Principles of Insurance
A policy that pays a dividend is known as an endowment policy. a participating policy. a non-participating policy. an investment policy.
a participating policy.
To be technically correct, we should define "fire" as a peril. a hazard. a risk. any of the above is equally correct.
a peril.
All of the following are covered by the water damage peril of the dwelling and contents broad form except: tearing out and replacing portions of a building in order to make repairs. damage to the plumbing system itself. accidental overflow or leakage of water from an appliance. overflow of a bath tub.
damage to the plumbing system itself.
As it exists today, risk management represents the merging of the specialties insurance, actuarial science, and decision theory. loss prevention, loss control and loss financing. decision theory, risk financing, and risk control. Intuitive decisions, conventions, and instinctive reactions.
decision theory, risk financing, and risk control.
The _______________ policy requires all family members to be insurable. graded premium whole life family income policy survivorship whole life family protection
family protection
In 2012 total insurance premiums in the United States were mostly paid by employers. less than the premiums paid in 2011 more than 9% of the gross domestic product (GDP). taxed by the IRS.
more than 9% of the gross domestic product (GDP).
The specific requirements regarding evidence of insurability imposed on the insured under the reinstatement clause are required by the changing investment income over time. designed to offset the cost of reissuing the policy. intended to avoid a loss of investment income. necessary to prevent adverse selection.
necessary to prevent adverse selection.
Failure to do what an ordinary and reasonably prudent person would do under the same or similar circumstances defines: negligence. assumption of risk. intervening cause. proximate cause.
negligence
In life insurance policies, a clause excluding death cause by war: is prohibited by federal law. is a standard policy provision. is often added to policies written during wartime to prevent adverse selection. none of the above
none of the above
Guest hazard statutes permit a guest in an automobile to bring suit against the driver. make the driver of an auto absolutely liable to injured guests. are becoming increasingly common. none of the above.
none of the above.
The provision that provides for a refund when the insured discontinues previum payments is the: nonforfeiture provision. attained age conversion right. change of plan provision. return of premium provision.
nonforfeiture provision
The disability waiver of premium provision normally waives premiums only for disabilities lasting six months or longer. is a statutory requirement in most states. is unavailable on most policies. is automatically included in all endowment policies.
normally waives premiums only for disabilities lasting six months or longer.
An insurer's underwriting policy is generally established by the desk underwriters. officers of the company in charge of underwriting. the insurance department. negotiation between the company and its agents.
officers of the company in charge of underwriting.
Jones dies leaving a $100,000 life insurance policy to his wife. The wife elects to take the $100,000 over a ten year period and receives $11,130 per year. What part of this payment is taxable as income to the wife? $1,130 per year. $11,130 per year. none of it. only the $100,000, which may be spread over the ten year period during which it is received.
$1,130 per year.
Under the Federal Flood Insurance Program, the maximum amount of subsidized coverage that is available on single family dwellings under the Emergency Program is $150,000. $250,000. $35,000. $17,500.
$35,000.
Mr. Duke purchased a $50,000 whole life policy with double indemnity on May 1, 2000. On May 25, 2002, he committed suicide. The insurer will be required to pay only the premiums which Jones has paid to the company. $50,000. the company will not be required to pay anything. $100,000.
$50,000.
For a given type of insurance the pure premium is computed to be $30 and the insurer's expense ratio is .40. The gross premium for the coverage will be $40. $42. $45. $50.
$50.
Classify the following as pure or speculative risk: (1) Change in market price for Farmer Smith's crops (2) Change in consumer demand for ABC's products (3) Collision damage to Jones' care (1) speculative, (2) pure, (3) pure (1) speculative, (2) speculative, (3) pure (1) pure, (2) speculative, (3) pure none of the above
(1) speculative, (2) speculative, (3) pure
According to our textbook, ________ of the people who reach 35 will be disabled for at least three months before reaching age 65. 48 percent 54 percent 52 percent 50 percent
50 percent
The Internal Revenue Service requires distributions from a tax-qualified retirement plan begin no later than April 1, after the employee reaches age __________. 70 1/2. 62. 65. 67.
70 1/2
Which of the following is/are true with respect to State Childrenâ s Health Insurance Programs? States receive federal funding to support the programs. All of the above. They were created to insure children from low-income families that do not qualify for Medicaid. Eligibility requirements vary by state
All of the above.
_______________ means the insured's own past loss experience enters into the determination of the final premium. Schedule rating Modification rating Judgment rating Experience rating
Experience rating
Which of the following is true regarding no-fault automobile insurance? They have been largely successful in reducing automobile insurance premiums. The impact on automobile insurance premiums has been most favorable in those states with low thresholds for lawsuits. Fraud is an increasing concern. None of the above.
Fraud is an increasing concern.
_______________ is a contract in which the initial premium is low but it increases yearly. Modified endowment Graded premium whole life Superior whole life Indeterminate premium
Graded premium whole life
John Jones and his son, Junior are insured under separate Personal Auto Policies, covering their respective autos, each as named insured. Jones is using Junior's car while his own auto is in the garage for repairs. In case of accident Junior's policy will be primary and the father's policy will apply on an excess basis. both policies will apply on a pro-rata basis. only Junior's policy will apply. only the father's policy will apply.
Junior's policy will be primary and the father's policy will apply on an excess basis.
Which of the following is NOT a factor used by insurance companies in automobile insurance rating? insurance score or credit score occupation education None of the above. They are all used by insurance companies.
None of the above. They are all used by insurance companies.
John has a Homeowners Broad Form policy with $80,000 on the dwelling. He rents his garage, valued at $6,000 to a neighbor for a woodworking business. What would John recover under his homeowners policy if his garage is destroyed by fire? Nothing $6,000 less the deductible plus rental income lost Rental value of the garage only $6,000 less the deductible
Nothing
In a trust fund approach to funding qualified retirement plans The employer in effect self-insures the plan. the program is usually administered by a licensed insurance company. the trustee usually guarantees the adequacy of the funding. the plan is exempt from the requirements of the PBGC.
The employer in effect self-insures the plan.
For a pension plan to be qualified by the IRS, it must meet certain standards, including all of the following, except: The plan must be designed exclusively for the benefit of employees. Vesting must be provided. The plan must not be permanent. Contributions and benefits must not discriminate in favor of highly compensated employees.
The plan must not be permanent.
Which of the following is true regarding low-cost auto insurance policies? They are designed to assist low-income individuals in meeting a stateâ s compulsory automobile requirements. They have been created in all states. They are offered only to individuals who are Medicaid-eligible. b.All of the above.
They are designed to assist low-income individuals in meeting a stateâ s compulsory automobile requirements.
Liability insurance is concerned primarily with the financial consequences of unintentional torts which are also crimes. unintentional torts. intentional torts. crimes.
UNINTENTIONAL TORTS
For which of the following vehicles would the liability coverage under Section II of the Homeowners policy provide coverage? a borrowed snowmobile while used away from the insuredâ s premises. an owned watercraft while used away from the premises. an owned snowmobile while used away from the insured premises. more than one of the above.
a borrowed snowmobile while used away from the insuredâ s premises.
Pure risk is characterized by a chance of loss and a chance of gain. a chance of loss or no loss only. the chance of gain or no loss only. none of the above.
a chance of loss or no loss only.
