insurance exam 2

The chance of being disabled is: a. Less than the chance of death at any age b. Greater than the chance of death during working years c. About the same as the chance of death d. Less than the chance of death during the middle years

b. Greater than the chance of death during working years

Insurance penetration is the ratio of yearly direct premiums written to? a. Life insurance premiums received b. Property/Casualty premiums received c. Gross Domestic Product d. Net Asset Value e. Capital and Surplus

c. Gross Domestic Product

Group insurance is characterized by how many of the following? I. Coverage of many people under a single contract. II. Low-cost wholesale protection III. Considerable individual underwriting a. I only b. II only c. I and II d. II and III e. I, II and III

c. I and II

An economic consumption theory that agues that consumption depends on the household's income relative to the income of households with which it identifies is called the: a. Absolute Income Hypothesis b. Efficient Household Income Hypothesis c. Relative Income Hypothesis d. Life Cycle Hypothesis e. Permanent Income Hypothesis

c. Relative Income Hypothesis

For a married couple both aged 35, with two dependent children 3 and 4, seeking to purchase life insurance protection, the lowest cost form of life insurance coverage would be: (a) 20 year term life insurance on the wife age 35 (b) 20 year term life insurance coverage on both the husband and wife now age 30 that pays on the second to die (c) a whole life insurance policy issued to the husband age 30 (d) a straight life annuity immediate issued to the wife age 30 (e) a 50 year term life insurance policy issued to the husband age 30

(a) 20 year term life insurance on the wife age 35

When settling a homeowner's insurance claim, the policyholder needs to show insurable interest: (a) at the time of loss (b) at the inception of the contract (c) throughout the premium payment period (d) at the time of loss and at the beginning of the contract (e) never, the policyholder is always deemed to have an insurable interest in the policy

(a) at the time of loss

You get into a car accident with I M Goodriver sustaining $4,500 in physical damage to your auto. Goodriver ran a stop light and was cited for failing to come to a complete stop thereby causing the accident. Your insurance company reimburses all damages related to the full repair of your car. Under what principal will your insurance company seek to collect from Goodriver or his insurance company for the $4,500 paid for on your claim? (a) subrogation (b) indemnity provision (c) co-insurance clause (d) coordination of benefits provision (e) res ipsa loquitur

(a) subrogation

Please use this information drawn from the 1983 IAM Table for Male Lives in answering the following questions. Age Number Living (lx) Number Dying (dx) Prob. Dying (qx) Prob. Living (px) 60 9,013,785 .008338 61 8,938,628 80,296 62 8,858332 63 8,772,052 64 8,678,805 65 8,577,575 57. The number of people dying between ages 60 and 61 is: (a) 80,296 (b) 75,157 (c) 66,712 (d ) 86,280 (e) none of these its not possible to determine 58. The probability that a person age 60 lives to age 61 is: (a) .991662 (b) .992218 (c) .992710 (d) .008983 (e) .991017 59. The probability that a person age 60 lives to age 65 is: (a) .991662 (b).992218 (c) .951606 (d) .008983 (e) .991017 60. The probability that a person now age 60 dies before age 65 is: (a) .048393 (b) .008983 (c) .951606 (d) .065713 (e) .991017

(b) 75,157 (a) .991662 (c) .951606 (a) .048393

Bo Longbow, an insured with $500 deductibles on both his homeowner's and auto insurance policies. One snowy evening while driving home from the university thinking about his day of doing battle with ignorance, Bo collides with a deer hereafter called "Wild Thing,." Unfortunately, he did not have his cell phone with him, so he decides walk for help, coffee, pizza and a donut at the local Casey's. He forgets to lock the car, so later when he comes back with the tow truck his $1,000 Hoyt recursive bow is missing. Under these circumstances: (a) Bo will file a claim under his auto insurance policy using the theft provision within the physical damage coverage to the policy (b) Bo can file under his homeowner's policy, personal property coverage C (c) since the proximate cause of loss is due to collision with "Wild Thing" an animal not a car the auto policy may pay, but only if Bo has non-collision coverage (d) Bo is out of luck, since he intentionally left the scene of the accident due to what is known as the Chappaquiddick Exclusion (e) Bo will not be able to recover from his homeowner's policy because once he left the car unattended he no longer had an insurable interest in the vehicle

