risk management and insurance

Which of the following statements about state insurance guaranty funds is (are) true? I.They limit the amount that policyholders can collect if an insurer becomes insolvent. II.They are usually funded by general revenues of the states.

I only

Which of the following statements about long-term care insurance is (are) true?

II only

Jonathan purchased a homeowners policy from Alpha Insurance Company. As Alpha was concerned about a high level of homeowners claims, it purchased excess-of-loss reinsurance with Beta Reinsurance. Beta agreed to pay all homeowners claims in excess of $10 million. Which of the following statements is true?

If Alpha's loss experience is favorable, Beta will not have to pay any losses.

Which statement is true regarding using interest-adjusted cost data and purchasing life insurance?

Small variations in cost indices should be ignored.

Which of the following statements about personal producing general agents is (are) true? I.They often have the option of recruiting and training sub-agents. II.They are independent agents who produce substantial amounts of life insurance with one insurer

both I and II

Which of the following statements about policies sold to preferred risks is (are) true?

both I and II

CompuFix services desktop and laptop computers. The owner of CompuFix is concerned that computers that are left with the business to be repaired may be damaged or destroyed. To address this risk, CompuFix should purchase

coverage for property held by bailees.

A car damaged in an auto accident may have reduced market or resale value after it is repaired. Some insureds have sought to recover this reduction in market or resale value. This loss in value is called

diminution.

Mark reviewed his homeowners policy. He learned that his personal property was insured on an actual cash value basis. He would like replacement cost coverage on his personal property. He contacted his agent who said, "I'll simply add an amendment to your contract that changes the basis of recovery to replacement cost." The written provision the agent was referring to is called a(n)

endorsement.

Katelyn was just named Risk Manager of ABC Company. She has decided to create a risk management program which considers all of the risks faced by ABC-pure, speculative, operational, and strategic-in a single risk management program. Such a program is called a(n)

enterprise risk management program.

A name that encompasses all of the major risks faced by a business firm is

enterprise risk.

A life insurance contractual provision protects the beneficiary by not permitting the insurer to introduce outside information to deny payment of the claim. Such outside information might be notes that the agent took while the insured completed the application. This contractual provision is the

entire contract clause.

An HMO physician who determines if medical care from a specialist is necessary is called a(n)

gatekeeper.

Compensatory damages include

general damages and special damages.

Inland marine insurance provides coverage for

goods being shipped on land.

As an alternative to coinsurance, rate discounts can be given as the amount of insurance to value increases. This alternative is called

graded rates.

All of the following are social costs associated with insurance EXCEPT

increased cost of capital.

The Affordable Care Act required that most U.S. citizens and legal residents have qualifying health insurance or pay a financial penalty. This provision of the Affordable Care Act was known as the

individual mandate.

Scott works in property and liability insurance marketing. He legally represents insurance purchasers, rather than insurance companies. Scott is paid a commission on the insurance placed with insurers. Scott is a(n)

insurance broker.

A specialized type of "wholesale" producer that unlike "retail" producers, is vested with underwriting authority from an insurer is a(n)

managing general agent.

Under one method of estimating a loss reserve in life insurance and disability insurance, the reserve is based on life expectancy, duration of disability, and similar factors. This method of estimating loss reserves is called the

tabular value method.

All of the following are reasons for a primary insurer to use reinsurance EXCEPT

to increase the unearned premium reserve.

According to the law of large numbers, what should happen as an insurer increases the number of units insured?

Actual results will more closely approach expected results.

Steve was involved in an auto accident. Both drivers were partially at fault for the accident. Steve's actual damages were $50,000. He was judged to be 20 percent at fault. If Steve's state has a contributory negligence law, how much will Steve collect?

$0

All of the following are characteristics of inland marine floater policies EXCEPT

Coverage applies only when the property is at a specified location, such as the insured's home.

Which of the following statements about the replacement cost provision of the Homeowners 3 policy is true?

