Life and Health Insurance Exam

The act of shifting the responsibility of risk to another in the form of an insurance contract. Through the insurance contract, the burden of carrying the risk and indemnifying the financial loss is transferred from the individual to the insurance company. Purchasing insurance does not eliminate risk entirely; however, it is one of the most effective ways of transferring risk.

Risk Transfer

Type of risk that involves the chance of both loss and gain; it is not insurable

Speculative Risk

An insurer's claim settlement practices are regulated by the A) Securities and Exchange Commission (SEC) B) National Association of Claims Adjusters (NACA) C) National Association of Insurance Commissioners (NAIC) D) State insurance departments

State Insurance Departments

A nonparticipating company is sometimes called a(n) A)Alien Insurer B)Mutual Insurer C)Reinsurer D)Stock Insurer

Stock Insurer - referred to as a nonparticipating company because policyholders do not participate in dividends resulting from stock ownership.

Insurance represents the process of risk A) Selection B) Avoidance C) Transference D) Assumption

Transference

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

mutual

The cause of a loss is referred to as a(n)

peril

Karen is a producer who has obtained personal information about a client without having a legitimate reason to do so. Under the McCarran-Ferguson Act, what is the minimum penalty for this? A) $0 B) $5,000 C) $10,000 D) $15,000

$10,000

Ken is a producer who has obtained Consumer Information Reports under false pretenses. Under the Fair Credit Reporting Act, what is the maximum penalty that may be imposed on Ken? A) $1,000 B) $3,000 C) $5,000 D) $7,000

$5,000

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

A rating from a rating service company

A plan in which an employer pays insurance benefits from a fund derived from the employers current revenues is called A) A self-derived plan B) a multiple-employer plan C) a blanket plan D) a self-funded plan

A self-funded plan

Selection "against the company." Tendency of less favorable insurance risks to seek or continue insurance to a greater extent than others. Also, tendency of policy owners to take advantage of favorable options in insurance contracts.

Adverse Selection

People with higher loss exposure have the tendency to purchase insurance more often than those at average risk. This is called

Adverse selection

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

Because dividends are considered to be a return of premium.

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

Determine financial strength of an insurance company

An example of risk sharing would be

Doctors pooling their money to cover malpractice exposures

Fraternal benefit society has each of the following characteristics EXCEPT A) Incorporated B) Without capital stock C) Exist for profit D) Exist for benefit of its members

Exist for profit

Which of the following is considered to be an event or condition that increases the probability of an insured's loss? A) Risk B) Hazard C) Indemnity D) Peril

Hazard

The Do Not Call Registry offers exemptions for calls places from all the following EXCEPT A) Charities B) Political Organizations C) Insurance sales calls D) Surveys

Insurance sales calls

Insurance companies determine risk exposure by which of the following? A) Insurable interest B) Insurance exchanges C) Law of large numbers and risk pooling D) Population table data

Law of Large numbers and risk pooling

A basic principle of insurance that the larger the number of individual risks combined into a group, the more certainty there is in predicting the degree or amount of loss that will be incurred in any giving period.

Law of large numbers

An insurer's ability to make unpredictable payouts to policyowners is called A) Investment values B) Liquidity C) Assets D) Capital

Liquidity

All of the following are examples of pure risk EXCEPT A) Losing money at the casino B) Injured while playing football C) Falling at a casino and breaking a hip D) Jewelry stolon during home robbery

Losing money at the casino

A nonparticipating policy will A) Provide a return of premium B) Provide tax advantages C) Not pay dividends D) Give policyowners special privileges

Not pay dividends

What kind of life insurance policy issued by a mutual insurer provides a return of divisible surplus? A) Nonparticipating life insurance policy B) Participating life insurance policy C) Divisible surplus life insurance policy D) Straight life insurance policy

Participating life insurance policy

The immediate specific event causing loss and giving rise to risk

Peril

What is known as the immediate specific event causing loss and giving rise to risk?

Peril

The Fair Credit and Reporting Act's main purpose is to A) Assist in the underwriting of insurance policies B) Protect insurers from an applicant's misrepresentation C) Protect consumers with guidelines regarding credit reporting and distribution D) Assist an insurer in determining an applicants creditworthiness

Protect consumers with guidelines regarding credit reporting and distribution

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

Provide death benefits

A type of risk that involves the chance of loss only; there is no opportunity for gain; it is not insurable.

Pure Risk

A life insurance company has transferred some of its risk to another insurer. The insurer assuming the risk is called the A) Mutual Insurer B) Reinsurer C) Reciprocal Insurer D) Participating Insurer

Reinsurer

The uncertainty regarding loss; the probability of loss occurring for an insured or prospect.

Risk

An Individual who removes the risk of losing money in the stock market by never purchasing stocks is said to be engaging in A) Risk Reduction B) Risk Transference C) Risk Avoidance D) Risk Retention

Risk Avoidance

Occurs when individuals evade risk entirely. It is the act of not doing something that could possibly cause a loss or the inactivity of participation in an event that may potentially cause a loss situation. An example would be driving a car. If you never leave your house, you completely avoid the possibility of getting into an auto accident.

Risk Avoidance

Takes place when the chances of loss are lessened. Changing one's lifestyle to minimize a known risk is an example of risk reduction. You decide you cannot stay in the house all day, every day, so avoiding the risk of an auto accident is not possible. You decide to reduce the risk by only using public transportation.

Risk Reduction

Being aware of the risks involved and taking precautions for financial protection. You decide that public transportation cannot get you everywhere you want to go when you want to go there. Now you must decide what limits to put on your financial responsibility by choosing you deductible.

Risk Retention