(b) Bo can file under his homeowner's policy, personal property coverage C

A type of managed care health insurance plan, where the doctors, nurses and medical treatment are housed in one building, patients pay a set subscriber fee, and can only choose from those physicians associated with that particular facility is called: (a) an indemnity plan (b) a HMO stand alone plan (c) a HMO network plan (d) a PPO plan (e) a catastrophic major medical plan

(b) a HMO stand alone plan

Which of the following items does not reinforce the principal of indemnity? (a) actual cash value (b) adverse selection (c) insurable interest (d) subrogation (e) proof of loss

(b) adverse selection

Adverse selection represents a case where (a) an insured attempts to obtain coverage at substandard rates (b) individuals who are poorer than average risks will attempt to obtain insurance at standard rates (c) the federal government must provide coverage (d) a buyer of an interest rate futures contract loses money as interest rates rise (e) an employer is held responsible for the actions of his/her employees

(b) individuals who are poorer than average risks will attempt to obtain insurance at standard rates

A misrepresentation in insurance : (a) always voids a contract (b) makes a contract voidable if it is material, meaning the insurer would either not have issued the policy or issued it on a substantially different basis of the true facts had been known (c) is also known as the anti-concealment provision (d) is identical to estoppel and has the same force in law as a warranty (e) voids the contract at the option of the insured

(b) makes a contract voidable if it is material, meaning the insurer would either not have issued the policy or issued it on a substantially different basis of the true facts had been known

Which of the following provisions in the HO policy creates a third party to the insurance contract? (a) assignment clause (b) mortgagee clause (c) arbitration provision (d) appraisal provision (e) removal clause

(b) mortgagee clause

The $500 deductible on your auto insurance policy is an example of which risk management technique? (a) risk avoidance (b) risk assumption (c) loss control (d) loss prevention (e) risk transfer

(b) risk assumption

The principle of indemnity in insurance means: (a) a person has the right to sue an insurer for loss when they are not satisfied with the payment of a claim (b) that a person may not collect more than his/her actual financial loss in the event of damage caused by an insured peril (c) that a person will not be reimbursed for a loss unless he can show proof of loss (d) an employer is always responsible for the careless acts on an employee (e) a adjusters may not be held liable for twice the claim if a settlement has already been reached on a policy

(b) that a person may not collect more than his/her actual financial loss in the event of damage caused by an insured peril

You insure your $200,000 home under a HO-2 policy with an 80% coinsurance provision, deciding to purchase $150,000 in coverage. You sustain a $10,000 covered loss. What will be your claim settlement (ignoring any deductible): (a) $10,000 (b) $9,500 (c) $9,375 (d) $7,500 (e) $0

(c) $9,375

Harl E Davidson decides to set up an arc welding shop inside his garage to earn a little extra money so he can go up to the Sturgis Falls Celebration at Mount Rushmore South Dakota. Harl has an HO-2 policy on his home. Unfortunately, his garage burns to the ground one night when the motorcycle strut he is welding overheats and causes an explosion. What will happen with this claim according to the HO-2 contract? (a). The fire is a covered peril and the damage will be paid because Harl had an insurable interest in the property at the time of loss (b) The peril of fire is not covered because Harl did not show an insurable interest in the garage at the inception of the policy (c) There will be no payment because the HO-2 policy excludes business pursuits (d) a partial payment will be made based on the indirect damage losses from Harl being unable to continue his business in the garage (e) a full payment will be made because Harl showed insurable interest at the time of loss and the principle of subrogation applies

(c) There will be no payment because the HO-2 policy excludes business pursuits

The Medical Payments Coverage under Section 2 in the HO-3 policy covers all of the following EXCEPT: (a) a guest slips and falls on a piece of ice during a birthday party celebration in the insured's home (b) the babysitter sustains a bite to the arm by the insured's five year old son while arguing over when bedtime is to be imposed (c) the insured stumbles down the basement stairs while doing the laundry and breaks his arm (d) the insured accidentally hits someone with a golf ball when teeing off from the front of his house and that person needs medical treatment (e) a neighbor's child injures himself climbing over the insured's fence and requires stitches in the emergency room

(c) the insured stumbles down the basement stairs while doing the laundry and breaks his arm

Dick and Jane have a $100,000 home and two $100,000 fire insurance policies. Dick bought his policy without telling Jane and she obtained another policy from a different agent after receiving a circular telling about low rates with the Less Progressive Insurance Agency. How much can they collect in total from their insurers following a $30,000 fire loss to their home? (a) $15,000 total because they have two policies (b) $100,000 (c) $50,000 (d) $30,000 (e) nothing, since it is illegal to have two policies on the same piece of property

