Basic Principles of Life and Health Insurance and Annuities

A nonparticipating company is sometimes called a(n) alien insurer mutual insurer reinsurer stock insurer

stock insurer

Which law requires fair and accurate reporting of information about consumers? Financial Services Modernization Act Fair Credit Reporting Act McCarran-Ferguson Act Unfair Trade Practices Act

Fair Credit Reporting Act

What is the role of insurance? Provide a solution for economic uncertainty and loss Guarantee lifelong happiness Provide counseling and support services Guarantee short term happiness

Provide a solution for economic uncertainty and loss

Which of the following statements regarding types of insurers is NOT correct? Reinsurers usually deal with group policyowners. Mutual insurance companies are "owned" by their policyowners. Stock insurance companies seek a profit for their shareholders. Fraternal benefit societies must be nonprofit organizations.

Reinsurers usually deal with group policy owners. (Reinsurers make arrangements with other insurance companies to transfer a portion of their risk to the reinsurer. The company transferring the risk is called the ceding company and the company assuming the risk is the reinsurer.)

Which of the following requires insurers to disclose when an applicant's consumer or credit history is being investigated 1970 - Fair Credit Reporting Act 1959 - Intervention by (SEC) The Securities and Exchange Commission 1999 - Financial Services Modernization Act 1945 - The McCarran-Ferguson Act

1970 - Fair Credit Reporting Act (Fair Credit Reporting Act requires the fair and accurate reporting of information about consumers. Insurers must inform applicants about any investigations being made. If the report is used to deny coverage or charge higher rates, the insurer must provide the applicant the name of the credit reporting agency conducting the investigation.)

Which of the following is NOT considered advertising? A rating from a rating service company, such as A.M. Best An illustration A sales presentation Direct mailing from an agency

A rating from a rating service company, such as A.M. Best

Which of the following is NOT a commercial insurer Industrial Company Fraternal Company Stock Company Mutual Company

Fraternal Company

Why are dividends from a mutual insurer not subject to taxation? Because insurance premiums are tax-deductible Because dividends are already subject to capital gains Because dividends are payable directly to the policyholder Because dividends are considered to be a return of premium

Because dividends are considered to be a return of premium

Which of the following mandated that insurance would be regulated by the states as well as made possible the application of federal antitrust laws? Paul v. Virginia McCarran-Ferguson Armstrong investigation U.S. v. Southeastern Underwriters

McCarran-Ferguson

Which entity has preserving state regulation of insurance as one of its objectives? American Council of Life Insurance National Association of Life Underwriters National Committee to Preserve the Republic National Association of Insurance Commissioners

National Association of Insurance Commissioners

Who is considered the owner of a mutual insurance company? Stockholders Policyholders Mutual fund shareholders Attorney in fact

Policyholders

Who receives dividends in a mutual insurance company? Policyholders Stockholders Beneficiaries Employees

Policyholders

Which one of the following statements about participating life insurance is true? Policyowners may be entitled to receive dividends Policyowners are assessed monthly for losses The insured must be the policyowner The insurer must be a stock company

Policyowners may be entitled to receive dividends

What is considered to be the primary reason for buying life insurance? Provide death benefits Provide money for retirement Provide living benefits Provide money for college

Provide death benefits

What is the purpose of insurance? To replace the uncertainty of risk with guarantees To replace guarantees with the certainty of risk To remove the possibility of loss To remove the predictability of loss

To replace the uncertainty of risk with guarantees

A life insurance company that shares its surplus earnings with its insureds is known as a participating company a fraternal organization an association an admitted company

a participating company

What type of agent may represent a number of insurance companies under separate contractual agreements Career agent Captive agent Company agent Independent agent

Independent agent

A nonparticipating policy will provide a return of premium provide tax advantages not pay dividends give policyowners special privileges

not pay dividends

Participating insurers allow their policyowners to share in any company earnings and receive a dividend receive preferred premium rates determine what type of insurance programs are offered skip premium payments without penalty

share in any company earnings and receive a dividend

What is the primary purpose of a rating service company such as A.M Best? Determine which insurer offers the best rates Determine which insurer offers the best policies Determine financial strength of an insurance company Determine which agent to use locally

Determine financial strength of an insurance company

A life insurance company has transferred some of its risk to another insurer. The insurer assuming the risk is called the mutual insurer reinsurer reciprocal insurer participating insurer

reinsurer

Dividends from a stock company are paid to stockholders, whereas in a mutual company, dividends are reinvested as capital gains and used to reduce rates for policyowners paid quarterly to the corporate officers and directors as a bonus paid to the policyowners paid to the stockholders

paid to the policyowners

What kind of life insurance policy issued by a mutual insurer provides a return of divisible surplus? nonparticipating life insurance policy participating life insurance policy divisible surplus life insurance policy straight life insurance policy

participating life insurance policy (A mutual insurer issues life insurance policies that provide a return of divisible surplus.)

In addition to the state, the organization that regulates variable life and variable annuities is the Federal Trade Commission (FTC) National Association of Insurance Commissioners (NAIC) Securities and Exchange Commission (SEC) Federal Communications Commission (FCC)

Securities and Exchange Commission (SEC)

The major difference between participating and nonparticipating policies is the interest assumption premium payment method settlement options presence of policy dividends

presence of policy dividends

A plan in which an employer pays insurance benefits from a fund derived from the employer's current revenues is called A self-derived plan A multiple-employer plan A blanket plan A self-funded plan

A self-funded plan

The State Guaranty Association guarantees that a policy will be issued that a claim will be paid if an insurer becomes insolvent that dividends will be paid the rate of return on a policy

that a claim will be paid if an insurer becomes insolvent

Companies that sell more than one type of insurance are multi-line insurers property and causalty mutual company life company

multi-line insurers

Nonparticipating insurers do not allow their policyowners to receive which of the following? cash advances dividends preferred premium rates stock options

dividends

An insurer's ability to make unpredictable payouts to policyowners is called investment values liquidity assets capital

liquidity

A type of insurer that is owned by its policyowners is called domestic mutual stock in-house

mutual

Which of the following statements is correct when comparing participating policies with non-participating policies? Premiums for participating policies are usually higher than for non-participating policies Dividends from participating policies are treated as taxable income, but dividends from non-participating policies are not The dividends on participating policies increase the value of the policyholder's stock, but non-participating dividends do not The guaranteed cash values in a participating policy are greater than in a non-participating policy

Premiums for participating policies are usually higher than for non-participating policies

Mutual insurers pay dividends to participating policyowners if the insurer has which of the following? Divisible surplus Reciprocal Dividend Agreement Certificate of Authority Participating clause

Divisible surplus (By issuing participating policies that pay policy dividends, mutual insurers allow their policyowners to share in any company earnings.)