PF - 2 FINAL

B

1. A deductible requires the policyholder to pay A) a percentage of the year's claim. B) a fixed dollar amount out of pocket before the insurance company is obligated to pay anything. C) the amount in excess of the insurance company's negotiated amount for the claim. D) a fixed percentage amount of every claim.

B

1. A laptop computer that is stolen from Vanessa's home while on vacation is covered under her A) homeowner's insurance policy in full. B) homeowner's insurance policy, subject to the deductible. C) auto insurance policy, subject to the deductible. D) umbrella liability insurance policy.

D

1. A life insurance needs analysis includes estimating your A) risk tolerance. B) business needs. C) parent's needs. D) dependents' financial needs.

A

1. A person abstaining from smoking is practicing which of the following methods of risk management? A) Risk avoidance B) Risk reduction C) Risk transfer D) Risk retention

A

1. A suicide would be classified as a A) nonrandom risk. B) correlated risk. C) unpredictable risk. D) idiosyncratic risk.

C

1. A swimming pool on your property normally invokes a special liability standard known as A) the principle of indemnity. B) contributory negligence. C) strict liability. D) variable liability.

A

1. A weakness of the income-multiple method used to determine life insurance needs is its assumption that A) everyone with the same income has the same life insurance needs. B) individuals have different life insurance needs. C) existing household resources can be used for support by the surviving family members D) the more insurance you can afford, the better.

A

1. All of the following are loss reduction methods except A) wearing old clothes when you do yard work. B) wearing a seat belt when in a motor vehicle. C) constructing your home with fire-resistant materials. D) taking a defensive driving course

B

1. An advantage of the income-multiple method to determining how much life insurance is needed is its A) complexity. B) simplicity. C) accuracy. D) popularity

A

1. As in most financial planning, the last step in developing your insurance plan is to A) reevaluate your needs regularly. B) determine your coverage needs. C) choose the best package available. D) identify top insurers.

C

1. Christopher's house is insured for $250,000, and he has been paying premiums for the past 10 years. Chris's home was wiped out in a hurricane. The face value of the policy is $250,000, the remaining mortgage is $115,000, and the appraised value is $210,000. How much can he recover from his insurance company for the loss? A) $95,000 B) $115,000 C) $210,000 D) $250,000

B

1. Compared to property insurance policies, life insurance policies generally have a A) shorter term. B) longer term. C) similar term and risk classifications. D) similar term but different risk classifications.

A

1. For homeowners, the risk of being held legally responsible for losses incurred by visitors to their home is called A) liability risk. B) real property risk. C) personal property risk. D) umbrella risk.

B

1. For homeowners, the risk that your home will be damaged by fire, rain, wind, hail, or another natural occurrence is called A) liability risk. B) real property risk. C) personal property risk. D) umbrella risk.

D

1. Half of all life insurance policies sold today are A) short-term policies that mature well before retirement. B) short-term policies that accumulate cash value over time. C) long-term policies that do not accumulate cash value. D) long-term policies that accumulate cash value over time.

C

1. Hank Johnson named his three kids and nephew as people to whom his life insurance should be paid out upon his death. This is an example of designating _____________. A) riders B) accidental death benefits C) beneficiaries D) a participating policy

C

1. Homeowner's insurance premiums are based on the A) replacement amount of coverage you select. B) face value of the policy. C) expected loss and risk characteristics of the insured. D) expected loss average of the insurance pool.

C

1. If Sharon Johnson, a 49-year-old experienced driver, and Tia Young, a 16-year-old new driver, were both applying for an auto insurance policy in town, they would be placed in A) the same risk classification. B) the same premium class. C) different risk classifications. D) different correlated risk classes

B

1. If a person bears some fault for his or her own injury, this is known as A) contributory indemnity. B) contributory negligence. C) strict liability. D) variable liability.

B

1. If all other factors are equal, how will your life insurance needs change after you have paid off your mortgage? A) They will increase. B) They will decrease. C) They will remain unchanged. D) There's not enough information to know.

A

1. If all other factors are equal, how will your life insurance needs change if you and your spouse adopt a child? A) They will increase. B) They will decrease. C) They will remain unchanged. D) There's not enough information to know.

