Fin 317 Final Exam

Guaranteed cash values of life insurance policies would apply to all but which type of policy? a. 20 year guaranteed renewable term policy b. whole life policy c. universal life policy d. variable life policy e. none of the above

A. 20 year guaranteed renewable term policy

Which is not a cost of pure risk a. actuarial calculation b. fear and worry c. expense of management risk d. less than optimal use of resources

A. Actuarial calculation

Insurance policies can provide: a. claim settlements b. hazard control c. a basis for credit d. peace of mind

A. Claim settlements

Which would not be considered a loss sharing provision? a. concealment b. coordination of benefits c. monetary deductible d. waiting period

A. Concealment

substandard policies may experience increased rates by all but which of the following methods: a. increasing the rates of an entire class of insureds b. flat amount of additional premium c. additional percentage applied to standard rates d. a "rate-up" age method of the applicant

A. Increasing the rates of an entire class of insureds

Which of the following is true about risks? a. risk is the reason insurance exists b. risk is uncertain c. risk is the probability or chance of loss d. risk is a certainty

A. Risk is the reason insurance exists

In which case would your client not have an insurable interest? a. An expensive gift given to a friend b. a business partner c. an expensive luxury car he owns d. a vacation home he owns in Puerto Rico

A. an expensive gift given to a friend

All but which choice is true of a hold harmless agreement? a. is a form of self insurance b. holds up in a court of law c. transfers risk d. Found in many lease agreements

A. is a form of self insurance

with the exception of misstatement of age or gender, the insurer cannot contest any false information on a life insurance application after: a. 30 days b. 2 years c. 10 days d. 1 year

B. 2 years

Generally the state tax on insurance premiums to the insurers is: a. .5% b. 2% c. 5% d. 6%

B. 2%

A peril is a: a. hazard b. cause of loss c. risk d. uncertainty

B. Cause of loss

Insurance cannot be defined as a: a. social device b. gamble c. actuarial system d. risk management technique

B. Gamble

Which item is not found on a life insurance policy declaration page? a. policy issue date b. grace period provision c. type of policy d. premium

B. Grace period provision

Which is a type of policy that is assignable and transferable? a. P&L b. Life insurance c. inland marine d. long term care

B. Life insurance

Which of the following is not a classification of an insurance company by domicile? a. Domestic b. Monopolistic c. Alien d. foreign

B. Monopolistic

Benefits of implementing a buy-sell agreement include all but which of the following: a. establishing the value of the business for estate value purposes b. providing viable options for the heirs of the deceased owner c. guarantee a market of the sale of the business interest d. continuation of the business in the hands of the surviving owners

B. Providing viable options for the heirs of the deceased owner

Life insurance contracts are: a. contracts of indemnity b. valued contracts c. bilateral contracts d. contracts of measurements

B. Valued contracts

An example of a direct loss: a. cost of securing a building after a fire b. flood damage to a building c. loss of income due to a tornado d. living in a hotel because home inhabitable

B. flood damage to a building

Which is not an example of a personal insurance building block? a. individual insurance b. reinsurance c. social insurance d. employer sponsored insurance

B. reinsurance

Declarations, insuring agreements, and exclusions are provisions of a typical insurance contract. Which one of the following items is not a typical provision? a. Definitions b. miscellaneous provisions c. application d. conditions

C. Application

Risk control methods do not include: a. risk avoidance b. loss prevention or reduction c. captive associations d. non insurance transfers

C. Captive associations

Life insurance premiums are established by applying mortality rates. Which of the following is not used in establishing these rates? a. age b. tobacco use c. motor vehicle reports d. gender

C. Motor vehicle reports

Which statement is true of replacement of life insurance policies? a. section 1035 of the internal Revenue code applies to all replacement of cash value life insurance policies b. With true "like kind exchanges" of life insurance policies, the suicide and incontestable clauses are waived c. Replacement of life insurance policies is very seldom considered advantageous to the policy owner d. replacement regulations and guidelines do not apply if changing types of policies

C. Replacement of life insurance policies is very seldom considered advantageous to the policy owner

An insurance contract may become voidable under three of the four circumstances below. which does not apply to voidability? a. concealment b. fraud c. warranty d. misrepresentation

C. Warranty

A true buy-sell agreement must include all but which of the following: a. purchase price b. funding provision c. A first option to purchase d. purpose of agreement