The definition of "risk" suggested in the text views risk as a condition of the real world in which there is an exposure to adversity. a state of mind. subjective uncertainty. none of the above.
a condition of the real world in which there is an exposure to adversity.
The term "hazard" refers to the same thing as the term peril. a condition that increases the chance of loss. uncertainty regarding loss. the same thing as probability of loss.
a condition that increases the chance of loss.
A business valued at $300,000 has four partners. If each partner buys $50,000 of life insurance on each of the other partners, this arrangement is knows as: an insurable interest plan. a shared interest plan. a cross-purchase plan. an entity plan.
a cross-purchase plan.
If the annuitant dies during the accumulation period and before the contract is annuitized, the annuitantâ s premiums are forfeited to surviving annuitants. annuity benefits are payable to a contingent beneficiary. a death benefit is payable to a beneficiary or to the annuitantâ s estate. the present value of annuity benefits is payable as a death benefit.
a death benefit is payable to a beneficiary or to the annuitantâ s estate.
A contract that provides for payment of the face amount plus a monthly payment starting with the death of the insured and continuing until 20 years after policy inception is called a guaranteed benefit policy. a family protection policy. a family income policy. a family maintenance policy.
a family income policy.
An annuity contract that provides an income until the first of two annuitants dies is a cash refund annuity. an annuity certain. a joint life annuity. a joint and last survivor annuity.
a joint life annuity.
A life insurance policy that is written to insure two or more persons with the face amount payable upon the death of the first insured to die is called a modified life policy. a convertible term policy. a joint and survivorship policy. a joint life mortgage protection policy.
a joint life mortgage protection policy.
The hazard that reflects the tendency in some jurisdictions for judges and juries to favor a plaintiff in litigation is properly classified as a moral hazard. a morale hazard. a legal hazard. none of the above.
a legal hazard.
The risks most suited to treatment by insurance are those in which there is a high frequency and a low potential severity. a low frequency and a high potential severity. a high frequency and a high potential severity. a low frequency and a low potential severity.
a low frequency and a high potential severity.
An insurance company might use all but which one of the following as its representative in loss adjustment? a staff adjuster. an independent adjuster. a public adjuster. a lawyer.
a public adjuster
A modified whole life contract would probably be best suited for which of the following individuals? a recent college graduate with dependents. a successful business executive. a person approaching retirement. a highly-paid professional athlete.
a recent college graduate with dependents.
Although the definition of â insured locationâ is quite broad, it does not include an additional residence acquired by the insured during the policy period. a hotel or motel room in which a family member is staying. a residence owned by the insured at inception and not revealed to the insurer. a dorm room in which a member of the insuredâ s family is staying while at school.
a residence owned by the insured at inception and not revealed to the insurer.
A policy that combines permanent insurance and increasing term is an example of a retirement income policy. a family protection policy. a family income policy. a return of premium policy.
a return of premium policy.
Unemployment would generally be considered to be a static fundamental risk. a dynamic fundamental risk. a static particular risk. a dynamic particular risk.
a static fundamental risk
The possibility of loss resulting from a flood is an example of a static fundamental risk. a dynamic fundamental risk. a static particular risk. a dynamic particular risk.
a static fundamental risk.
A fraternal insurer is a type of capital stock company. a type of reciprocal exchange. a type of mutual insurer. it may be any of the above.
a type of mutual insurer.
When there is a misstatement of age by the applicant for health insurance: the company will cancel the policy. the policy will be void from its inception because of the insured's misrepresentation. the insurer is not liable for any claims made during the period prior to correction of the insured's age. all amounts payable shall be such as the premium paid would have been purchased at the correct age.
all amounts payable shall be such as the premium paid would have been purchased at the correct age.
Although Social Security provides benefits in the event of a workerâ s disability, the qualification requirement for disability benefits is demanding. all of the above. coverage is provided for impairment expected to result in death. coverage is subject to a five-month waiting period.
all of the above
Compulsory automobile insurance laws: have been enacted in almost all states have largely replaced financial responsibility laws require insureds to have liability, medical payments, and physical damage coverage all of the above
all of the above
Coverage under Homeowners Section II for liability arising out of owned motorized golf carts applies while the cart is being used by insured to play golf. while crossing public roads at designated points to access parts of the golf course. while on roads in a private residential community where the insuredâ s lives if it is legal for golf carts to travel on such roads. all of the above
all of the above
Involuntary retention occurs when the risk is not recognized. insurance does not cover the intended exposure. loss control measures are improperly implemented. all of the above.
all of the above
Risk management contributes to organization profit by reducing the cost of losses. by allowing the organization to engage in certain speculative risks. by preserving the organizationâ s operating effectiveness. all of the above.
all of the above
Self-insurance may be cheaper for some organizations than commercial insurance in the long-run because self-insurance avoids certain expenses associated with the traditional commercial insurance market. the organization may believe its loss experience is better than the average experience on which commercial insurance rates are based. self-insurers can avoid the â social loadâ that results from statutory mandates. all of the above.
all of the above
The Homeowners Comprehensive Form (HO-5) excludes loss to personal property caused by all but which of the following? gradual deterioration. wear and tear. earthquake. all of the above.
all of the above
Under the theft coverage of the Homeowners policies, a specific exclusion applies to theft in or from a dwelling under construction. theft committed by any insured. theft from any part of a residence rented to anyone except another insured. all of the above.
all of the above
A personal umbrella liability policy is written only for persons with a substantial program of primary underlying liability insurance. includes a deductible applicable to losses not covered by the primary or underlying policies. covers both general liability and automobile liability. all of the above.
all of the above.
An approach an employer could use to derisk its pension plan is liability-driven investing. all of the above. a longevity swap or longevity bond. a pension buy out or lump sum distribution.
all of the above.
External agencies from which an underwriting may obtain information about an applicant include a state department of motor vehicles. the Medical Information Bureau. a credit reporting agency. all of the above.
all of the above.
Gifts are not subject to taxes if they are paid to a spouse, political organization or charity. are less than $14,000 per year. all of the above. are used to pay medical expenses.
all of the above.
Group insurance is a less expensive form of protection than individual policies because expenses per life insured are lower. medical exams are not required. tax advantages reduce the cost. all of the above.
all of the above.
Insurance policies contain exclusions because some perils are uninsurable. some types of property must be covered under special policies. some premiums do not contemplate the exposure. all of the above.
all of the above.
Life insurance contracts receive favorable tax treatment in that the investment earnings on the cash value are not taxed during the period of accumulation. all of the above. proceeds to a beneficiary are not usually taxable as income. in computing taxable gain, the insured may deduct all premiums paid, including the element that paid for protection.
all of the above.
Parol evidence may be admissible in situations in which the terms of a written contract are incomplete. the terms of the contract are ambiguous. there has been a mistake in the preparation of the written contract. all of the above.
all of the above.
Possible sources of disability income protection include: workers compensation all of the above. Social Security employer provided disability coverage
all of the above.
The Pension Protection Act of 2006 all of the above. requires employers to amortize their unfunded liabilities over a shorter period than before was enacted to strengthen funding requirements of defined benefit pension plans and the PBGC. increased PBGC premiums.
all of the above.