(d) $30,000

In property insurance, coinsurance is: (a) An agreement between two or more insurers to equally share the costs of large losses (b) A contractual agreement to make the insured bear a portion (usually small) of every loss (c) A contract agreement to help equalize total claims to reinsurance premiums (d) A contract provision designed to discourage under-insurance (e) An agreement to prevent first-dollar coverage on small nuisance claims above the disappearing deductible

(d) A contract provision designed to discourage under-insurance

Which of the following is(are) requirements in order for a plaintiff to successfully sue a defendant for negligence: (a) to establish facts that show the negligent actions of the defendant caused the injuries to the plaintiff (b) to determine the amount of financial damages resulting from the defendant's negligence (c)establish the amount the defendant contributed to their own injuries (d) a and b (e) to determine the last clear chance the plaintiff had to avoid injury

(d) a and b

Loss adjusters do all of the following EXCEPT: (a) investigate claims to determine if fraud is involved (b) negotiate with the insured on the amount of damage claims paid under the policy (c) recommend denial of claims where there is no insurable interest (d) act as the company's lawyer if the case goes to court (e) interpret the policy provisions covering the loss

(d) a partial payment will be made based on the indirect damage losses from Harl being unable to continue his business in the garage

Drivers of health care costs over the last two decades, which make it difficult for insurers to underwrite medical risks are: (a) the lack of distributed medical equipment within cities and regions of the US (b) the cost of medical malpractice insurance caused by increased court litigation of doctors and hospitals (c) provision of medical services to the uninsured population on a catastrophic basis, causing hospitals and doctors to transfer bad debt loss onto those with insurance coverage (d) all of the above (e) only (a) and (b)

(d) all of the above

Possible defenses used by insurers to overcome a negligence claim in court is(are): (a) contributory negligence (b) assumption of risk (c) doctrine of last clear chance (d) all of the above (e) none of the above these are arguments used by the plaintiff to establish negligence

(d) all of the above

Under a contract of adhesion: (a) you help write the contract (b) the insurance company writes the contract with your help (c) the insurance company gets the benefit of the doubt on any unclear wording since you did not spend any time writing the contract (d) ambiguities are construed against the party writing the contract, therefore when interpreting ambiguous clauses in an insurance contract, courts will favor the insured over the insurer (e) the contract is always construed against the insured

(d) ambiguities are construed against the party writing the contract, therefore when interpreting ambiguous clauses in an insurance contract, courts will favor the insured over the insurer

Which of the following would be covered under the liability coverage in your Homeowner's (HO) policy? (a) your wife is injured when you son leaves his skate board on the front step causing her to fall down the stairs (b) you borrow your neighbor's snow blower and inadvertently leave it out overnight and it is gone the next morning (c) at your daughter's wedding reception, your son in law slips on a piece of ice and breaks his arm prior to the honeymoon (d) an 8 year old neighbor's daughter crawls underneath the fence surrounding your pool and winds up becoming injured slipping on the deck and you are sued for the bodily injuries (e) you punch out the comedian at your 25th wedding anniversary celebration and you are put in jail for assault and battery, resisting arrest

(d) an 8 year old neighbor's daughter crawls underneath the fence surrounding your pool and winds up becoming injured slipping on the deck and you are sued for the bodily injuries

Which of the following would be covered under an HO-3 policy? (a) the loss of shrubbery due to a leaf fire on the property (b) damaged to your motor home due to your hitting a tree outside your cabin in Vail, Colorado (c) loss of your pet cat Muffy who died when his tail caught on fire investigating a fire in the fireplace (d) loss of your computer laptop stolen from your locked car while on a trip to Hot Springs, Arkansas during Thanksgiving Break (e) liability assessed against you as the result of giving poor investment advice to a neighbor while running a financial planning business out of your home

(d) loss of your computer laptop stolen from your locked car while on a trip to Hot Springs, Arkansas during Thanksgiving Break

Which of the following represents the best example of risk transfer when applying risk management methods to identifiable risks: (a) National Flood Insurance (b) bank deposit insurance through the FDIC (c) pension insurance coverage on defined benefit plans through the PBGC (d) obtaining liability coverage in an auto insurance policy (e) obtaining a credit card to provide emergency funds when faced with a physical damage loss

