Chapter 1

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 because dividends are involved with participating policies.

All of the following are systems that support the sale of insurance through agents and brokers EXCEPT Personal Producing General Agency System Fraternal Benefit Society System Career Agency System Independent Agency System

Fraternal Benefit Society System. All of these are actual insurance agency systems except for Fraternal Benefit Society Systems.

Who is considered the owner of a mutual insurance company?

Policyholders are considered owners of a mutual insurance company.

What is the purpose of insurance?

The purpose of insurance is to replace the uncertainty of risk with guarantees.

Dividends from a stock company are paid to stockholders, whereas in a mutual company dividends are

paid to the policy owners. By issuing participating policies that pay policy dividends, mutual insurers allow their policy owners to share in any company earnings.

The major difference between participating and nonparticipating policies is the

presence of policy dividends. Nonparticipating policies involve policy owners who do NOT receive dividends. Participating policies involve policy owners who DO receive dividends.

What kind of insurance companies share its surplus earnings with its insureds.

Participating

What is the purpose of Re-Insurers?

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 entity has as one of its objectives preserving state regulation of insurance?

National Association of Insurance Commissioners (NAIC)

What type of agent may represent a number of insurance companies under separate contractual agreements

.Independent agent