B

1. If all other factors are equal, how will your life insurance needs change if your youngest child graduates from college and gets a well-paying job? A) They will increase. B) They will decrease. C) They will remain unchanged. D) There's not enough information to know.

A

1. If an agent added a rider to a policy, the coverage for loss most likely would have A) increased. B) decreased. C) stayed the same. D) been nullified.

B

1. If there is an exclusion on your policy, it identifies losses that ________ covered under the policy. A) are B) are not C) will be D) used to be

B

1. If you choose not to buy collision insurance for your older automobile, this is an example of risk A) avoidance. B) retention. C) transfer. D) reduction.

C

1. If you have a 30% chance of having your car stolen next year and the average loss of a stolen car is $12,000, then the expected cost of the loss to you would be A) $171. B) $400. C) $3,600. D) $8,400.

B

1. If you want insurance coverage for your art collection, you will need to purchase which of the following? A) A homeowner's insurance policy B) A rider on your homeowner's insurance policy C) A personal property insurance policy D) You cannot insure your art collection because the risk of theft is too great.

C

1. If your home has a value of $75,000, you cannot insure it for $100,000. This is based on the A) law of reciprocity. B) law of averages. C) principle of indemnity. D) principle of insurability.

B

1. In order to evaluate your potential losses, you must A) estimate the dollar cost of potential losses and transfer the risk. B) estimate the probability the loss will occur and estimate the dollar cost of the loss.identify your risk exposures and estimate the dollar cost of potential losses. C) avoid the risk or reduce the risk.

C

1. In trying to protect his increasing net worth, Arbuckle Farnsworth is worried about lawsuits stemming from accidents and situations not covered by his modest liability limit on his homeowner's policy. Which type of insurance should he consider purchasing in addition to his current policy? A) Scheduled property insurance B) Strict liability insurance C) Umbrella insurance

B

1. Insurance is the risk management method usually most appropriate for __________________ risks. A) high frequency and low severity B) low frequency and high severity C) low frequency and low severity D) high frequency and high severity

B

1. Insurance policies often include terms and conditions that increase the predictability of the loss to the insurer and _______ premium costs to the insured. A) increase B) reduce C) do not affect D) ignore

A

1. Insurers estimate a person's risk of dying by using A) a standardized mortality table. B) the insured's family history. C) experience in the life insurance business. D) a record of that person's diet and exercise habits.

D

1. It is impossible to avoid exposure to property and liability risks if you A) don't own insurance. B) don't own property. C) go beyond your property limits. D) own property or go beyond your property limits.

C

1. Jason earns $50,000 per year. If he uses the income-multiple method to estimate his life insurance needs, he will need approximately what range of life insurance? A) $50,000 to $100,000 B) $100,000 to $200,000 C) $250,000 to $500,000 D) $750,000 to $1,000,000

A

1. Jerome insured his home for $120,000. He purchased it for $125,000 and the recent fair market value is $110,000. He recently had a kitchen fire that extended its damage to the foundation. It looks like his home is beyond repair. What is the most he can recover from his insurance policy? A) $110,000 B) $115,000 C) $120,000 D) $125,000

D

1. Larger insurers can often provide lower rates than small insurers because they A) are more profitable. B) earn better returns on their investments. C) provide larger policies to their customers. D) can spread their costs across a bigger group of policyholders.

B

1. Liability risk is the risk of being held responsible for A) your losses. B) someone else's losses. C) the actions of others. D) the actions of mother nature

C

1. Life insurance is based on the concept of A) diversification. B) actuarial science. C) risk pooling. D) mortality intermediation.

C

1. Life insurers use different tables to estimate the mortality risk for A) cancer patients. B) overweight people. C) smokers. D) athletic people.

B

1. Lucy McCain bought supplemental coverage for an additional premium on her policy. She purchased a(n) A) exclusion. B) rider. C) deductible. D) addendum.