C. a first option to purchase

Which of the following would not be an example of risk exposure to a client? a. ownership of raw land b. ownership of a luxury car c. adequate disability insurance d. a 16 year old son driving a car

C. adequate disability insurance

appropriate approaches to determining amounts of life insurance needed include all but which of the following? a. financial needs analysis b. multiple of income approach c. analysis of type of policy and taxation of proceeds d. capital needs analysis

C. analysis of type of policy and taxation of proceeds

Provisions normally found in a life insurance policy include all but which of the following? a. grace period b. state required provisions c. late remittance offer d. policy loan provisions e. all of the above

C. late remittance offer

Life insurance proceeds would be excluded from the decedent's gross estate if: a. the decedent owned the policy at the time of death b. paid to the executor of the estate c. The decedent passed ownership of the policy by gift more than three years prior to his or her time of death d. all of the above e. none of these

C. the decedent passed ownership of the policy by gift more than three years prior to his or her time of death

Which is not a type of underwriting? a. renewal b. home office c. field d. facultative

D. Facultative

Which is not a reason of demutualization? a. facilitate payment of certain types of noncash compensation b. influx of cash into company's capital c. diversify company activities such as acquisition of stock of other companies d. formation of a captive insurance company

D. Formation of a captive insurance company

Which is not a component of a contract? a. offer and acceptance b. competent parties and consideration c. legal purpose d. waiver of subrogation

D. Waiver of subrogation

Which is not a reason for requiring an insurable interest in an insurance contract? a. conditions of the contract b. prevent gambling c. decrease moral hazard d. help measure the actual loss

D. help measure the actual loss

Non-forfeiture options do not include: a. paid up, reduced death benefit amount b. extended term insurance for the net amount c. cash surrender option d. settlement option

D. settlement option

the detailed periodic reports of a universal life insurance policy will not show: a. the death benefit b. the cash surrender value of the policy c. interest earned on the cash value portion of the policy d. settlement option of the policy

D. settlement option of the policy

Which of the following is not a claims adjuster? a. company employees b. independent adjusters c. agents d. underwriters

D. underwriters

Traditional types of life insurance are all but which of the following: a. term insurance b. endowments c. whole life insurance d. variable universal life insurance

D. variable universal life insurance

ownership of buy-sell funding vehicles can be: a. the entity b. the partners or owners c. key employees of a sole proprietor d. a and b e. All of the above

E. All of the above

Which of the following is an example of a hazard? a. wagering a hunnid on saturday's game b. bringing a new product to market c. the cause of a loss d. purchasing a house e. building a house near a river

E. building a house near a river

A major disadvantage of the financial needs analysis approach is that it fails to take in to account factors that may be difficult to forecast, such as social security benefits and future earnings by a spouse

False

An innocent misrepresentation by an applicant for insurance constitutes fraud

False

An insurance contract is a bilateral contract

False

Commercial property insurance can cover only buildings and business personal property of the insured

False

If the insured dies 2 weeks after teh premium was due but not paid, the life insurance company must pay the beneficiary only an amount equal to the premiums paid in teh past plus interest

False

In nearly all cases, the beneficiary of a life insurance policy must include the proceeds paid by reason of teh insured's death in the beneficiary's gross income for federal tax purposes

False

Independent adjusters usually represent the public, in contrast to staff adjusters, who represent insurers

False

Life insurance is subject to direct rate regulation under prior approval laws that require that rates be approved before they can be used

False

Nearly all life insurance agents can bind coverage

False

On the basis of where they are domiciled, insurers are considered foreign if incorporated in another county

False

Open perils coverage refers to a policy that contains a very long list of named perils

False

People can be held responsible only for their own negligent acts

False

Risk is the probability of loss

False

Social insurance emphasizes individual equity rather than social adequacy

False

The dominant factor in the selection of an agent is friendship

False

The federal gift tax applies to lifetime transfers of property as well as to transfers occurring at death

False

The inside buildup in a permanent life insurance policy is subject to taxation if it is left inside the policy

False

The limits for homeowners coverages B, C, and D are part of the coverage A limit

False

The primary goal of life insurance coverage for young clients is estate liquidity, whereas for older clients it tends to be estate enhancement

False

The surrender charge in a universal life policy increases as the insured ages

False

Variable life insurance policies may be sold without an accompanying prospectus

False

When presenting a life insurance illustration concerning a participating policy, it is important for an agent to assure teh client that dividends will always be paid in the future