(d) obtaining liability coverage in an auto insurance policy

As an underwriter for the Ben Franklin Life Insurance Company, you have been asked to examine a $100,000 whole life insurance claim on Tony Wiener. Tony, who paid premiums for two years on his Franklin whole life coverage, died when he slipped into the Grand Canyon while texting his secretary [it was a slippery slope]. Upon his death, your claims representative discovered that Tony failed to mention a history of diabetes when applying for coverage with Franklin and the corner has ruled that Tony may have fallen due to diabetic shock. Under these circumstances: (a) the policy will pay the beneficiary the paid in premiums because of the misunderstanding about his diabetes when applying for coverage (b) the policy will no pay anything because Tony was engaged in a hazardous hiking activity while texting his secretary (c) the policy will return to the beneficiary the sum total of all premiums paid by Tony since the contract involved a material misrepresentation (d) the policy will return to the beneficiary the accumulated cash value because that was the value of the contract at the time of death (e) the policy will pay $100,000 to the beneficiary Tony designated in the whole life insurance contract

(e) the policy will pay $100,000 to the beneficiary Tony designated in the whole life insurance contract

A legal principle used in business that may establish liability of a supervisor for the actions of those underneath them is: (a) res ipsa loquitur (b) independent agency (c) contributory negligence (d) comparative negligence (e) employeremployee principle

(e) employer-employee principle

Which of the following is NOT a method for settling a casualty insurance claim? (a)actual cash value (b) cost to repair (c) cost to replace (d) insurable interest at the time of loss (e) insurable interest at the inception of the insurance policy

(e) insurable interest at the inception of the insurance policy

Under which of the following would an insured be responsible for the negligent actions of another? (a) you lend your car to someone else and they have an accident which is deemed their fault (b) you own a condo, pay association fees and someone visits the pool, becomes injured and successfully sues the homeowner's association (c) you purchase a home with a swimming pool and a 12 year old neighbor comes on the property and is injured around the pool (d) the mailman comes to deliver mail, slips on some ice because you fail to clear the walkways and successfully sues you for negligence (e) only a and b

(e) only a and b

Use the following information for questions 39, 40 and 41. Duration Age # living t x l(x) 1qx _____ ____ _______ _______________ 0 70 5592012 .04979 1 71 5313586 .05415 2 72 5025855 .05865 39. The probability that a person age 71 dies before reaching age 72 is: (a) .04979 (b) .05415 (c) .05865 (d) .94585 (e).02510 40. The probability that a person age 70 lives to age 71 is: (a) .95021 (b) .05415 (c) .945850 (d) .941350 (e)none of these 41. The probability that a person age 70 lives to 71 and then successfully dies in the next year before attaining age 72 is: (a) .945850 (b) .941350 (c) .051454 (d) .05865 (e).04979

39- (b) .05415 40- (a) .95021 41- (c) .051454

The joint and survivor settlement option in the life insurance contract provides: a. An income to 2 people until the first dies, with payments ceasing at that time b. An income to 2 people which continues to a survivor after the death of one of them c. A greater monthly income that a straight life annuity d. The highest monthly benefit of any annuity e. None of the above

An income to 2 people which continues to a survivor after the death of one of them

Assume you have a homeowners policy which has the following limits: A = $50,000 [dwelling] B= $5,000 [other structures] C= $25,000[unscheduled personal property]. Your home burns down. You lose the home worth $40,000, an unattached garage worth $8,000, and personal property worth $30,000. You will collect: (assume a valid contract, no deductible, insurable interests exists and co-insurance has been met) a. $70,000 b. $78,000 c. $58,000 d. $50,000 e. $48,000

a. $70,000

A peril is: a. A cause of loss b. A physical condition giving rise to an increased frequency of loss c. A physical condition giving rise to an increased severity of loss d. A tendency for those having insurance to become careless in minimizing future loss e. None of the above

a. A cause of loss

A type of insurance simulation which utilizes estimates of operating experience for a block of policies, and individual factors on policies to determine whether profit, reserving and other insurance objectives are being met is: a. An asset share calculation b. An interest reserve calculation c. A cash value calculation d. Prospective reserve analysis e. A premium affordability calculation

a. An asset share calculation

Economies of scale exist in the insurance market when: a. An insurer's average cost of production falls with increasing production b. An insurer's average cost of production increases with increasing production c. An insurer's average cost of production decreases with decreasing production d. An insurer's marginal cost of production is less than the average cost of sales e. An insurer's marginal cost of production increases with decreasing sales

a. An insurer's average cost of production falls with increasing production

Actuaries: a. Determine insurance premiums and necessary reserves using their best estimates of future losses and expenses, with an eye toward competitiveness. b. Sell insurance coverages to prospective insurance through the direct writing agency system. c. Determine whether and on what terms to issue a requested insurance policy. d. Negotiate and settle claims e. None of the Above

a. Determine insurance premiums and necessary reserves using their best estimates of future losses and expenses, with an eye toward competitiveness