The Personal Fur Floater and the coverage on furs under the Homeowners Scheduled Personal Property Endorsement exclude inherent vice. damage caused by insects and vermin. all of the above. wear and tear.
all of the above.
The term "self-insurance"
all of the above.
The unemployment compensation laws of the states require that the worker must be willing and able to work. all of the above. that the worker be involuntarily unemployed. previous employment in a covered employment.
all of the above.
Under reforms enacted in the Flood Insurance Reform Act of 2012 the annual cap on premium increases in the National Flood Insurance Program was raised from 10% to 20%. premium subsidies are being phased out for repetitive loss properties and second homes. FEMA must update flood insurance rate maps. all of the above.
all of the above.
When the Other Members of Your Household (HO 04 58) endorsement is used to extend the definition of â insuredâ to include persons not related to the insured the named individual is an insured for the policyâ s liability coverage. property owned by the named individual is covered as insured property. all of the above. the effect is similar to providing a HO-4 policy for the named person.
all of the above.
Which of the following is a factor in determining the premium for an individual's automobile insurance? the use of the automobile. the area in which the automobile is garaged and operated. past accidents. all of the above.
all of the above.
Which of the following is an important source of information for underwriters the application containing the insuredâ s statements. information from the agent or broker. information from external agencies. all of the above.
all of the above.
The Consolidated Omnibus Budget Reconciliation Act (COBRA) contains provisions that all of the above. apply to all employers offering group health insurance to employees. allow continuation of group health insurance by employees and certain dependents upon the occurrence of designated events. require an employer to pay the cost of continuing former employeesâ health insurance for up to 36 months.
allow continuation of group health insurance by employees and certain dependents upon the occurrence of designated events.
Section 401(k) plans require employees to make nondeductible contributions to the plan. allow employees to make tax-deferred contributions to the plan. include limits on employer contributions, but not on employee deferrals. include limits on employee deferrals, but not on employer contributions.
allow employees to make tax-deferred contributions to the plan.
Health Management Organizations (HMOs) differ from commercial insurers in that they also deliver health care. are not subject to regulation. are owned by the participating subscribers. operate in the same manner as Blue Cross organizations.
also deliver health care.
An administrative services only (ASO) contract is an arrangement between an employer that self-funds benefits and an administrator. a third-party administrator and a reinsurance company. a third-party administrator and an insurance company. a pension fiduciary and a pension trustee.
an employer that self-funds benefits and an administrator.
The rate reforms in the Affordable Care Act is most likely to result in: an increase in premiums for older healthy individuals an increase in premiums for younger healthy individuals an increase in premiums for older unhealthy individuals. an increase in premiums for younger unhealthy individuals
an increase in premiums for younger healthy individuals
Some insurance buyers turn the entire decision making process over to an outside partty such as an insurance agent or broker. parents or friends. their banker. all of the above.
an insurance agent or broker.
Under common law, a property owner owes the highest degree of care to a licensee. a social guest. a trespasser. an invitee.
an invitee.
Automobile Insurance Plans reduce the cost of automobile insurance to other drivers. are sometimes referred to as "no-fault plans." are designed to provide auto insurance to persons who cannot obtain it thorough normal channels. will provide auto insurance to anyone who can pay the premium.
are designed to provide auto insurance to persons who cannot obtain it thorough normal channels.
The four elements of an insurable risk require that the probability of loss be known. include the requirement of economic feasibility. must be present or the exposure cannot be insured. are desirable, but some insurable risks do not possess them.
are desirable, but some insurable risks do not possess them.
Risk retention groups are regulated by the Risk Rentention Act of 1981.. are subject to the same regulatory standards as other insurers. are exempt from state regulation. are formed for the purpose of retaining or pooling risks.
are formed for the purpose of retaining or pooling risks
Expenses incurred in defending a liability suit that is covered under Section II of the Homeowners policy are not covered, but may be added to the policy by endorsement. are not payable under the policy. are payable, with any judgment, up to the policy limit. are payable in addition to the policy limit of liability.
are payable in addition to the policy limit of liability.
When a "separate account" is used as the funding instrument for a pension plan, the employer's contributions are separated from the contributions of other employers. are separated from the other assets of an insurer. are invested separately in the name of each employee. are allocated to accounts for individual employees.
are separated from the other assets of an insurer.
In general contributions by an employer on behalf of employees for qualified employee benefits are tax deductible as an expense by the employer, and are not taxable to employees. are tax deductible by the employer, but are taxable as income to employees. are not tax deductible by the employer, and are not taxable income to employees. may not exceed 10% of the employee's other compensation.
are tax deductible as an expense by the employer, and are not taxable to employees.
The Automobile Insurance Plan assigns each automobile insurer a share of the undesirable drivers in the state. sets higher premiums for undesirable drivers. makes undesirable drivers wait six months to apply for insurance provides roadside assistance.
assigns each automobile insurer a share of the undesirable drivers in the state.
Under the Personal Auto Policy, an additionally acquired auto is automatically insured under the liability coverage for 4 days. never insured automatically. automatically insured under the liability coverage until expiration. automatically insured under the liability coverage for 14 days.
automatically insured under the liability coverage for 14 days.
The main responsibility of underwriting is to avoid insuring people who are likely to have losses. to make certain that only very good risks are insured.. limit premiums written to an acceptable level. avoid adverse selection.
avoid adverse selection.
The principal function of an irrevocable life insurance trust is to manage the proceeds of life insurance payable at the time of death. make premiums paid for life insurance tax-deductible by the payer. manage the distributions of cash value from insurance policies. avoid â incidents or ownershipâ in life insurance that makes the proceeds taxable.
avoid â incidents or ownershipâ in life insurance that makes the proceeds taxable.
Under the "fifth dividend option" available from some companies, dividends may be used to purchase one year term insurance. be used to pay the premium on the existing policy. be left to accumulate at interest. buy paid up additions to the policy.
be used to purchase one year term insurance.
The definition of personal property in the Homeowners forms includes motorized vehicles as long as they are not licensed. pets belonging to the insured. property belonging to roomers and boarders. borrowed property which is being used by an insured.
borrowed property which is being used by an insured.
Adjustable life policies are called "adjustable" because the face of the policy changes with changes in a price index. the insured may vary the premium over the life of the policy. the amount of insurance may be adjusted over time. both the face amount of insurance and premium are adjustable over the life of the policy.
both the face amount of insurance and premium are adjustable over the life of the policy.
Brokers differ from insurance agents in that brokers are compensated by their clients on a fee basis, while agents receive a commission from the company. brokers are representatives of the insured, rather than the company. brokers operate primarily in the life insurance field, while agents operate in both the life insurance field and the property and liability field. agents may bind a company orally, while brokers have the authority to bind only in writing.
brokers are representatives of the insured, rather than the company.
One coverage automatically included in the Tenants Homeowners form (HO-4) that is not included in the other forms is building additions and alterations additional coverage. loss assessment coverage. coverage for credit card forgery. the Other Structures extension.
building additions and alterations additional coverage.
The liability coverage of the Homeowners policy is not intended to cover liability assumed under contract. a parentâ s vicarious liability. all of the above. business liability exposures of the insured.
business liability exposures of the insured.
