During the funding period, the premiums paid for a variable annuity are used to purchase A) annuity units. B) immediate participation shares. C) mutual fund shares. D) accumulation units

d

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) A) collateral assignment. B) accelerated death benefits rider. C) absolute assignment. D) life settlement.

d

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

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 individual's productive lifetime are ignored.

d

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 policy owner concealed a material fact at the time of application.

d

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

All of the following statements about term insurance are true except A) the insurance provides protection for a specified period of time. B) most policies can be renewed for additional periods without evidence of insurability C) most policies can be converted to a permanent life insurance policy. D) most policies have cash value that is refunded when coverage ceases.

d

All of the following statements about the conversion of a term policy are true EXCEPT A) Under an attained age conversion, the premium is based on the insured's attained age at the time of conversion. B) Under an original age conversion, the policyowner must pay a financial adjustment in addition to the premium for the new policy. C) Most insurers require original age conversion to take place within a specified period (5 years, for example) of the issue of the term policy. D) Evidence of insurability is required before a conversion is permitted.

d

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

All of the following statements about traditional and Roth IRAs are true EXCEPT A) Traditional IRA contributions may be fully, partially, or not income tax deductible. B) Qualified distributions from Roth IRAs are received income tax free. C) Contributions to Roth IRAs are made with after-tax dollars. D) Traditional IRAs are exempt from the penalty tax on premature distributions.

d

All of the following statements about variable annuities are true EXCEPT A) The periodic payments received by the annuitant fluctuate. B) Variable annuities typically provide a guaranteed death benefit payable to a beneficiary if the annuitant dies prior to retirement. C) Insurers offering variable annuities charge a variety of fees and expenses. D) Although the value of annuity units fluctuates, accumulation units have a fixed value.

d

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

Beth purchased a $50,000 nonparticipating whole life insurance policy. The annual premium was $1,278. The cash value of the policy after 10 years will be $13,740. The future value of $1 deposited at the start of the year for 10 years, assuming 5 percent interest, is $13.207. What is the net payment cost of this policy, per thousand per year, over the first 10 years the policy is in force? A) $12.71 B) $14.82 C) $17.24 D) $25.56

d

Beth purchased a participating life insurance policy 6 years ago. Her life insurance needs have increased, but she has developed a medical condition that makes it impossible for her to purchase more life insurance at affordable premiums. Which dividend option makes sense for Beth to use given her medical condition? A) cash B) apply to premium C) dividend accumulations D) paid-up additions

d

Bridget started to fund a variable annuity. Three years later, she experienced financial difficulty. She called her agent and cancelled the contract. The insurer returned all but 4 percent of the account balance. The 4 percent kept by the insurer is a(n) A) account administration fee. B) investment management fee. C) front-end load. D) surrender charge.

d

Carl and Carol Williams, a married couple, are doing some estate planning. Upon his death, Carl plans to leave $1,000,000 in property to his wife. This amount will reduce the value of Carl's gross estate and will be taxed later when Carol dies. This reduction of the gross estate is called the A) unified tax credit. B) taxable estate. C) capital gains deduction. D) marital deduction.

d

In order to receive unemployment insurance benefits, an unemployed worker must meet all of the following eligibility requirements EXCEPT A) have qualifying wages and employment. B) be able to work. C) be actively seeking work. D) satisfy a 6-month waiting period.

d

Juanita paid a life insurer $45,000 in exchange for an immediate life annuity. Juanita will receive $500 per month from the insurer, and her life expectancy is 15 years (180 months). If Juanita is alive 20 years later, how much of the $6,000 received during the year is taxable? A) nothing B) $3,000 C) $4,500 D) $6,000

d

Life insurance policy reserves A) are always equal to the policy's cash surrender value. B) are a major asset of life insurance companies. C) are paid to the beneficiary when the insured dies. D) are a major liability of life insurance companies

d

Marco, a risk manager in California, is interviewing for a new position in the state of Washington. When Marco asked about methods of providing workers compensation, the answer surprised him. In Washington, employers can self-insure the risk or obtain coverage through a state fund. Private insurers do not market workers compensation insurance in Washington. Washington uses a A) competitive state fund. B) guaranty fund. C) reinsurance facility. D) monopoly state fund.

d

Marshall is interested in determining the cost per thousand of his life insurance policy. Which of the following will provide Marshall the most meaningful measure of the cost per thousand dollars per year of his life insurance? A) the needs approach B) the traditional net cost method C) the human life value approach D) the surrender cost index

d

Prior to the passage of workers compensation laws, all of the following common law defenses could be used by employers to avoid financial responsibility for work-related injuries EXCEPT A) contributory negligence. B) the fellow-servant doctrine. C) assumption of the risk. D) joint and several liability.

d

Rita is 66 years old. She earned $20,000 this year working part-time at a store and her modified adjusted gross income was $28,000. Rita is considering making a $3,000 contribution to her traditional IRA. Which of the following statements is true regarding this contribution? A) Rita cannot contribute to her traditional IRA because she is over age 65. B) Rita can make a $3,000 contribution to her traditional IRA, but it is not tax deductible. C) Rita can make a $3,000 contribution to her traditional IRA, but it is only partially tax deductible. D) Rita can make a $3,000 contribution to her traditional IRA, and it is fully tax deductible.