Which of the following is a need for cash rather than a need for income? a. Estate clearance fund b. Readjustment period c. Dependency period d. Life income to a spouse

a. Estate clearance fund

The "lemons" problem in insurance occurs when: a. The insurance customer knows less than the insurer (seller) about the insurance company and its products b. The insurance customer knows more than the insurer (seller) about the insurance company and its products c. Poorer than average risks seek to obtain insurance at higher than average rates d. Individuals alter their behavior because of the existence of insurance e. Insurers attempt to sell customers policies that offer higher coverage at below normal rates

a. The insurance customer knows less than the insurer (seller) about the insurance company and its products

The amount that represents the savings element in the cash-value life insurance policy that is available to a terminating policyowner is referred to as: a. The policy's cash surrender value b. The cash savings value c. The policyholder reserve d. The net asset value e. None of the above

a. The policy's cash surrender value

From a legal perspective, insurance is an agreement: a. Whereby the policyholder pays a stipulated amount called the premium to the insurer, in return for which the insurer agrees to pay a defined amount to the policyholder should a covered event occur. b. That allows the policyholder to pay a small certain amount called the premium, in order to be insured against small certain losses. c. Whereby the policyholder may pay a variable premium in order to be indemnified against small variable losses d. That allows the insured to pay a fixed premium to be insured against small certain losses. e. Whereby the insured assumes a large uncertain loss by paying a small certain amount called the premium.

a. Whereby the policyholder pays a stipulated amount called the premium to the insurer, in return for which the insurer agrees to pay a defined amount to the policyholder should a covered event occur

. You are given the following mortality, present value factors and death claim information for 95 year old males, what would be the present value of total death claims in the second policy year if each insured has a $1,000 policy? Policy Year # Dying Total Death Claims Present Value PV Death Claims 1 33,000 .9525 2 25,795 .9070 a. $31,429,200 b. $23,396,065 c. $17,084,236 d. $11,599,247 e. None of the above

b. $23,396,065

X has a $25,000 whole life policy with double indemnity for accidental death. The light plane he is in crash lands on a lake. He is uninjured. He attempts to swim to shore and, fatally misjudging the distance, drowns. His insurer will pay the beneficiary: a. All of the premiums paid b. $25,000 c. $50,000 d. $50,000 plus all the premiums paid e. none of the above

b. $25,000

From an economic perspective insurance is: a. A loss control mechanism whereby an individual pays an unknown sum to be indemnified against large uncertain losses. b. A financial intermediation function by which individuals exposed to specified risks of loss contribute to a pool from which covered losses are paid. c. A financial agreement whereby an individual pays a large certain amount called the contingent premium to be indemnified against small uncertain losses. d. A risk avoidance mechanism whereby an individual avoids having to share in losses covered under contract e. A risk assumption mechanism whereby the insured assumes large uncertain loss by paying a small certain premium to the insurer.

b. A financial intermediation function by which individuals exposed to specified risks of loss contribute to a pool from which covered losses are paid.

The human life value approach to life insurance is: a. A measure to the production potential of an individual based on educational background b. A measure of the actual future earnings or values of services of an individual c. Based on the financial needs of a human life to survive over one's life expectancy d. Determined by taking current earnings and capitalizing them at the riskfree rate of return over an individual's life expectancy e. An antiquated method of finding the value of a human life by multiplying one's life expectancy by average lifetime income.

b. A measure of the actual future earnings or values of services of an individual

Under life insurance policies, the person to whom the payment is made upon the insured's death is called the: a. Annuitant b. Beneficiary c. Insured d. Contingent claims representative e. None of the above

b. Beneficiary

A 20-payment life insurance policy differs from a 20-year endowment in how many of the following respects? I. The amount payable in the event that death occurs within the 20-year period II. The amount payable to the insured if he is alive at the end of 20 years III The number of premiums paid a. I only b. II only c. I and II d. I and III e. I, II and III

b. II only

Which of the following would permit the insurance company to void your personal auto policy (PAP)? a. Concealing the fact that your brother was convicted of drunken driving b. Misstating your age c. Driving without a license d. Lending your car to someone without a license e. Failing to yield the right of way when entering highway 57 in Cedar Falls