Except for small losses, the insured must repair or replace the damaged property in order to receive full replacement cost.

A family's automobile that is a total loss as a result of a collision is an example of which of the following types of risk?I.Speculative riskII.Diversifiable risk

II only

Perils insured under Dwelling Property 1 (basic form) include which of the following?

II only

Which of the following statements about offer and acceptance for insurance contracts is true?

In property insurance, the offer and acceptance are usually in writing but may be oral.

All of the following statements about employer-provided group life insurance are true EXCEPT

Individual evidence of insurability, through a medical exam, is usually required.

Which of the following statements regarding insurance and hedging is true?

Insurance reduces objective risk while hedging involves only risk transfer and not risk reduction.

Which of the following statements about individual disability income policies is true?

Many policies provide or make available a residual disability benefit for persons who are able to work but at a reduced income.

All of the following statements about insurance regulation are true EXCEPT

The National Association of Insurance Commissioners (NAIC) can force states to adopt the model laws that it drafts.

All of the following statements about the tax treatment of life insurance purchased by an individual are true EXCEPT

The annual increase in the cash value is currently taxable.

Which of the following statements describes how the net payment cost index differs from the surrender cost index?

The cash value is ignored.

From the standpoint of the insurer, which of the following is a characteristic of an ideally insurable risk?

The chance of loss must be calculable.

All of the following statements about class rating are true EXCEPT

The complexity of class rating makes it inappropriate for personal lines coverages.

What is the legal significance of a material concealment by an insurance applicant?

The contract is voidable at the insurer's option.

What is the legal significance of a material misrepresentation in an insurance application?

The contract is voidable at the insurer's option.

Which of the following statements about the uninsured motorists coverage of the PAP is true?

The coverage applies only if the uninsured motorist is legally liable.

Which of the following statements about the coverage for other structures (Coverage B) under the Homeowners 3 policy is true?

The coverage applies to a detached garage or tool shed on the residence premises.

All of the following statements about the termination provisions of the PAP are true EXCEPT

The insurer can cancel the policy after it has been in force for 60 days only if the insured has three or more traffic violations.

Which of the following statements regarding Section II conditions under the homeowners policy is true?

The liability limit is the same regardless of the number of persons injured in a covered occurrence.

All of the following statements about life insurance company investments are true EXCEPT

The majority of these investments are short-term investments.

All of the following statements about the interest settlement option are true EXCEPT

The minimum guaranteed interest rate is usually equal to the prime rate.

Which of the following statements about mobile home insurance under the ISO program is true?

The mobile home is insured on a replacement cost basis, but actual cash value coverage can be added by endorsement if it is more appropriate.

Which of the following statements about savings bank life insurance is true?

The objective of savings bank life insurance is to provide low-cost insurance to consumers by holding down expenses.

What is the practical effect of an insurance contract being a contract of adhesion?

The policy is interpreted in the insured's favor if the policy contains any ambiguities or uncertainties.

Which of the following statements about variable life insurance is true?

The policyowner has the option of investing the cash value in several investment accounts.

Which of the following statements about treaty reinsurance is true?

The reinsurer must accept all business that falls within the scope of the treaty.

Which of the following statements about a priori probabilities is correct?

They are objective probabilities that can be determined by deductive reasoning.

The unearned premium reserve of an insurer is

a liability representing the unearned portion of gross premiums on outstanding policies.

The period during which a surviving spouse is ineligible for Social Security benefits is referred to as the

blackout period.

Functions of an insurance company's legal department include which of the following? I.Lobbying for legislation favorable to the insurance industry. II.Drafting policy provisions.

both I and II

A systemic risk is a risk that

can be the cause of the collapse of an entire system.

Bob purchased insurance on his home with an insurer that was not licensed to do business in the state. In this case, which requirement to form a binding insurance contract is lacking?

competent parties

The personal umbrella policy covers some personal injuries. Which of the following is considered a personal injury?

defamation of character

The primary function of an actuary is to

determine premium rates.