A _______________ is an employee benefit plan that meets the design conditions in IRC Section 125. entity plan cafeteria plan trust fund cross-purchase agreement
cafeteria plan
A premature withdrawal from an annuity can trigger a tax penalty and a 10% premature penalty. can be used to avoid the tax that would apply if the contract is annuitized. is allowed by some insurers. is any withdrawal prior to the date the annuitant reaches 62 years of age.
can trigger a tax penalty and a 10% premature penalty.
A misstatement of age by an applicant for life insurance. makes the policy voidable at the option of the company if discovered during the contestability period. has no effect on the policy unless it is discovered during the contestability period. changes the amount of insurance to the amount that the premium paid would have purchased at the correct age. voids the policy if discovered during the contestability period.
changes the amount of insurance to the amount that the premium paid would have purchased at the correct age.
Most states currently have compulsory auto insurance laws, but not financial responsibility laws. no-fault laws. financial responsibility laws, but not compulsory auto insurance laws. compulsory auto insurance laws and financial responsibility laws.
compulsory auto insurance laws and financial responsibility laws.
Causes of increasing health insurance costs include all but which of the following? concurrent review. aging population excess capacity. improved technology
concurrent review.
The retired lives reserve program is used to purchase deferred retirement annuities for employees. continue renewable group term life insurance on retired employees. accumulate pension benefits for retired employees. supplement income payable under social security.
continue renewable group term life insurance on retired employees.
The most important objective of risk management is meeting social responsibility and meeting external obligations. continued growth and earning stability. survival and economy. earning stability and reduction in anxiety.
continued growth and earning stability
When a deposit administration plan is used for funding a qualified retirement plan contributions are not allocated to specific workers until they retire. the insurer guarantees the benefits to retired workers for whom annuities have been purchased. the insurer guarantees the adequacy of funds to meet accrued liabilities. a single premium annuity is purchased for each worker when they enter the program.
contributions are not allocated to specific workers until they retire.
Basically, a retrospectively rated insurance program is a form of class rating. variation of schedule rating. cost-plus arrangement in which actual losses determine the final premium. a variation of experience rating, since past losses determine the current premium.
cost-plus arrangement in which actual losses determine the final premium.
Survivorship whole life or second-to-die policies are designed to meet the special exposure facing couples who are members of a two-income family. couples with a substantial estates, who will incur a federal estate tax. an individual who is supporting an aged parent. couples with a mortgage that can be funded by two incomes, but for which a survivor might have difficulty meeting payments.
couples with a substantial estates, who will incur a federal estate tax.
When a motorcycle is insured under the Miscellaneous Type Vehicles Endorsement, coverage applies to the named insured, resident relatives and permissive users for the insured vehicle only. coverage applies to the named insured and resident relatives for the use of any motorcycle. coverage applies to the named insured for the use of any motorcycle. coverage applies to the named insured only and only for the insured vehicle.
coverage applies to the named insured, resident relatives and permissive users for the insured vehicle only.
When the first premium is not submitted with an application for life insurance the insuredâ s promise to pay is treated as consideration for the contract. coverage is effective only as preliminary term insurance. the insured receives a conditional binding receipt coverage cannot become effective until the premium is paid.
coverage cannot become effective until the premium is paid.
Under the title insurance policy, the insurer agrees to furnish a valid title to the insured. compensate any person who comes forward with a legal claim to the property. protect subsequent purchasers against loss resulting from a defective title transferred to them by the insured. defend the insured in the event of legal action in connection with losses not excluded by the policy.
defend the insured in the event of legal action in connection with losses not excluded by the policy.
An arrangement under which an employer agrees to make future payments to the employee after retirement or to the spouse if the employee dies before retiring is a deferred compensation plan. split dollar plan. shared interest agreement. cross-purchase agreement.
deferred compensation plan.
The unlimited marital deduction in the federal estate tax is an automatically granted to the children if both parents are deceased. essentially eliminates estate taxes for a married couple. defers the imposition of the estate tax only at the death of the first spouse to die. is also referred to as the estate tax credit.
defers the imposition of the estate tax only at the death of the first spouse to die.
Which of the following types of pension plans are employers required to insure with the Pension Benefit Guarantee Corporation (PBGC) defined benefit plans. single employer plans. defined benefit and defined contribution plans. defined contribution plans.
defined benefit plans.
Under this settlement option, a beneficiary cannot commute, alienate, or assign their interest in the policy proceeds. delay clause convertible clause premium defaulty clause spendrift clause
delay clause
Ratemaking in insurance is usually done on a cooperative basis in the field of life insurance. inevitably leads to price-fixing by property and liability insurers. differs from pricing in other businesses since prices are based on a prediction. is not subject to governmental control.
differs from pricing in other businesses since prices are based on a prediction.
There are three basic rules of risk management proposed in the text. The first and most important of these is insure bigger risks, prevent the smaller ones. don't risk more than you can afford to lose. consider the odds. don't risk a lot for a little.
don't risk more than you can afford to lose.
The "earth movement" exclusion of the Homeowners policies does not appear in Homeowners form HO-3. applies only to the dwelling, but not to moveable property. excludes earthquake and volcanic eruption. all of the above.
excludes earthquake and volcanic eruption.
A retirement plan that promises a monthly benefit equal to 1 percent of the average monthly salary during the individualâ s last three years of employment is a money purchase plan. final average salary plan. 401(k) plan. career average salary plan.
final average salary plan.
The most important factors in selecting an insurance company, in order of importance are: financial stability, treatment of policyholders, and cost. cost, financial stability, and treatment of policyholders. agent, cost, and financial stability treatment of policyholders, cost, and agent.
financial stability, treatment of policyholders, and cost
Underwriting syndicates are formed by insurance companies for the purpose of handling risks that are beyond the capacity of an individual company. to eliminate competition for better classes of business. to operate as cartels, dividing the market according to a plan. to provide subsidized insurance to groups of applicants who cannot afford insurance.
for the purpose of handling risks that are beyond the capacity of an individual company
Group life insurance premiums paid by an employer are deductible by the employer and nontaxable to the employee when included as a part of a pension plan. for up to $60,000 in group permanent life insurance. up to 10% of the employee's salary. for up to $50,000 in term life insurance.
for up to $50,000 in term life insurance.
The business activities exclusion of Homeowners Section II excludes coverage for business activities only if the business is engaged in on a full-time basis. only if the business is owned by an insured. for which an insured received more than $2000 during the year prior to inception. only if they are conducted on the premises.
for which an insured received more than $2000 during the year prior to inception.
The terrorist attack on the World Trade Center on September 11, 2001 led to a debate over whether such risks are dynamic or static. pure or speculative. fundamental or particular. none of the above.
fundamental or particular.
Damages assessed against the negligent party in a tort action sometimes include amounts that are designed to compensate for intangible losses such as pain and suffering. Such damages are called exemplary damages. punitive damages. special damages. general damages.
general damages.
The group that pays the largest share of health care costs in the U.S is: private employers government. individuals private insurance companies
government
In which of the following do property and liability insurance companies invest the greatest percentage of their assets? government and corporate bonds. corporate stocks. real estate. mutual funds.
government and corporate bonds.