b. Misstating your age

The disability waiver of premium provision: a. Is a statutory requirement in all states b. Normally includes a waiting period before which benefits begin c. Is automatically included in all endowment policies d. Is automatically included on all annuities e. None of the above

b. Normally includes a waiting period before which benefits begin

A method whereby an insurer may borrow additional capital through the sale and purchase of its insurance by another insurer is called: a. Reversionary Life Insurance Sales b. Reinsurance c. Sale/Leaseback Insurance d. Stop Loss Insurance Lending e. Reverse Capitalization

b. Reinsurance

The process under which insurers decide whether to issue insurance to a person and the price and terms of coverage is called: a. Insurance marketing b. Underwriting c. Actuarial rate determination d. Pre-claim settlement pricing e. None of the above

b. Underwriting

A woman who has taught music all her life and has no close relatives or friends should buy which type of annuity? (assume the woman wants to maximize annuity income) a. Join and last survivor b. Whole life c. Cash refund d. Fifteen years certain and life e. Twenty years certain and life

b. Whole life

Underinsured Motorist (UM) coverage: a. Is the same as the uninsured motorist coverage b. Will pay whatever difference may exist between the liability assessed a negligent driver for damages to you and the amount of coverage that negligent driver has in a PAP, up to the limits of your UM coverage c. Pays for property damage you cause when victims have no coverage d. Pays for an insured's negligence when insufficient liability limits exist e. Pays amounts in excess of medical payments when the medical payments limit is exhausted

b. Will pay whatever difference may exist between the liability assessed a negligent driver for damages to you and the amount of coverage that negligent driver has in a PAP, up to the limits of your UM coverage

Jones dies leaving a $100,000 life insurance policy to his son. The son elects to take the $100,000 over a 10-year period and receives $11,130 per year. What part of this payment is taxable as income to the son? a. None of it - the payments are tax-free b. $11,130 per year - all of it is taxable c. $1,130 per year d. $130 per year e. only the $100,000 which may be spread over the 10 year period during which is received

c. $1,130 per year

Assume you have a Personal Auto Policy [PAP] with 50/100/10 split limits. You are responsible for a collision which insures four persons. The injured people successfully sue you for $5,000, $8,000, $30,000 and $80,000. Your insurance company will pay: a. $50,000 b. $60,000 c. $93,000 d. $100,000 e. $110,000

c. $93,000

An insurance contract the promises to pay the insured a periodic payment based on survival is called: a. Life Insurance b. Health Insurance c. A Life Annuity d. Homeowner's Insurance e. Life Settlement Insurance

c. A Life Annuity

A table that shows the yearly probabilities and/or information related to loss of health for individuals is: a. A Mortality Table b. A Annuity Table c. A Morbidity Table d. Commissioner's Ordinary Life Table e. U.S. Select Life Table

c. A Morbidity Table

A contract which provides for payment of the face amount plus a stated monthly amount for 20 years from the death of the insured is called: a. A family income policy b. A family protection policy c. A family maintenance policy d. A guaranteed benefit policy e. None of the above

c. A family maintenance policy

Price discrimination occurs when: a. Buyers prefer one firm's products over those of its rivals b. A single firm can produce multiple products or services at lower costs than can multiple firms c. A firm offers effectively identical products at different prices to different groups d. An insurer's average cost of production decreases with increasing production e. Buyers prefer none of a firm's products over those of its rivals

c. A firm offers effectively identical products at different prices to different groups

A representative of the insurance company who determines whether and on what terms to issue a requested insurance policy is called: a. An insurance agent b. An insurance claims specialist c. An underwriter d. An independent agent e. None of the Above

c. An underwriter

A group for life insurance must be of at least a minimum size because: a. It will diminish the impact of one substandard life on results b. It will spread out the fixed costs of issuing and administering the policy c. Both a and b d. Neither a nor b

c. Both a and b

If a beneficiary's designation is irrevocable? a. It can not be changed without the consent of the beneficiary b. All rights revert back to the policyowner if the irrevocable beneficiary predeceases the insured c. Both a and b d. Neither a nor b

c. Both a and b

Which of the following represent various categories of life and health insurance a. Group insurance b. Ordinary insurance c. Credit insurance d. All of the above e. Only a and c

c. Credit insurance

Problems with having minor children as beneficiaries can be solved by: a. Appointing a guardian of the property of minor children in your will b. Having the proceeds payable to a trust set up in the child's name c. Either a or b d. Neither a nor b