The purpose of a coordination-of-benefits provision in group health insurance plans is to

determine which plan pays first if more than one plan covers a loss.

One of the reasons that deductible are used in insurance policies is to

eliminate coverage for small claims.

Liability arising out of which of the following is covered under the personal injury endorsement to the homeowners policy?

false arrest

An employer-funded plan with favorable tax advantages, which repays employees for medical care not covered by the employer's standard medical plan is a(n)

health reimbursement arrangement (HRA).

Med Profs is a group of 18 doctors. These doctors work out of their own offices and treat patients on a fee-for-service basis. In addition, Med Profs doctors also agree to treat HMO members at reduced fees. The type of HMO that uses organizations like Med Profs is called a(n)

individual practice association plan.

Which of the following losses would be covered under the personal liability coverage (Coverage E) of an unendorsed Homeowners 3 policy?

liability arising out of damage to a neighbor's property that occurred over time

Deductibles are not used in which of the following type of insurance?

life insurance

An earthquake is an example of a(n)

peril.

Steve and Mary are art collectors. They own lithographs, etchings, and vintage photographs valued at over $250,000. Steve and Mary display their art collection at their home. They can insure this valuable personal property through a

personal articles floater form.

The basic purpose of FAIR plans is to provide

property insurance to persons who cannot obtain it in normal markets.

Under a dram shop law, a business may be held liable for damages resulting from

the sale of alcohol.

The voluntary relinquishment of a legal right is called

waiver.

Which of the following statements about claims settlement is true?

Independent adjusters may be used in a geographic area where the volume of business is too low for an insurer to have its own adjusters.

All of the following statements about the rules governing agency relationships are true EXCEPT

The principal is responsible for the acts of agents only if the acts are criminal.

When must an insurable interest legally exist in life insurance?

only at the inception of the policy

One tort reform proposal is capping noneconomic damages. Noneconomic damages include

payment for pain and suffering.

Which of the following is an example of private insurance?

life insurance

The difference between the legal reserve of a whole life policy and the face amount of insurance is the

net amount at risk.

Antonio is a claims adjuster for LMN Insurance Company. After the insurer is notified that there has been a loss, Antonio meets with the insured. The first step in the claims process that Antonio should follow is to

verify that a covered loss has occurred.

All of the following are extensions of coverage under the building and personal property coverage form EXCEPT

currency and securities.

David purchased a $100,000 participating whole life policy. The annual premium is $2,280. Projected dividends for the first 20 years are $15,624. The cash value after 20 years will be $35,260. If the premiums were invested at 5 percent interest for 20 years, the premiums would grow to $79,156. If the dividends were accumulated at 5 percent interest for 20 years, they would grow to be $24,400. The amount to which $1 deposited annually will accumulate in 20 years at 5 percent interest is $34.719. Based on this information, what is the traditional net cost per thousand per year of David's policy over the 20-year period?

-$2.64

Which of the following statements about the yearly-rate-of-return method (also known as the Belth method) of calculating the yearly rate of return for a life insurance policy is (are) true?

I only

Which of the following statements regarding insurance and gambling is (are) true? I.Insurance is used to handle existing pure risks, while gambling creates a new speculative risk. II.Insurance usually involves risk avoidance, while gambling typically involves only risk reduction.

I only

Frank purchased a building in a run-down area of a city. When Frank was unable to obtain property insurance in the voluntary insurance market, an agent suggested that he contact a state pool created in the 1960s that makes property insurance available in riot-prone areas. The state pool the agent referred to is called a(n)

FAIR plan.

The human life value is defined as the

present value of the family's share of a deceased breadwinner's future earnings.

Which of the following is a cost/expense that an estate clearance fund is designed to pay?

burial expenses

Beth purchased a $50,000 nonparticipating whole life insurance policy. The annual premium was $1,278. The cash value of the policy after 10 years will be $13,740. The future value of $1 deposited at the start of the year for 10 years, assuming 5 percent interest, is $13.207. If the premiums were invested at 5 percent interest for 10 years, the premiums would grow to $16,878.55. Assuming 5 percent interest, what is the net payment cost of this policy, per thousand per year, over the first 10 years the policy is in force?