The chance of being disabled is less than the chance of death during middle ages. greater than the chance of death before retirement. less than the chance of death at any age. about the same as the chance of death.
greater than the chance of death before retirement.
The primary objective of risk management is to minimize insurance expenditures. make certain that uninsured losses do not occur. minimize the adverse effects of losses and uncertainty connected with risks. guarantee the attainment of company goals will not be prevented by losses.
guarantee the attainment of company goals will not be prevented by losses.
The medical payments coverage of the Homeowners policy agrees to pay medical expenses resulting from bodily injury to residents of the household. guests, regardless of the insured's liability or lack thereof. persons other than members of the insured's household who reside on the premises. all of the above.
guests, regardless of the insured's liability or lack thereof.
The use of credit scores in underwriting and pricing auto and homeowners insurance has been restricted by legislation in a number of states. is illegal under federal law because if considers an applicantâ s age, sex, and race. is used primarily because it reflects the applicantâ s ability to pay premiums. none of the above.
has been restricted by legislation in a number of states.
The capitation approach to charging for health care benefits is characteristic of point of service plans. health maintenance organization. preferred provider organizations. Blue Cross and Blue Shield organizations.
health maintenance organization.
Henri Fayol's place in the history of risk management arises from his introduction of the term â risk management.â his work in the field of systems safety. his work in the field of operations research. his recognition of risk management as one of six broad functions of business.
his recognition of risk management as one of six broad functions of business.
According to the FBI, the fastest growing form of white collar crime is. substance abuse. arson. identity theft insurance fraud.
identity theft
The Internal Revenue Code stipulates that a contract will be considered "life insurance" for the purpose of taxes if it meets both of the tests specified in the code. if it meets either of two tests specified in the code. as long as both the face amount and the premium are fixed. as long as the vendor is a licensed insurer.
if it meets either of two tests specified in the code.
Distributions from a qualified retirement plan before age 59 ½ are subject to a 10% tax penalty. This penalty does not apply when the individual is actually changing jobs. if the distribution is rolled over into another qualified plan or an IRA. if the distribution is less than 50% of the accumulation in the plan. if the plan approves of such distribution.
if the distribution is rolled over into another qualified plan or an IRA.
Personal Injury liability coverage is essentially the same thing as bodily injury coverage. includes certain intentional torts such as libel, slander, and defamation and is available by endorsement to the Homeowners. is available to business firms but not to individuals. is automatically included in the Homeowners policy.
includes certain intentional torts such as libel, slander, and defamation and is available by endorsement to the Homeowners.
According to the law of large numbers, a larger number of cases examined in the sampling process makes the chance of loss decline. makes the chance or probability of loss increase. increases the accuracy of predictions. makes the accuracy of predictions remain about the same.
increases the accuracy of predictions.
Which of the following is least likely to be held legally liable? municipalities. infants. minors. charitable institutions.
infants
Changes in technology have impacted automobile insurance rating in which of the following ways? there is less variability in insurance premiums within the insured population. the federal government now regulated the factors used to by insurers to establish automobile insurance rates insurers sometimes use an insuredâ s actual driving habits to determine the premium None of the above.
insurers sometimes use an insuredâ s actual driving habits to determine the premium
The term enterprise risk management refers to management of risks related to derivatives and futures. management of financial risks integrated management of a firmâ s pure and speculative risks. management of risks for profit-making organizations.
integrated management of a firm's pure and speculative risks.
The Damage to Property of Others coverage under Section II of the Homeowners policies provides limited coverage for intentional damage by insureds under the age of 13 years. damage to property that is owned by members of the insuredâ s household. damage to the insuredâ s own property. damage arising out of motor vehicles.
intentional damage by insureds under the age of 13 years.
Waiver is the same thing as estoppel. involves the relinquishment of a known right. is an obsolete doctrine, seldom used in insurance today. is an exception to the principle of indemnity.
involves the relinquishment of a known right.
The Medicaid program is funded 100 percent by the federal government. all of the above. has uniform national eligibility requirements established by the federal government. is a federal-state program that provides medical assistance to low-income individuals.
is a federal-state program that provides medical assistance to low-income individuals.
A preferred provider organization is a group of health care providers contracted by an employer or insurer to provide services. is an insurer approved by the state commissioner of insurance. is a health insurer selected by a group of physicians. usually charges higher fees than other providers in the area.
is a group of health care providers contracted by an employer or insurer to provide services.
The Boatowners Policy is a package policy that includes both physical damage and liability coverage. covers the boat for the same perils as Homeowners Form 4. is usually written with a $1,500 deductible to dovetail with the coverage on boats under the Homeowners policy. covers the boat on a replacement cost basis.
is a package policy that includes both physical damage and liability coverage.
The insurance mechanism operated by the Federal Deposit Insurance Corporation is not really insurance in the true sense of the term. is a private insurance program sold by a government agency. is a public guarantee insurance program. is a social insurance program.
is a public guarantee insurance program.
Low-load and no-load life insurance usually has a lower mortality cost than other life insurance. is generally written on a term basis only. is available only from a limited number of insurers. is available from most licensed insurers.
is available only from a limited number of insurers.
Under Section II of the Homeowners forms, liability arising out of owned golfcarts is totally excluded but may be added by endorsement. is covered only if the cart is being used for golfing purposes on a golf course. is broader in scope than coverage on other recreational motor vehicles. is covered only if the cart is being used by the named insured.
is broader in scope than coverage on other recreational motor vehicles.
The grace period clause is designed to avoid unintentional lapses. permits the insured to purchase insurance which he could not otherwise afford. must be taken out by the insured at the time the policy is taken out or it is not applicable. is only required in a few states.
is designed to avoid unintentional lapses.
The cyclical nature of the U.S. property and liability insurance industry, in which insurance prices and the availability of insurance fluctuate over time is evidence of a conspiracy on the part of insurers. reflects mismanagement on the part of insurance company executives. is gradually changing to a more stable market. is evidence that the industry is highly competitive.
is evidence that the industry is highly competitive.
Fire legal liability coverage under the Homeowners policy: has the same limit as coverage on the insured's property in Section I. is important for persons who are tenants in an apartment or dwelling. is optional and an additional premium charge is made. is of little value to a renter because of the policy exclusion of damage to property rented to, or in the care, custody, or control of the insured.
is important for persons who are tenants in an apartment or dwelling.
Coverage against loss resulting from fraudulent use of an insured's credit cards or electronic fund transfer card is provided under an Additional Coverage with a $500 limit. is subject to the $200 limit applicable to money and securities. is specifically excluded from coverage. applies under the theft peril, but only if the card was actually stolen.
is provided under an Additional Coverage with a $500 limit.
Lloyd's of London is the parent company of the so-called American Lloyds. is a mutual insurance company. is a capital stock insurance company. is similar in its operation to the New York Stock Exchange.
is similar in its operation to the New York Stock Exchange.
The blackout period all of the above. depends on the age of the deceased. is the period when the surviving spouse is not eligible for social security benefits because there are minor no children. is the readjustment period immediately following the death of the spouse.
is the period when the surviving spouse is not eligible for social security benefits because there are minor no children.