c. Either a or b

If dividends paid under a participating (mutual) life insurance contract are used to purchase paid-up additions to the contract: a. Future premiums will be higher than if such an election had not been made b. Future premiums will be lower than if such an election had not been made c. Future dividends will be higher than if such an election had not been made d. Future dividends will be lower than if such an election had not been made e. None of the above

c. Future dividends will be higher than if such an election had not been made

Under the retirement income policy: a. The cash value equals the face of the policy at age 65 b. The cash value is slightly less than the face of the policy at age 65 c. The cash value exceeds the face of the policy at age 65 d. The cash value may be more or less than the face of the policy depending on the age of the insured at date of issue e. None of the above

c. The cash value exceeds the face of the policy at age 65

. The actual amount of pure life insurance protection which is the difference between the policy reserve at a given point and the face amount insurance is called: a. The policy's net reserve b. The cash surrender value c. The net amount at risk d. The net asset value e. The cash savings value

c. The net amount at risk

19. Jennifer has an HO-2 policy and rents only the unattached converted garage, which is now a self-contained apartment to a Nancy, a college student. The apartment is destroyed by fire. What will happen with the claim according to the HO-2 contract? a. The fire is a covered peril and the damage will be paid for under the policy b. The peril of fire is not covered when it damages unattached structures, such as a garage c. There will be no payment because a rented structure other than the residence is excluded from coverage as a separate business pursuit d. Because it was an unattached, the HO-2 policy does cover it, but only on a proportional loss sharing basis

c. There will be no payment because a rented structure other than the residence is excluded from coverage as a separate business pursuit

Within the homeowners policy, the property removal provision refers to: a. The cost of repairing property b. The cost of removing property after a fire c. coverage for loss of property threatened by an insured peril that the owner tried to save by removing the property to another secure location d. Loss of property while being removed from an old to a new residence e. Removing property to be salvaged by the insurer

c. coverage for loss of property threatened by an insured peril that the owner tried to save by removing the property to another secure location

Jerry Johnson purchases a condo for $120,000 insuring the unit for that amount. One year later he sells half his interest in the property to his sister-on-law, Janet Jackson. Jerry maintains insurance on the property for $120,000, but during a wind storm the condo sustains damages of $60,000. Jerry's policy does not have a replacement cost coverage, however this loss is covered under the policy's standard settlement provisions. Under these circumstances he will collect from his insurer [assuming no deductible]: a. $80,000 b. $60,000 c. $40,000 d. $30,000 e. $15,000

d. $30,000

An example of a flexible-premium plan insurance is: a. A whole life policy b. A term policy c. An endowment policy d. A universal life policy e. None of the above

d. A universal life policy

Blue Shield plans are: a. Nonprofit associations b. Strongly supported and controlled by local physicians and their state medical societies c. Prepayment plans that provide coverage primarily for fees of physicians and surgeons d. All of the above e. None of the above

d. All of the above

Critics of HMOs stress which of the following as disadvantages of this form of health care delivery system? a. They are expensive to form b. You give up freedom of choice of physician c. They lack the personal touch of a single doctor/patient relationship d. All of the above e. None of the above

d. All of the above

Pricing objectives in life and health insurance is (are): a. That premium rates should be adequate b. Premiums should be equitable c. Premiums should not be excessive d. All of the above e. Only a and b

d. All of the above

Which of the following is an advantage the buyer of life and health insurance? a. Assists in the development of Savings b. Provides a safe and profitable investment c. Helps with estate preservation d. All of the above e. Only A and C

d. All of the above

A misstatement of age by an applicant for life insurance: a. Voids the policy if discovered during the contestability period b. Makes the policy voidable at the option of the insurer if discovered during the contestability period c. Would require that the insurer refund all paid-in premiums immediately d. Changes the amount of insurance to the amount which the premium paid would have purchased at the correct age e. None of the above

d. Changes the amount of insurance to the amount which the premium paid would have purchased at the correct age

Life insurance policies that allow policy values to vary either favorably or unfavorably based on an insurer's anticipated future experience are: a. Retrospective insurance reserve policies b. Nonparticipating policies c. Reversionary insurance policies d. Current assumption policies e. Modified term life policies

d. Current assumption policies

Which of the following are not necessary for a perfectly competitive insurance market: a. A large number of buyers and sellers such that no one buyer or seller nor any other group can influence the market b. Insurance sellers have freedom of entry and exit from the market c. Buyers and sellers are well informed about the products d. Government regulators are able to specify the pricing on guaranteed coverages to prospective insureds e. Sellers produce identical products

d. Government regulators are able to specify the pricing on guaranteed coverages to prospective insureds