$25.56

Which of the following statements describes how losses will be settled if a property insurance policy is written on a replacement cost basis?

Losses are settled without a deduction for depreciation.

All of the following statements about the settlement of a claim are true EXCEPT

The adjuster must file the proof of loss, which is a sworn statement supporting his or her decision regarding a claim.

From the viewpoint of the insurer, all of the following are characteristics of an ideally insurable risk EXCEPT

The loss should be catastrophic.

Which of the following statements about the additional coverages under Section I of the Homeowners 3 policy is true?

There is coverage for the reasonable cost incurred to protect property from further damage after a covered loss occurs.

XYZ, Inc. would suffer serious financial consequences if either of its two major customers were shut down and could not purchase XYZ products. Which of the following types of consequential loss protection would provide protection against this exposure?

business income from dependent properties

The risk-based capital requirements for life insurers are based on a formula that considers four types of risk. One risk reflects a range of uncertainties that life insurers face including such things as bad management decisions and guaranty fund assessments. This risk is called

business risk.

Carl would like to purchase life insurance. He would also like to invest in a mutual fund. An agent told Carl about a form of life insurance in which Carl could select where the saving component is invested. This form of life insurance has fixed premiums and the cash value is not guaranteed. This type of life insurance is called

variable life insurance.

Which of the following perils is covered under the Dwelling Property 2 (broad form) policy?

weight of ice, snow, or sleet

Which of the following $100,000 whole life insurance policies, issued by the same company to a man age 32, would require the highest first-year premium?

10-payment whole life

MedProf Insurance markets medical malpractice insurance. The company's combined ratio in 2015 was 95.4. Its expense ratio was 25.4. What was the company's loss ratio?

70.0

Dave is an agent for Easy Pay Insurance. Easy Pay insures only high-quality applicants. Dave wanted to earn more commissions, so he sold some policies to applicants he knew were below-average risks. When these policyowners started filing claims, Easy Pay tried to deny the claims stating that Dave had not acted appropriately. Which general rule of agency makes Easy Pay responsible for the claims of the higher-than-average risk policyowners?

A principal is responsible for the acts of its agents who are acting within the scope of their authority.

Which of the following statements about Lloyd's of London is true?

Coverage is actually written by syndicates who belong to Lloyd's of London.

Which of the following statements about group long-term disability income plans is true?

Coverage is provided for both occupational and nonoccupational disabilities.

William would like to insure his home. He does not want theft or personal liability coverage; however, he would like "open perils" (all-risks) coverage on the dwelling. William should purchase a

Dwelling Property 3 Form.

Which homeowners policy is designed for the tenants of a rented premises?

Homeowners 4

Advantages of the direct response system for marketing life insurance include which of the following? I.Advertising can be specifically directed to selected markets. II.Complex products can be easily sold.

I only

Methods by which insurers may minimize or avoid catastrophic losses include which of the following?I.The use of reinsuranceII.Concentrating coverage written in one geographic region

I only

Tony has an unendorsed Personal Auto Policy which provides medical payments coverage. Under which of the following circumstances would the injured person be eligible for benefits under Tony's policy?

I only

Which of the following statements about a warranty in an insurance contract is (are) true? I.It is part of the insurance contract. II.Statements made by an insurance applicant are considered warranties rather than representations.

I only

Which of the following statements about liability risks is (are) true?I.Future income and assets can be attached to pay judgments if inadequate insurance is carried.II.There is an upper limit on the amount of loss.

I only

Which of the following statements about property and casualty insurance company operating results is (are) true?I. An insurance company can have a combined ratio greater than 1 (or 100 percent) and still be required to pay income taxes.II. By all measures, the property and casualty insurance industry is highly profitable when compared to other industries.