When antiques are insured under the Homeowners Scheduled Personal Property Endorsement the coverage is usually on a replacement cost basis. it is customary to provide the insurance on a valued basis. the â wear and tearâ exclusion is deleted. the coverage is usually on a named peril basis.
it is customary to provide the insurance on a valued basis.
Some corporations purchased insurance on the lives of their rank and file employees with their knowledge. This is known as deferred compensation. defined benefit plans. janitor or dead peasant insurance. individual insurance.
janitor or dead peasant insurance.
The type of annuity that pays income to two annuitants until both annuitants have died is a: deferred annuity. joint life annuity. joint and last survivor annuity. straight life annuity.
joint and last survivor annuity.
The beneficiary under a split dollar life insurance policy normally is the key employee's beneficiary and employer to the extent of their interests. key employee's spouse. estate of the insured. employer.
key employee's beneficiary and employer to the extent of their interests.
The beneficiary under key person life insurance normally is the key person. key person's spouse. estate of the insured. employer.
key person
An individual who had a chance and failed to avoid an accident would likely be liable under the doctrine of respondeat superior. negligence per se. res ipsa loquitur. last clear chance.
last clear chance.
Group credit life insurance certificates are issued to the borrower. spouse. children, if spouse if deceased. lender.
lender
Essential insurance coverages protect against loss exposures that could result in bankruptcy. loss exposures over $100,000. wind and fire damage. loss exposures that would force the insured to borrow or resort to credit.
loss exposures that could result in bankruptcy
The oldest of the modern fields of insurance is probably fire insurance. life insurance. casualty insurance. marine insurance.
marine insurance.
Under the cancellation provision of the Federal Flood Insurance Policy, the insured may cancel the policy subject to 30 days notice. may cancel at any time, but if he or she retains title to the property, the premium for the current term is fully earned. has the same cancellation right as under the fire policy. may not cancel the policy.
may cancel at any time, but if he or she retains title to the property, the premium for the current term is fully earned.
Property of a student living at a sorority house while attending school. may not be covered for loss by theft if left at the house for a four-month summer vacation. should be insured under a Homeowners HO-4. is not covered by the parentâ s Homeowners policy. is fully covered by her parentâ s Homeowners policy.
may not be covered for loss by theft if left at the house for a four-month summer vacation.
The Employee Retirement Income Security Act of 1974 established minimum standards for funding of pension plans. minimum standards for vesting of pension plans. extensive reporting and disclosure requirements. all of the above.
minimum standards for funding of pension plans
Which of the following would permit the insurance company to void your automobile policy? lending your car to someone without a license. misstating your age. not disclosing a previous cancellation. all of the above.
misstating your age.
The definition of personal property in the monoline dwelling forms includes all but which of the following? furniture. money and valuable papers. rowboats and canoes. bicycles.
money and valuable papers.
Hazards are usually classified into three categories. They are: perils, risks, and uncertainties. physical, mental, and moral. moral, morale, and physical. personal, property, and liability.
moral, morale, and physical.
Because she knows she has insurance to cover losses from theft, Jones rarely locks the door to her house. Her behavior is an example of moral hazard. morale hazard. physical hazard. none of the above.
morale hazard
The risk that a firm's IT systems will fail is an example of credit risk. operational risk. strategic risk. compliance risk.
operational risk.
A health insurance provision that helps eliminate the problem of benefit payments in excess of an insured's allowable benefits is: elimination period. misstatement of age provision. reinstatement provision. overinsurance with medical expense coverage.
overinsurance with medical expense coverage.
A provision that waives premiums on a juvenile insurance policy if the policy owner dies or is disabled before the child reaches a certain age is called a: minor beneficiary provision. payor benefit provision. facility of payment provision. nonforfeiture provision.
payor benefit provision.
The Patient Protection and Affordable Care Act does all but which of the following? provide tax credits to small employers who provide health insurance to their employees penalize large employers who fail to provide health insurance coverage to their employees impose penalties on individuals who do not have health insurance reduce the size of the Medicaid program
penalize large employers who fail to provide health insurance coverage to their employees
Pure risks are generally classified as physical risks, moral risks, and morale risks. fundamental risks, dynamic risks, and particular risks. speculative risks, enterprise risks, and financial risks. personal risks, property risks, liability risks, and risks arising out of the failure of others.
personal risks, property risks, liability risks, and risks arising out of the failure of others.
In general, which of the following cannot be held legally liable? charitable institutions. government employees. minors. persons incapable of determining what is reasonable and prudent.
persons incapable of determining what is reasonable and prudent.
â Malpractice insuranceâ is a term usually associated with: physicians. architects. attorneys. all of the above.
physicians
Actual cash value is defined as: the market value of the item at current prices. original cost minus depreciation. present replacement cost minus depreciation. original cost without deduction for depreciation.
present replacement cost minus depreciation.
By definition, estoppel: is the failure to disclose known facts. prevents one from denying a fact if the fact was admitted to be true by previous actions. allows the insurer to deny liability on the basis of the insured's previous actions. is the intentional abandonment of a known right.
prevents one from denying a fact if the fact was admitted to be true by previous actions.
The coordination of benefits provision prioritizes the payment order when two spouses are covered under each other's employer provided health coverage. relates the coverage of hospitalization policies to surgical expense policies. is commonly used in individual contracts, but not in group contracts. relates the coverage of a major medical policy to base coverage.
prioritizes the payment order when two spouses are covered under each other's employer provided health coverage.
Life insurance is
private insurance
When using the needs analysis approach to measure the need for life insurance, one should set the level of future income needs at roughly equal to 3 times current earnings. assume savings available at the time of death will be adequate to create an emergency fund. project future income needs, identify available resources, and determine how much insurance is required.. ignore possible changes in lifestyle following the death of the bread winner.
project future income needs, identify available resources, and determine how much insurance is required..
The double indemnity provision promises to pay double the face of the policy if the insured dies as the result of an accident. reduces the amount of insurance required by an individual in order to enjoy adequate protection. doubles the insureds protection against premature death. provides additional coverage for suicide after the two year waiting period.
promises to pay double the face of the policy if the insured dies as the result of an accident.
The Business Pursuits Endorsement to the Homeowners policy covers the insured's liability as the owner of a business. protects eligible insureds against liability they incur as employees. is available to all insureds. permits the use of the premises for business purposes.
protects eligible insureds against liability they incur as employees.
The Lienholders Single Interest Coverage Endorsement used with the Mobilehome Endorsement to the Homeowners policy includes coverage for both the insured and the lienholder. protects the insured against liens that may be placed against the mobilehome. protects the lienholder but not the insured. is automatically included in the basic policy premium.
protects the lienholder but not the insured.
The "change of occupation" provision used in individual health insurance contracts permits change only to a less hazardous occupation. is one of the mandatory uniform provisions. provides for a return of premium if a new occupation is less hazardous and an adjustment of benefits if it is more hazardous. forbids the changing of occupations.
provides for a return of premium if a new occupation is less hazardous and an adjustment of benefits if it is more hazardous.
A drunken driver killed a man and severely injured his wife. The court awarded the wife $10 million in damages. A substantial part of the damages were undoubtedly special damages. general damages. loss of consortium damages. punitive damages.
punitive damages.