B

1. Maryanne has chosen a homeowner's insurance policy with a low premium that meets her financial needs. Her home was broken into, and $5,000 worth of possessions were stolen. If her deductible is $3,000 and she did not have an alarm system. How much will her insurance company pay for the loss? A) $0 B) $2,000 C) $3,000 D) $5,000

B

1. Most homeowner's insurance policies provide _____ in basic personal liability coverage. A) $10,000 B) $100,000 C) $500,000 D) $1,000,000

B

1. No-fault medical coverage in the liability section of a homeowner's policy means A) both parties are assumed to be equally at fault and no claims are filed. B) the insurer will pay the loss without requiring the injured party to prove negligence. C) that everyone must file under their own policy. no fault is assumed by the homeowner or the injured. D) no party is assumed to be at fault, unless claims are adjudicated in court.

B

1. People who rent homes or apartments can purchase insurance that covers A) all property and liability risks. B) personal property and liability losses but not damage to the building itself. C) personal property losses only. D) liability risk only.

B

1. Purchasing insurance is a common A) loss control technique. B) risk transfer method. C) risk avoidance method. D) loss avoidance technique.

B

1. Pure risk is a type of risk that exposes a person to uncertainty that A) offers the possibility of either losses or gains. B) produces only losses. C) is associated with only controllable events. D) produces only good outcomes.

B

1. Risk pooling is based on the A) law of averages. B) law of large numbers. C) normal distribution of risk. D) historical averages.

A

1. Self-insurance is another name for A) risk retention. B) risk reduction. C) risk avoidance. D) risk averseness.

B

1. Speculative risk is defined as the A) exposure to a loss. B) possibility of either loss or gain. C) volatility of markets. D) downside possibility of outcomes

B

1. The law of large numbers holds that as the size of a pool of identical risks _______, the loss per person becomes ________ predictable. A) decreases; more B) increases; more C) increases; less D) remains the same; more

B

1. The most common method of transferring risk is A) avoidance. B) buying insurance. C) self-insurance. D) loss control methods.

D

1. The most effective method for determining how much life insurance is needed is the A) income-multiple method. B) mortality multiplier method. C) percent of debt method. D) financial needs method.

C

1. The most important category addressed in a needs analysis is A) household savings. B) the cost of death. C) income replacement. D) using the emergency fund.

C

1. The principle of indemnity means that an A) insured can only purchase an insurance policy that covers actual losses. B) insurance company will only pay the policyholder up to the face amount of the policy. C) insurance company will reimburse the insured only for actual losses. D) insured can only purchase insurance to cover his or her own property.

B

1. The severity of loss involves estimating A) the likelihood that loss will occur and applying it to the value of the loss. B) each possible loss scenario and its respective probability and taking the weighted average of the possible scenarios. C) the worst-case value of the loss. D) the probability of the loss and applying that to the replacement value of the loss.

B

1. The standard homeowner's insurance policy pays for the _______ value of your home. A) replacement B) depreciated C) amortized mortgage D) face

B

1. There are separate standardized mortality tables for women and men, because A) men systemically live longer. B) women systemically live longer. C) insurers want to increase more business with women to balance their risk pool. D) of the Affordable Care Act.

A

1. To determine the expected loss, multiply the A) expected frequency by the expected severity. B) frequency by the loss history. C) probability of frequency by the value of a total loss. D) probability of frequency by the market value of loss.

C

1. Vickie owns a small grocery store. She knows that inexpensive items, such as gum and candy, are often stolen, so she anticipates the cost into her budget. For Vickie, the risk of shoplifting is considered A) low frequency and low severity. B) low frequency but high severity. C) high frequency but low severity. D) high frequency and high severity.

B

1. Wearing a helmet when riding a bike is an example of risk A) avoidance. B) reduction. C) transfer. D) retention

B

1. What is the first step in the risk management process? A) Evaluating potential losses B) Identifying your risk exposures C) Obtaining insurance quotes D) Choosing the best risk management method

A

1. What legal rule applies when the victim of negligence is found to have had a part in causing his or her own injury? A) Contributory negligence B) Assumption of risk C) Strict liability D) Causal negligence

A

1. When you apply for homeowner's insurance, the insurance company will normally look up your loss history on a national electronic database called the _____ database. A) Comprehensive Loss Underwriting Exchange B) Comprehensive National Underwriting Association C) National Underwriters' Exchange Registry D) National Loss

A

1. When you purchase homeowner's insurance, you are A) transferring the risk. B) reducing the risk. C) avoiding the risk. D) retaining the risk.