I only

Which of the following statements about the regulation of insurance company investments is (are) true? I.The purpose of regulating insurance company investments is to prevent insurers from making unsound investments which could threaten their solvency.II.Life insurers must invest their separate account assets in bonds.

I only

Which of the following statements about underwriting policy is (are) true?I.A company must establish an underwriting policy consistent with company objectives.II.Underwriting policy is usually subjective and allows the underwriter considerable flexibility with respect to lines written and forms used.

I only

Which of the following statements concerning the scheduled personal property endorsement with agreed value loss settlement is (are) true?

I only

Which of the following statements regarding health care expenditures in the United States is (are) true?

I only

Which of the following situations would be covered under the liability section of the PAP?

II only

Which of the following statements about chance of loss and risk is (are) true?I.If the chance of loss is identical for two groups, the objective risk must be the same.II.Two individuals may perceive differently the risk inherent in a given activity.

II only

Which of the following statements about disability and disability income insurance is (are) true?

II only

Which of the following statements about individual disability income policies that use a two-part definition of total disability is (are) true?

II only

Which of the following statements about life insurance policy loans is (are) true? I.Interest is not required on a life insurance policy loan, as the policyholder is borrowing his or her own money.II.If there is an outstanding loan when the insured dies, payment to the beneficiary is reduced by the amount of the loan.

II only

Which of the following statements about methods for estimating loss reserves for property and casualty insurers is (are) true? I.The judgment method involves the use of a statutory formula to estimate the loss reserve. II.The average value method is used when the number of claims is large and the average claim is relatively small.

II only

Which of the following statements about premature death is (are) true?

II only

Which of the following statements about recent developments in group medical coverage is (are) true?

II only

Which of the following statements about the provisions of the building and personal property coverage form is (are) true?

II only

Which of the following statements concerning social insurance benefits is (are) correct?I.Social insurance benefits are heavily weighted in favor of upper-income groups because of their higher earnings.II.Social insurance benefits are financed entirely or in part by mandatory contributions by covered employers and employees, and not by general revenues of the government.

II only

Which of the following statements is (are) true with regard to an unendorsed ISO Dwelling Form?

II only

Which of the following statements is (are) true with regard to surplus lines brokers? I.Surplus lines brokers are retail producers who deal directly with insurance consumers. II.Surplus lines brokers do have authority to bind insurers.

II only

Which of the following statements concerning coverage under the Homeowners 3 policy is true?

If a Coverage C peril causes a collapse, the resulting damage is covered.

All of the following statements about conditions under a Homeowners 3 policy are true EXCEPT

If the named insured dies, coverage automatically ceases with respect to any property of the deceased.

All of the following statements about regulatory objectives of insurance rate making are true EXCEPT

Insurers know in advance if the coverages marketed will be profitable, so rate regulation is not needed.

Which of the following statements about judgment rating is true?

It is used when the loss exposures are so diverse that a class rate cannot be calculated.

Which of the following statements about the exclusive agency system for marketing property and liability insurance is true?

New exclusive agents may start as employees and after a training period become independent contractors.

All of the following statements about Part D (coverage for damage to your auto) of the PAP are true EXCEPT

No coverage is provided for newly-acquired vehicles.

Which of the following statements about health savings accounts (HSAs) is true?

Once an individual has reached age 65 or is covered by Medicare, no additional contributions to the HSA may be made.

All of the following statements about yacht insurance are true EXCEPT

Property damage coverage includes damage from insects, weathering, and wear and tear.

Which of the following statements about stock insurers is true?

Stockholders bear any losses and share in any profits.

Which of the following statements about group insurance is true?

The actual experience of a large group is a factor in determining the premium that is charged.

JKL Insurance Company estimates that 14 out of every 100 homeowners it insures will file a claim each year. Last year, JKL insured 200 homeowners. According to the law of large numbers, what should happen if JKL insures 2,000 homeowners this year?

The actual results will more closely approach the expected results.