Under the guaranteed insurability option on a life insurance policy, the insured is granted the right to renew a temporary contract without proving insurability. purchase additional insurance of the same type without proving insurability. add family members to the policy without proving insurability. convert to a permanent policy without proving insurability.
purchase additional insurance of the same type without proving insurability.
Traditional risk management is concerned primarily with dynamic risks. pure risks. fundamental risks. speculative risks.
pure risks.
Distress risk companies reinsure insurers that accept poorer than average drivers as insureds. provide automobile insurance to high risk-drivers, usually at high premiums and under limited forms. are also sometimes called "joint underwriting associations." are insurers whose financial solvency is under question by the state Commissioner of Insurance.
reinsure insurers that accept poorer than average drivers as insureds.
The adjustment of benefits in a disability income insurance policy is provided for in which of the following clauses? payment of claim. grace period. time of payment of claims. relations of earnings to insurance.
relations of earnings to insurance.
Which of the following represents an exception to the principle of indemnity? the doctrine of insurable interest. replacement cost coverage. subrogation. â other insuranceâ provisions.
replacement cost coverage.
Savings Incentive Match Plan for Employees (SIMPLE) plans are often used in conjunction with a 401(k) plan. limit eligibility to employees with 10 or fewer employees. require employers to make matching contributions up to 3% of employee compensation or make nonelective contributions of 2% for all employees. allow employees to make voluntary salary deferrals but do not allow employer contributions.
require employers to make matching contributions up to 3% of employee compensation or make nonelective contributions of 2% for all employees.
The theft coverage of the Homeowners forms more than one of the above. requires that the insured produce sales receipts for the property stolen. requires forcible entry into the premises. requires that the insured notify the police of the theft.
requires that the insured notify the police of the theft.
A pedestrian injured by an object falling from a building would probably attempt to establish liability on the basis of the doctrine comparative negligence. caveat lector. res ipsa loquitur. respondeat superior.
res ipsa loquitur.
Vicarious liability involves a situation where one person becomes legally liable because of the negligence of another. One of the doctrines upon which vicarious liability may be based is negligence per se. respondeat superior. sovereign immunity. the fellow servant doctrine.
respondeat superior.
Mr. Miller wants to be able to change the beneficiary of his life insurance policy at any time. Which type of beneficiary designations should he use? class. per capita. revocable. irrevocable.
revocable
Current federal government insurance programs include all of the following except: post office insurance terrorism reinsurance. riot reinsurance. flood insurance.
riot reinsurance.
The two broad approaches to dealing with risk are risk retention and risk transfer. risk avoidance and risk transfer. risk control and risk financing. insurance management and risk management.
risk control and risk financing.
The Keogh plans are designed for a union for its members. selected employees of a corporate employer. anyone not covered under a corporate pension plan. self-employed persons and their employees.
self-employed persons and their employees.
A disability income insurance policy on which premiums are paid weekly must have a grace period of at least there is no grace period on weekly premium policies. ten days. thirty-one days. seven days.
seven days.
The type of captive for which the deduction of payments by the parent is most likely to be disallowed by the Internal Revenue Service is an association captive. a trade association insurance company (TAIC). single parent captive. a risk retention group.
single parent captive.
The three broad, general classes into which the types of insurance may be classified are
social insurance, private insurance, and public benefit guarantee programs
One of the most attractive features of the policy loan provision under permanent forms of life insurance is the fact that the loans are interest free. such loans do not have a legal obligation to repay the loan. funds are available without delay upon request of the beneficiary. all of the above.
such loans do not have a legal obligation to repay the loan.
Benefits payable to an employee under disability income insurance provided as part of an employee benefit package always taxable to the employee. taxable the same as wages if the premium was paid by the employer. taxable the same as wages if the premium was paid by the employee. always nontaxable to the employee.
taxable the same as wages if the premium was paid by the employer.
Life insurance which provides for payment only if the insured dies within a specific time period is limited pay life insurance. term insurance. ordinary life insurance. none of the above.
term insurance.
The term accommodation risk refers to a situation in which an underwriter agrees to insure a particular applicant based on information in a credit report. based on information in the application. based on information from an external agency. that does not meet the companyâ s normal underwriting standards.
that does not meet the companyâ s normal underwriting standards.
The insured died one year after premiums had been discontinued on a $20,000 whole life policy with a $2,000 cash value and an automatic premium loan provision. How much will the insurer pay? the $ 2,000 cash value. the $20,000 face amount. the $20,000 face amount less the amount owed on the premium loans. nothing.
the $20,000 face amount less the amount owed on the premium loans.
One of the distinguishing characteristics of the reciprocal exchange include the fact that it is incorporated. unlimited liability of the members. the attorney-in-fact. a higher than average rate for the insurance it sells.
the attorney-in-fact.
If the owner of an individual life insurance policy has not selected a settlement option before the insured's death, which of the following statements is true? the insurer selects the option most beneficial to the beneficiary. the beneficiary has the right to select an option after the insured's death. the proceeds are paid under the facility of payment clause. the policy proceeds must be paid in a lump sum.
the beneficiary has the right to select an option after the insured's death.
A peril, as distinguished from a hazard, is defined as a condition that increases the likelihood of loss. the cause of a loss. the same thing as risk. none of the above.
the cause of a loss.
The provision that requires the beneficiary to survive the insured by a specified period of time in order to receive the proceeds payable upon the death of the insured is called the common disaster clause. the ownership provision. the beneficiary provision. the survivorship clause.
the common disaster clause.
Although umbrella liability policies and pricing are not standardized, exposures covered by homeowners Section II are usually excluded. the coverage is appropriate only for extremely wealthy individuals. the coverage is relatively expensive and often costs more than increasing limits of other liability insurance contract. the cost of coverage is not excessive.
the cost of coverage is not excessive.
Criticisms of the tort system as it relates to the automobile include all but which of the following? the cost of operating insurance companies is too high. the system is needlessly slow, delaying compensation. in many instances the compensation is inequitable. some people are not compensated under the tort system.
the cost of operating insurance companies is too high.
When the Homeowners policy is used to insure a mobilehome the definition of Coverage A, Buildings, is modified to include attached fuel tanks and built in furnishings. Coverage A is combined with Coverage C. contents coverage does not apply. the scope of the perils is greatly reduced.
the definition of Coverage A, Buildings, is modified to include attached fuel tanks and built in furnishings.
The fund that would provide survivors a cushion for unexpected expenses that may arise after the death of a loved one is the final expenses fund. the emergency fund. the mortgage fund. the children's insurance fund.
the emergency fund.
Risk avoidance should be used in those instances in which no other alternative is available. the exposure has catastrophic potential and the risk cannot be reduced or transferred. when the frequency of loss is low. when the probability or frequency cannot be determined.
the exposure has catastrophic potential and the risk cannot be reduced or transferred.
Vicarious liability for the use of automobiles is imposed by statute in some jurisdictions. One type of law imposing such liability is a guest hazard statute. a financial responsibility law. res ipsa loquitur. the family purpose doctrine.
the family purpose doctrine.
The factor that has had the greatest influence on the growth of employee benefits has been union negotiation for benefits. the fact that coverate is on a group basis and is therefore less expensive. the favorable tax treatment of contributions made by the employer.. employer efforts to improve employee morale.
the favorable tax treatment of contributions made by the employer..