d

Under Part A of Medicare, how is reimbursement for inpatient hospital care determined? A) The amount billed to Medicare by the hospital is the amount Medicare pays. B) Eighty percent of the hospital's regular charge for care is paid. C) The hospital's usual, reasonable, and customary charge is paid. D) Hospital care is classified into diagnosis-related groups (DRGs) and the amount reimbursed depends on the DRG classification of the care delivered.

d

Under an equity-indexed annuity, what name is given to the percentage increase in the stock index that is credited to the contract? A) the expense rate B) the exclusion ratio C) the indexing rate D) the participation rate

d

Under one of the Medicare Advantage Plans, beneficiaries can receive care at a discounted rate by using health care providers that belong to the plan network. Care outside the network is also covered, but beneficiaries must pay higher out-of-pocket costs. This type of Medicare Advantage Plan is a A) Point of Service (POS) plan. B) Medical Savings Account (MSA) plan. C) Health Maintenance Organization (HMO) plan. D) Preferred Provider Organization (PPO) plan.

d

When selling life annuities, what risk is the insurer pooling? A) bad investment performance B) premature death C) bad expense experience D) excessive longevity

d

Which life insurance policy provision specifies that it is the policy owner, and not the insured or beneficiary, who possesses all contractual rights while the policy is in force? A) nonforfeiture options B) entire contract clause C) incontestable clause D) ownership clause

d

Which of the following is a current problem with workers compensation programs? A) declining involvement of lawyers in workers compensation claims B) exclusion of deaths and injuries attributable to terrorism C) reduced benefits for occupational illness D) rising share of medical costs as a share of total benefits

d

Which of the following statements about disability benefits under Social Security is true? A) There is a one-year waiting period before benefits are payable. B) Benefits are payable as long as the disabled worker is unable to perform his or her regular occupation. C) Benefits are payable only if the condition causing the disability is expected to result in death prior to age 65. D) In addition to the disabled worker receiving the benefits, benefits can also be paid to eligible

d

Which of the following statements about life income settlement options is (are) true? I. Under a joint-and-survivor life income option, payments cease at the death of the first annuitant. II. Under a life income with period certain, a contingent beneficiary is guaranteed a minimum number of payments regardless of when the primary beneficiary dies. A) I only B) II only C) both I and II D) neither I nor II

d

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

Which of the following statements about savings bank life insurance is true? A) The maximum amount that a depositor can purchase is $50,000. B) The maximum amount of insurance that a depositor can purchase is limited to the amount of money on deposit in his or her savings account with the savings bank. C) The objective of savings bank life insurance is to provide protection to the bank in case a borrower dies before a loan is repaid. D) The objective of savings bank life insurance is to provide low-cost insurance to consumers by holding down expenses.

d

Which of the following statements about the guaranteed purchase option is true? A) An insured usually has 24 months to exercise an option. B) The option cannot be exercised until the insured reaches age 40. C) The amount of life insurance that can be purchased at each option is limited to 10 percent of the face amount of the basic policy. D) The additional coverage can be purchased without demonstrating insurability.

d

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

Which of the following statements is (are) true concerning settlement options? I. A straight life annuity provides the lowest periodic income of all the life income options. II. Fixed-period and fixed-amount are life income options. A) I only B) II only C) both I and II D) neither I nor II

d

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

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 A) I only B) II only C) Both I and II D) Neither I or II

d

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

One item that appears on an insurance company!s 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 insurer!s A) net income. B) loss reserve. C) admitted assets. D) unearned premium reserve.

loss reserve

Which of the following statements concerning Medicare Prescription Drug Plans is (are) true? I. The monthly premium is based on the health status of the beneficiary and the number of prescriptions the beneficiary needs. II. After the beneficiary has paid an initial deductible, Medicare pays the entire cost of all prescription drugs the beneficiary needs.

niether

Most family heads need substantial amounts of life insurance. However, with limited income, money spent on life insurance reduces the amount of discretionary income available for other high-priority needs. What an insured person gives up when he or she purchases life insurance instead of using the premium dollars for other purposes is called the

opportunity cost of buying life insurance

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

Under the pure premium method of determining class rates, the gross rate is determined by which of the following formulas? A) pure premium/(1 + expense ratio) B) pure premium/(1 - expense ratio) C) (1 + pure premium)/expense ratio D) expense ratio/(1 - pure premium)

pure premium/(1 - expense ratio)

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 Brad's wife during the 1 or 2 year period following Brad's death. This period is known as

readjustment period.

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

realized capital gains

Small Town used to be just thatÁa small town 6 miles from Large City. Over the years, the area between Small Town and Large City was 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 D) encouragement of loss control

responsiveness

Tom and Nancy Boyle provide financial support for their two children. In addition, they provide financial support of Tom's aged father and Nancy's aged mother. The Boyle family can be described as a

sandwiched family

To protect policyholders, state laws place limitations on a life insurance company!s 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 insurer!s:

separate account.

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

the broad evidence rule

All of the following are insured persons under the liability coverage of the PAP EXCEPT

the former spouse of the named insured who moved out of the home 2 years ago when the divorce was finalized.

What is the purpose of the extended nonowned liability coverage endorsement to the PAP?

to provide liability coverage for an insured who operates a nonowned auto on a regular basis

Under the needs approach, when is the dependency period of a surviving spouse assumed to end

when the youngest child reaches 18