Which of the following statements about group short-term disability income plans is true?

The amount of disability income benefits typically is equal to some percentage of a worker's normal earnings.

Joyce was injured by an uninsured drunk driver while she was riding in a friend's car. Joyce and her friend each have a PAP with an uninsured motorists limit of $50,000. How much will be paid by each policy if it is determined that Joyce has $70,000 of bodily injuries?

The friend's policy will pay $50,000, and Joyce's policy will pay $20,000.

Brian purchased an unendorsed Homeowners 3 policy. Under the policy, Brian's detached garage is also covered. Which of the following statements regarding coverage on the garage is true?

The garage is covered on an open-perils basis.

Which of the following losses would be covered under Section II of an unendorsed Homeowners 3 policy?

The homeowner accidentally dropped a bowling ball, injuring another bowler's foot.

What is the practical effect of an insurance policy being a conditional contract?

The insurer can refuse to a pay claim if the insured has not complied with all policy provisions.

A property and liability insurance company's loss ratio and expense ratio, respectively, for 2016 - 2018 were: 2016:74%31% 2017:68%33% 2018:66%30% Which of the following statements is true about the company's underwriting results for this time period

The insurer's profitability from underwriting has been improving each year.

Which of the following statements regarding the Coverage E limit in the homeowners policy is true?

The limit applies on a per-occurrence basis to bodily injury and property damage liability.

Why are some mutual insurers referred to as "assessment mutuals"?

They can assess policyholders if premiums are insufficient to pay losses and expenses.

Which of the following statements about mutual insurers is true?

They may pay dividends to their policyholders.

Which of the following statements is true about fraternal insurers?

They specialize in writing life and health insurance.

Jane would like to save money on her homeowners premium. All of the following steps will help her to reduce her homeowners premium EXCEPT

adding a personal property replacement cost endorsement.

Dennis was involved in an accident. He believes the damage to his auto is $7,000. His insurer believes the damage is only $3,500. Which PAP provision is designed to handle disputes between the insurer and the insured over the amount of the loss?

appraisal provision

Carelessness or indifference to a loss is an example of

attitudinal hazard.

HMOs typically pay network physicians or medical groups a fixed annual or monthly payment for each member, regardless of the frequency or type of service provided. This payment is called a

capitation fee.

Pac-Coast Insurance (PCI) concentrates its underwriting activities in California. The company is concerned that if a catastrophic earthquake occurs, it might threaten the solvency of the company. To address this risk, PCI issued some debt securities. If a catastrophic earthquake occurs, PCI does not have to repay the full amount borrowed or pay interest. The securities PCI issued are called

catastrophe bonds.

Janet hit a wall causing a large dent in the fender of her car. She was busy at work and delayed reporting the damage to her insurer for 9 months. When she finally reported the claim, her insurer denied payment, stating, "Although such a loss is usually covered, you are required under the terms of the contract to provide prompt notification in case of loss." The prompt notification requirement is an example of a(n)

condition.

Ted's insurance claim was denied by XYZ Insurance Company. When Ted inquired why the claim was denied, he was told to, "Read the exclusion on page 5 of the policy." Ted read the exclusion. In his opinion, the exclusion was poorly worded and vague. If a court of law agrees with Ted's assessment of the exclusion, Ted may still be able to have his claim paid by the insurer because insurance contracts are

contracts of adhesion.

Frazier Electric keeps a paper copy of business records at the company's headquarters. The company also has two back-up copies of business records stored in electronic files. The electronic files are kept in the event the paper records are damaged or destroyed. The back-up files illustrate which of the following risk control techniques?

duplication

The premium that insurance companies charge does not cover the cost of expected losses only. The premium must also cover the cost of compensating agents and other costs of doing business. The amount added to the pure premium to cover these costs is called the

expense loading.

Under what type of rate regulation are insurers required to obtain approval of rates before using them if the rate change exceeds a specified predetermined range?

flex-rating law

All of the following will support an insurable interest for purposes of purchasing property and liability insurance EXCEPT

former ownership of property.