A nonowned auto used while the insured's auto is being repaired or serviced is a: temporary substitute automobile. In purchasing automobile insurance, which of the following coverages should be considered essential? liability coverage. The definition of "uninsured motorist" under the Uninsured Motorist coverage of the Personal Auto Policy includes all of the above If a Personal Auto Policy is written without physical damage coverage on the covered auto and the insured acquires an additional auto physical damage coverage applies to the new auto for 4 days. Which of the following losses would be paid under the collision coverage of the Personal Auto Policy? the insured misjudges a curve and "rolls" the car. In which of the following situations would the Personal Auto Policy NOT provide coverage under the liability section? the named insured borrows a truck for business use In most states, Uninsured Motorists coverage provides coverage only for bodily injury caused by an uninsured motorist. When one person borrows another's automobile the insurance on the car being driven is primary.
the injured party has a direct claim against the insurance company.
All of the following statements are true with respect to liability insurance except it is commonly referred to as third party coverage. the insurer is obligated to pay damages only when the insured is legally liable. the injured party has a direct claim against the insurance company. the insurer promises to defend any suits involving the type of liability insured.
the injured party has a direct claim against the insurance company.
Under the conversion privilege of a convertible term life insurance policy the insured must provide evidence of insurability. the insured may convert to a health insurance policy. the insured must convert before age 32. the insured may convert to a permanent life policy.
the insured may convert to a permanent life policy.
The principle of indemnity requires that insurance rates must be neither too high nor too low. the insured should be paid for the loss he suffers and no more. people who have accidents must pay for the losses that result. the insured must be paid the benefits that his or her premium has purchased.
the insured should be paid for the loss he suffers and no more.
In an insurance contract, subrogation provides that: three parties may collect from the insurer as a result of one negligent act. the insured's right to collect from a negligent third party is transferred to the insurer to the extent he or she receives payment from the insurer. The insured must give up the right to receive damages from the insurance company if the insured is negligent. The insured may collect from his insurer and the negligent party's insurer.
the insured's right to collect from a negligent third party is transferred to the insurer to the extent he or she receives payment from the insurer.
Under the doctrine of concurrent causation, the courts have ruled that when a loss results from two causes, one of which is covered and one excluded: coverage depends on which cause occurs first. the insurer is liable for the damage. the loss is usually not covered. part of the loss is covered and part is not covered.
the insurer is liable for the damage.
One of the implications of Pascal's Wager for risk management is that the probability of an event is the most important factor to be considered. decisions related to uncertainty require some notion of probability. the magnitude of the potential loss is an important consideration. the minimax regret strategy has little, if any, theoretical justification.
the magnitude of the potential loss is an important consideration.
The definition of "persons insured" Homeowners Section II includes the entire family except children away from home at school. all persons living on the premises. only the named insured. the named insured and spouse and other resident relatives in the household.
the named insured and spouse and other resident relatives in the household.
An insured who purchases an open-peril contract would be well advised to pay particular attention to the policy exclusions. the policy conditions. the insuring agreement. the policy declarations.
the policy exclusions.
Jones has a Homeowners policy. Her dog bites the mailman while he is still about three blocks away from the premises. medical payments coverage applies, but not the liability coverage. the policy will pay only if Jones is found legally liable. there is no coverage under the policy. the policy will pay medical costs under the medical payments coverage regardless of Jones' liability.
the policy will pay medical costs under the medical payments coverage regardless of Jones' liability.
Which of the following statements about a renewable term life insurance policy is true? coverage is usually renewable at any age. coverage automatically converts to permanent insurance. the renewal premium is based on the insured's attained age. evidence of insurability is required for renewal.
the renewal premium is based on the insured's attained age.
Under most of the modified no-fault laws that have been enacted by the states to date, the right to sue for pain and suffering may be subject to some restriction. only funeral and medical expenses of the injured parties are covered. suits for pain and suffering are not allowed. there is a total exemption from tort liability.
the right to sue for pain and suffering may be subject to some restriction.
The risks associated with superannuation are the risk of retiring without adequate assets to cover living expenses during the period of retirement. dying too soon. risks caused by disaility. inflation and recession.
the risk of retiring without adequate assets to cover living expenses during the period of retirement.
Adverse selection is a term used to describe the choice of the wrong insurance to fit a specific need. an underwriting error on the part of an insurance company. the tendency of the poorer than average risks to seek insurance to a greater extent than do the better than average risks. a loss situation in which the chance of loss cannot be determined.
the tendency of the poorer than average risks to seek insurance to a greater extent than do the better than average risks.
The main reason firms elect to self insure is the favorable tax treatment of self-insurance reserves. the potential saving of insurer administrative costs and premium taxes. they believe it will be cheap in the long run. that fact that losses are decreasing.
they believe it will be cheap in the long run.
One reason that some employers elect to self-fund health insurance coverages is to avoid the services of a third-party administrator. to avoid the costs associated with state-mandated benefits and small-group reform laws that provide subsidies to small employers and their employees.. to obtain benefits for employees that commercial insurers are unwilling to provide. all of the above.
to avoid the costs associated with state-mandated benefits and small-group reform laws that provide subsidies to small employers and their employees..
The joint and survivor settlement option provides an income to two people until the first dies, with payments ceasing at that time. to two people and continues to a survivor after the first payee dies, then stops with the death of the second. that is greater than a straight life option. that is higher than any of the other settlement option.
to two people and continues to a survivor after the first payee dies, then stops with the death of the second.
From the insured's perspective, the purchase of insurance is an example of avoidance. retention. transfer. combination.
transfer
Although insurance may be defined in various ways, the two fundamental characteristics of the insurance mechanism are premiums and policies. transfer and sharing. combination and sharing. loss prevention and transfer.
transfer and sharing.
A single premium whole life contract is a policy: which requires that the first annual premium be paid at one time. under which the full premium for the contract is paid in one lump sum. is subject to the same tax treatment as an annunity. for which one annual premium has already been paid at the time of issue.
under which the full premium for the contract is paid in one lump sum.
The policy in which the insured has the right to direct how the funds will be invested is: variable life. universal life. adjustable life. equity life.
variable life.
A US Government agency insures Americans who invest in foreign countries against loss from an unsuitable labor market. war, revolution, and insurrection. floods and crop failure. loss of insurance.
war, revolution, and insurrection.
Which of the following property is not covered for theft while away from the premises? money and securities. property owned by students. jewelry and furs. watercraft and campers or trailers.
watercraft and campers or trailers.
Under most financial responsibility laws, an individual prove financial responsibility when involved in an accident in which there is bodily injury or property damage in excess of some specified amount, even if they are not at fault. at the time of an accident in which he or she was at fault. in order to register an automobile. when he or she is held legally liable for an auto accident.
when involved in an accident in which there is bodily injury or property damage in excess of some specified amount, even if they are not at fault.
The distinction between fundamental and particular risks is important because normally only particular risks are insurable. whether a risk is fundamental or particular may determine how society will deal with it. fundamental risks are a source of gain to society. none of the above.
whether a risk is fundamental or particular may determine how society will deal with it.
Which of the following is not a requirement of a legally binding contract? offer and acceptance written legal object consideration
written