B

1. Whenever children are injured by an "attractive nuisance" on your property, the standard of _______ applies. A) large numbers B) strict liability C) indemnity D) insurability

C

1. Which is a characteristic of property risk in flood zones? A) Nonrandom B) Unpredictable C) Correlated D) Systematic

B

1. Which of the following factors do not affect life insurance premiums? A) Expenses incurred by the insurer B) Quality of health-care insurance, of the person seeking the insurance C) Risk classification of the person seeking the insurance D) Profitability of the insurance company

B

1. Which of the following is not a benefit of life insurance? A) Protection against business losses due to the death of a key person in the business B) Protection against household losses C) The ability to purchase large amounts of coverage D) Protection from creditors for a spouse

A

1. Which of the following would not be eligible for survivor benefits under Social Security? A) A 59-year-old employed wife with no children under age 18 B) A 40-year-old unemployed wife with a 10-year-old daughter C) A 17-year-old son D) All would receive survivor benefits.

C

1. Which risk is not a category of home risks? A) Personal property risk B) Real property risk C) Contributory negligence risk D) Liability risk

C

1. Why do insurers use credit history as a factor in rating auto and homeowner's insurance? A) People with bad credit are likely to make fraudulent claims on their insurance. B) People with bad credit are less likely to pay their insurance premiums. C) There is a statistical correlation between high credit scores and a person being financially responsible and having fewer claims. D) People with good credit histories are likely to live in less risky areas.

B

1. Your life insurance ________ is/are based on the insurer's estimate of the probability that you will die during the policy period. A) longevity risk B) risk classification C) deductible D) beneficiaries

B

1. f a cable repair technician decides to climb on your roof to check the wiring and jump off, you probably _____ be responsible for his injuries because of the ______. A) will; assumption of risk B) will not; assumption of risk C) will; attractive nuisance D) will not; attractive nuisance

A

72. All else being equal, a ______ deductible will lead to a(n) _____ premium on an insurance policy. A) higher; lower B) lower; lower C) higher; higher D) lower; unchanged

A

74. Becky is looking for some independent information on types of insurance and the insurance-buying process before she starts negotiating prices for products. Where should she start her research? A) The Insurance Information Institute B) Her family's independent insurance agent C) A leading commercial insurance website D) A national agency's local sales office

A

74. Bill Writer was involved in an accident and wants to file a claim with his insurance company. Which of the following is not a step in the claims process? A) Increasing the liability coverage on the policy B) Documenting the progress of the claim C) Documenting losses D) Notifying your insurance agent or insurer

A

74. Bodily injury auto insurance coverage includes all of the following except A) living expenses for you and any passengers injured in an auto accident. B) medical costs for you and any passengers injured in an auto accident. C) injuries caused by an uninsured motorist or a hit-and-run driver. D) legal defense costs and judgments against you if you lose in court.

C

74. Documents you can use when you file a claim for losses include all of the following except A) receipts for the items lost. B) a written description of the occurrence. C) names and addresses of emergency contacts. D) photographs of the items lost

D

74. If Mike Johnson still owes his credit union $10,000 for his car, he will be required to carry collision coverage and ________ coverage. A) umbrella B) uninsured motorist C) personal injury D) comprehensive physical damage

A

74. If a shopping cart damages a car parked at the store, which type of auto insurance coverage will pay for the damage? A) Comprehensive B) Collision C) Personal D) Liability

A

74. If the state of Louisiana has minimum auto liability limits of 25/100/20, what does the 100 represent? A) $100,000 limit on payments to all persons in an accident B) $100,000 limit on payments per person in an accident C) $100,000 limit on payment for damage to the property of others in an accident D) $100,000 limit on payment for damage to personal property in an accident

B

74. If you are_____________, you will probably have a lower auto insurance premium than if you were___________. A) single and smoke cigarettes; single and do not smoke B) married and do not smoke cigarettes; single and smoke C) married and smoke cigarettes; married and do not smoke D) single and smoke cigarettes; married and do not smoke E) married and smoke cigarettes; married and do not smoke