All of the following losses are subject to special limits of liability under the Homeowners 3 policy EXCEPT

furniture destroyed by a fire.

One inland marine coverage form is the accounts receivable coverage form. In which of the following cases would the purchaser of this form (the insured) be indemnified through the coverage?

if the insured cannot collect accounts receivable because of the destruction of records

Greta purchased a long-term care policy. Under a typical policy, Greta's eligibility for benefits may be triggered by

inability to perform activities of daily living.

To calculate a human life value, it is necessary to deduct certain costs from a person's average annual earnings. These costs include

income taxes.

The Affordable Care Act has provisions that improve the quality of health care and lower costs. All of the following are examples of these provisions EXCEPT

increasing the number of medical specialists and reducing the number of primary care physicians.

Under older group medical expense plans, physicians were paid a fee for each covered service and were reimbursed on the basis of reasonable and customary charges, up to a maximum limit. These older group medical expense plans were called

indemnity plans.

Sarah owns a property and liability insurance agency. She is authorized to represent several insurance companies and she is compensated by commissions. Sarah's agency owns the expiration rights to the business she sells. Sarah is a(n)

independent agent.

The extra expense incurred by a business to stay in operation following a fire is an example of a(n)

indirect loss.

The assets of a property and liability insurance company are primarily

investments such as stocks and bonds.

Someone who is asked to come on to the property to benefit the property owner, such as customers at a store or a garbage collector, is classified as a(n)

invitee.

Some characteristics of the judicial system and regulatory environment increase the frequency and severity of loss. This hazard is called

legal hazard.

Ben is concerned that if he injures someone or damages someone's property he could be held legally responsible and required to pay damages. This type of risk is called a

liability risk.

If the insurer broadens coverage during the policy period without an increase in premium, and the broadened coverage is not part of a general program revision, the insured is entitled to the broadened coverage under which policy provision?

liberalization clause

Nathan was hired as an actuary with ABC Insurance. Nathan was asked to calculate the annual premium for a new product and to explain his calculations to ABC's director of ratemaking. Nathan calculated the pure premium and presented this value as the final premium. After Nathan's presentation, the director of ratemaking said, "You left out something very important. If we sell coverage at the pure premium rate, we'll be out of business soon." What did Nathan overlook in his calculations?

loading for expensesThe unit of measurement used in property and casualty insurance pricing is called the

Ross studied engineering in college. After graduation, he went to work for an insurance company. Ross visits properties insured by his company. He conducts inspections and makes recommendations about alarm systems, sprinkler systems, and building construction. In what functional area does Ross work?

loss control

Which of the following would not appear in the asset section of an insurance company's balance sheet?

loss reserves

Blue Sky Insurance Company sells life annuities to sick elderly people, routinely denies legitimate claims, and cancels insureds after they submit a claim. What type of insurance regulation would sanction Blue Sky for such wrongful behavior?

market conduct regulation

Ken purchased a PAP with liability limits of 100/300/50, medical payments coverage, and collision coverage. Ken fell asleep while driving late at night. He crossed the center line and hit a car approaching from the other direction. The following losses occurred.

medical payments coverage

An Econodeath Insurance Company actuary calculated the present value of the expected death claim the company will pay if it sells whole life insurance to a 30-year-old woman. This value is called the

net single premium.

An HMO that contracts with two or more independent group practices to provide medical services to covered members is called a(n)

network model HMO.

Heather sued Robert for injuries suffered in an automobile accident. Based on the facts presented, the jury concluded that Heather was 40 percent at fault in the accident and Robert was 60 percent at fault. Under the common law doctrine of contributory negligence, the jury should award Heather

nothing.

At what point in time must an insured meet the coinsurance requirement in a property insurance policy in order to avoid having to pay a portion of the loss?

only at the time of loss

When must an insurable interest legally exist in property insurance for an insured to receive payment for a loss from the insurer?

only at the time of the loss

Homeowners insurance policies usually cover resident relatives of the named insured who are under age 24 and who are full-time students away from home. Under the homeowners policy, these full-time students are considered

other insureds.