All of the following are true about the yearly renewable term method except: a. The premium represents each insured's share of the cost of mortality b. Term premiums increase as one gets older c. The premiums tend to increase at an increasing rate d. It is a practical means of affording lifetime protection e. None of the above

d. It is a practical means of affording lifetime protection

Which of the following is Not deemed to be a primary factor affecting life and health insurance consumption? a. Income b. Inflation c. Interest Rates d. Market Concentration e. Price

d. Market Concentration

While driving home from insurance class in December you reflect on the provisions in your Personal Auto Policy, going over in your mind the $100 deductible, $300,000 liability coverage, and $10,000 collision coverage. You wonder whether you should consider extending the policy to include both underinsured motorist, as well as, noncollision coverage. However, before you get much further, a wild deer named Bambi comes out from the ditch and runs smack into your car on the passenger side. Your auto suffers $600 in damages, and Bambi loses an antler but otherwise remains unscathed. Under these circumstances you will be able to recover from your insurer: a. Full loss, less $100, because Bambi collided with your car thus invoking the collision coverage b. Full loss under supplementary payments, as Bambi would be considered a visitor to your car c. Full loss d. Nothing, this damage is not covered E. $600 less the $100 deductible under the uninsured motorist physical damage coverage

d. Nothing, this damage is not covered

Hospital expense coverage is written: a. Only on an indemnity basis b. Only on a valued basis c. Only on a service basis d. On a service basis, indemnity basis, or cash payment basis e. None of the above

d. On a service basis, indemnity basis, or cash payment basis

What comparable advantages do insurers provide that are similar to financial Intermediaries? a. Reduction of transaction costs b. Creation of liquidity c. Economies of scale c. All of the above d. Only A and B

d. Only A and B

Which of the following is essentially a deferred annuity with life insurance protection? a. Endowment at age 65 b. Modified whole life policy c. Jumping juvenile policy d. Retirement income policy e. Industrial insurance policy

d. Retirement income policy

Failure to exercise the degree of care required by law to protect others from harm is: a. hold harmless liability b. vicarious liability c. res ipsa loquitur liability d. negligence e. comparative estoppel

d. negligence

In order to reinstate a policy that has been permitted to lapse, the insured must: a. pay all past due premiums plus interest b. give evidence of insurability c. reinstate the policy within 5 years d. pay or reinstate any indebtedness under the policy e. All of the above

e. All of the above

The level premium method: a. Involves overpaying during the early years of the contract b. Provides lifetime protection c. Requires development of a legal reserve d. Has cash value as a by-product of savings in the policy e. All of the above

e. All of the above

The principal-agent problem in insurance occurs when: a. The insurance customer knows less than the insurer (seller) about the insurance company and its products b. Poorer than average risks to seek to obtain insurance at higher than average rates c. Individuals seek to obtain insurance by misrepresentation d. Insurers seek to terminate agents who have become to expensive to the company as a result of selling too many policies e. An agent knows more about his or her own actions than does the principal, in this case the insurer

e. An agent knows more about his or her own actions than does the principal, in this case the insurer

A good health insurance policy will: a. Pay all of the small medical charges that crop up with any illness b. Have a sizable deductible c. Have high policy limits providing coverage for large dollar loss d. Both a and b e. Both b and c

e. Both b and c

The most desirable continuance provisions with the life insurance contract from the consumer's point of view are found in a health insurance policy that is: a. Cancelable b. Optionally renewable c. Conditionally renewable d. Non-cancelable, guaranteed renewable e. None of the above

e. None of the above

Pricing objectives in life and health insurance is (are): a. That premium rates should be adequate b. Premiums should be equitable c. Premiums should be excessive d. All of the above e. Only a and b

e. Only a and b

Gross rates are life insurance rates calculated to recognize: a. The probability of an insured event b. Time value of money c. Financial strength of the insurer d. The net rate plus a loading for expenses, contingencies, profits and taxes e. The cash surrender value of the policy less and paid-up additions

e. The cash surrender value of the policy less and paid-up additions

The calculation of life and health insurance rates and values requires all of the following information except: a. Probability of insured event occurring b. Time value of money c. The benefits promised d. Loadings to cover expenses ,taxes, profits and contingencies e. The financial strength of the insurer

e. The financial strength of the insurer