FIN 384 Chapter 12

The National Association of Insurance Commissioners is an organization of _______ regulators interested in the ________ of insurance regulation. A. state; consistency B. federal; effectiveness C. state; federalization D. state and federal; efficiency

A. State; consistency

The "Law of Large Numbers" is a. a statistical principle relied on by insurers in managing objective risk b. an informal rule of thumb for valuing pure risks c. a principle of portfolio diversification that helps manage interest rate risk d. none of the above

A. a statistical principle relied on by insurers in managing objective risk

Which statement is not true about life insurance companies? A. they invest heavily in short-term highly marketable securities. B. they sell contracts that offer financial protection against premature death and against living too long. C. their liabilities are long-term in nature. D. they have relatively predictable inflows and outflows.

A. they invest heavily in short-term highly marketable securities.

While life insurance protects the insured against the economic consequences of premature death, annuities protects against A. varying interest rates. B. the economic consequences of living too long. C. default by life insurance companies. D. aggressive beneficiaries.

B. The economic consequences of living too long

​____ is(are) not a typical source of funds for life insurance companies. a. ​Annuity plans b. ​Life and health insurance premiums c. ​Deposit insurance premiums d. ​Investment income

C. Deposit insurance premiums

ERISA stands for a. Exempt Retirement Income Separation Act b. Expected Retirement Income Stabilization Act c. Employee Retirement Income Security Act d. Employer Retirement Investment Safety Act

C. Employee Retirement Income Security Act

Insurance companies have to deal with the concept of adverse selection, which is A. Insurance salespersons try to sell their most profitable policies. B. insureds are likely to increase their risky behavior. C. high-risk persons are more likely to purchase insurance. D. the practice of low-risk insured seeking low premiums.

C. High-risk persons are more likely to purchase insurance

Of the following, which type of life insurance policy would probably accumulate the least amount of funds for investment in capital market securities? A. annuity B. whole life insurance C. term insurance D. universal life insurance

C. Term Insurance

According to the Law of Large Numbers, objective risk should a. vary directly with the number of speculative risks insured b. vary directly with the number of pure risks insured c. vary inversely with the number of pure risks insured d. vary independently of the number of risks insured

C. Vary inversely with the number of pure risks insured

Which of the following affects the level of insurance premiums? a. probability of loss b. value of loss c. expected operating expenses d. all of the above

D. all of the above

A life insurance company needs more liquidity when selling a high proportion of: A. thirty-year term policies. B. annuities. C. whole life policies. D. one-year renewable term policies.

D. one-year renewable term policies.

Life insurance protects the insured from A. pure risks faced by the insured. B. beneficiaries. C. premature death. D. the economic consequences of death.

D. the economic consequences of death

Pension funds whose contributions are not large enough to actually cover the benefits to be paid out when all employees retires are termed: A. funded. B. unvested. C. vested. D. under funded.

D. under funded

An annuity provides both insurance against premature death and savings features. T/F

False

Municipal bonds are a logical investment for "qualified" pension plans. T/F

False

Business interruption is an example of an indirect loss. T/F

True

Insurance is almost entirely regulated by state, not federal law. T/F

True

Property/casualty insurers have a tax incentive to hold preferred stock. T/F

True

Though stock companies dominated the number of life insurance companies, mutuals are dominant in terms of assets and insurance in force. T/F

True

Universal life became popular in the inflationary, high interest periods of the 1980s because interest rates on universal life policies vary with market rates. T/F

True