False

With a Sec. 1035 exchange, a policy owner is able to avoid taxation when canceling one life insurance policy, collecting the cash surrender value, and using it to purchase a similar life insurance policy

False

Yearly renewable term insurance pays the policy face value if the insured is alive at the end of the protection period

False

although a variety of noninsurance risk transfer methods are available, insurance is the only risk transfer technique that can be used to handle pure risks

False

if bill dies 20 years after purchasing his whole life policy and the insurer has discovers that he had understated his age in the application, the company will have to pay the face amount to teh beneficiary because teh 2-year contestability period is over

False

if sarah named her husband as primary beneficiary and her children as contingent beneficiaries of her life insurance policy, and her husband predeceases her, teh death proceeds from sarah's policy will be paid to her husband's estate unless she has changed the beneficiary designation

False

insurance is essentially a form of gambling risk because the policy owner pays a relatively small premium to protect against a relatively large loss

False

one of the common uses of life insurance in business is to serve as an alternative to a properly designed buy-sell agreement

False

the person who has teh power to exercise teh rights in a life insurance policy is called the insured

False

A broker represents the policyowner, whereas an agent is a legal representative of the insurance company

True

A survivorship policy is payable upon the death of the last of two or more lives insured under the single contract

True

All beneficiaries of a life insurance policy are identified in the policy declaration page

True

Among other things, reinsurance can help insurers spread large losses and reduce the surplus drain associated with writing new business

True

Deductibles are a form of partial risk retention that can often be used to handle high-frequency, low-severity losses efficiently

True

Favorable investment results account for the largest portion of policy owner dividends paid by participating policies

True

If the insured dies or surrenders the policy while a loan is outstanding, the insurer deducts the loan and accrued interest from the amount otherwise payable

True

If there is an ambiguous clause in an insurance contract, the courts will typically interpret the clause in favor of the policyowner

True

In addition to financial strength, other important criteria for selecting an insurer are its willingness to pay claims, the service it provides, and the cost of its products

True

In property and liability insurance, an independent agent can represent several insurers or groups of companies, whereas an exclusive agent typically represents only one company or group of affiliated companies

True

Insurance transfers the financial risk of losses to the insurer

True

Liability coverage in an unendorsed homeowners policy excludes coverage for liability arising out of business and professional activities as well as the use of an auto

True

Most group life coverage is provided without individual evidence of insurability

True

Negligence is the failure to exercise the proper degree of care required by the circumstances

True

P&L premiums paid for business coverage are generally deductible as a business expense

True

Some exclusions are found in insurance policies because the risks are typically covered by other insurance

True

The basic fallacy of the traditional net cost method for measuring the cost of life insurance is that it ignores the time value of money

True

The financial needs analysis approach considers both lump-sum needs at death and ongoing income needs

True

The general purpose of insurance regulation is to protect the public against insolvency and unfair treatment by insurers

True

The insurance commissioner has the power to, among other things, enforce the laws passed by the legislature and interpreted by the courts, license insurers and agents, and investigate to determine whether insurers and agents are meeting the requirements of the statutes

True

The law of large numbers states that as the number of independent events increases, there is a greater chance that the actual results will be close to the expected results

True

The liability section is identical for all ISO homeowners forms

True

The purpose of teh claims settlement process is to determine the insurer's liability for a given loss and to reach agreement with respect to teh amount of loss or damage payable under teh insurance contract

True

There are a variety of benefits as well as costs associated with insurance as a technique for handling risk

True

To be insurable, a risk must substantially meet the requirements of importance, accidental nature, calculability, definiteness of loss, and no excessively catastrophic loss

True

if teresa commits suicide 5 years after purchasing her whole life policy, the insurer will pay the face amount to teh beneficiary

True

loss of income, continuing expenses, and extra expenses while a business is closed following a direct physical damage loss can be covered under business income insurance

True

term insurance tends to be suitable when the need for protection is either purely temporary or when it is permanent but the insured temporarily cannot afford the premiums for permanent insurance

True

the key difference between a settlement on an actual cash value basis and a replacement cost basis is that depreciation is considered in calculating the actual cash value of the loss

True

who can change the beneficiary of a life insurance policy? a. contingent beneficiary b. owner of policy c. company d. insured

b. owner of policy

Decreasing term life insurance is sold primarily by agents who also sell property insurance

false