B

74. If you have a(n) ___ credit score, you will probably pay a _____ than average rate for your auto and homeowner's insurance. A) low; lower B) high; lower C) high; higher D) average; higher

B

74. If you have purchased auto liability, collision, and comprehensive physical damage coverage, which of the following would not be covered by your insurance policy? A) Liability for damage to property of others B) Costs for you and your family from injuries caused by an uninsured motorist or a hit-and-run driver C) Damage to your own vehicle due to auto accident, regardless of fault D) Damages caused by perils other than collision, including theft, vandalism, fire, wind, hail, tornado, lightning, earthquake, falling objects, and hitting a deer regardless of fault

B

74. Larry Walsh and his wife suffered a fire in their home and initialized the claims process a week ago. The adjuster assessed the loss and is prepared to write them a check for $100,000 today. Should Mr. Walsh accept the check? A) No, he should wait for at least a year before settling any claims. B) No, it is best to wait before accepting settlements, as additional items and damage may be uncovered. C) Yes, the amount offered by the adjuster is the maximum allowed under their policy. D) Yes, it is possible he will not receive any other settlement offers in the future.

B

74. Melvin has auto insurance with the following liability limits: 25/50/10. If Melvin is in an accident where he is at fault, what is the maximum his insurance company will pay to fix the property of the car Melvin hit? A) $0 B) $10,000 C) $25,000 D) $50,000

C

74. Some states have no-fault automobile insurance, which is a type of automobile insurance system in which the A) insurer pays into a fund administered by the state insurance department and the claims of persons in an automobile accident are paid out of that fund regardless of who is at fault. B) insured pays into a fund administered by the state insurance department and the claims of persons in an automobile accident are paid out of that fund regardless of who is at fault. C) insured driver in a car accident files a claim and collects from their own insurance company regardless of who is at fault. D) insurer pays out equal amounts after a claim is made, regardless of who is at fault or what the damage was to each person or vehicle.

B

74. State laws requiring drivers who have been in a traffic accident to show proof of insurance or the ability to pay a claim are known as A) interstate commerce laws. B) financial responsibility laws. C) indemnity laws. D) compulsory automobile insurance laws.

B

74. States with no-fault automobile insurance laws have seen A) reductions in insurance premiums and litigation costs. B) increases in insurance premiums and litigation costs. C) reductions in premiums but higher litigation costs. D) increases in premiums but lower litigation costs.

B

74. The Garcia family has three autos parked in their garage and two full-time drivers and two part-time drivers in the household. Which standard automobile insurance policy is for different family members driving either car? A) Personal automobile policy B) Family automobile policy C) Comprehensive automobile policy D) No-fault automobile policy

C

74. When evaluating insurance companies, you should consider all of the following except the company's A) discounts you qualify to receive. B) customer service. C) commercials. D) financial strength.

A

74. When you have a motor vehicle accident, you should do all of the following, except A) waiting at the scene for an insurance adjuster. B) waiting at the scene for a police officer. C) exchanging insurance information. D) obtaining contact information for witnesses to the accident.

C

74. Which is not a factor that will usually affect your auto insurance premium? A) Your risk characteristics B) How much you drive C) Where you work D) What vehicle you drive

D

74. Which of the following is not a way that a consumer can reduce his or her auto insurance payments? A) Installing antitheft devices B) Driving only occasionally C) Driving a safer car D) Choosing lower deductibles

C

80. Which is not a component of the bodily injury coverage category of a typical auto insurance policy? A) Bodily injury liability B) Medical expenses C) Comprehensive physical damage D) Uninsured motorists

A

81. When considering pricing factors associated with the type of vehicle you drive, you may be eligible for a ________, if your car has antitheft devices, airbags, and other safety features. A) discount B) premium C) deductible D) rebate

B

90. Consider a family with three drivers each driving their own car. Which standard auto policy should they choose? A) A family automobile policy B) A personal automobile policy C) A comprehensive policy D) A collision policy

D

Phil is a 21-year-old male. What is his life expectancy? A) 56.3 years B) 55.3 years C) 77.2 years D) 77.3 years

C

The insurance company professional who assesses whether the loss is covered under your policy and assigns the dollar amount for a claim is called a(n)