All of the following are characteristics of the liability risk that most people face EXCEPT

owning liability insurance eliminates the possibility of being held legally liable.

Beth purchased a participating life insurance policy 6 years ago. Her life insurance needs have increased, but she has developed a medical condition that makes it impossible for her to purchase more life insurance at affordable premiums. Which dividend option makes sense for Beth to use given her medical condition?

paid-up additions

Under the Homeowners 3 policy, all of the following are options of the insurer for settling claims EXCEPT

paying the claim with insurance company stock.

Which of the following is a characteristic of a typical mass merchandising plan?

payment of premiums through payroll deduction

Robert purchased an unendorsed Homeowners 3 policy. He is concerned that if his personal property is destroyed, the insurer will take depreciation into consideration when determining the loss settlement and will pay him less than the amount needed to purchase new property. Which endorsement can Robert add to his Homeowners 3 policy to address this concern?

personal property replacement cost endorsement

Under many cafeteria plans, employees make premium contributions with pre-tax dollars and a salary reduction that are used to purchase group health insurance or dental insurance. This type of cafeteria plan is called a

premium conversion plan.

Which of the following items would appear in the revenue section of an insurance company's income and expense statement?

premiums

Gwen is in charge of accounting at Integrity Insurance Company. Integrity is a publicly-traded insurer. In describing her job, Gwen said, "There aren't too many businesses where you are required to keep two sets of books." Gwen's comment most likely refers to her company

preparing one set of records using statutory accounting and another set using GAAP accounting.

Intermediaries who are licensed as agents and/or brokers who sell most insurance policies are called

producers.

All of the following are methods that a property and liability insurance company can use to protect against catastrophic losses EXCEPT

purchase of common stock.

The price per unit of insurance is called the

rate.

A group of small insurance companies joined together so that they could jointly provide reinsurance on larger risks. This organization of insurers formed to provide the capacity needed to reinsure larger risks is called a

reinsurance pool.

Which of the following is a method used to help ensure the solvency of insurers?

risk-based capital standards

There are a number of implied warranties in ocean marine insurance. One implied warranty is that the vessel is properly constructed and maintained, and that it is properly equipped for the voyage to be undertaken. This implied warranty is the warranty of

seaworthiness.

Jim and Paula Franklin started a dry cleaning business. The business may be successful or it may fail. The type of risk that is present when either a profit or loss could occur is called

speculative risk.

Under state workers compensation programs, employers may not use common law defenses to defend against claims of workers who are injured on the job. In such cases, proof of a worker's injury is proof of responsibility of the employer. Because of this characteristic, workers compensation is an example of

strict (absolute) liability.

Which of the following dividend options, sometimes called the "fifth dividend option," is not offered by all insurers that sell participating life insurance coverage?

term insurance

The basis for current state regulation of insurance is

the McCarran-Ferguson Act.

The general rule that ambiguity in insurance contracts is construed against the insurer is reinforced by an important legal principle. This principle states the insured is entitled to coverage under a policy that he or she would assume the policy would provide, and exclusions must be conspicuous, plain, and clear. This principle is known as

the principle of reasonable expectations.

Melody's car was damaged when another driver ran a stop sign and hit her car. Melody decided to collect from her own insurer and to let her insurer recoup the loss payment from the negligent driver who hit her. What fundamental legal principle is illustrated in this scenario?

the principle of subrogation

All of the following statements about the National Flood Insurance Program (NFIP) are true EXCEPT

the program continues to generate large profits and is running at a surplus.

Len is considering the purchase of a home. As a home is a large investment, Len wants to make sure that there are no liens, easements, or other encumbrances preventing him from an unchallenged right to possess and enjoy his property. Len can protect this right through the purchase of

title insurance.

What is the purpose of stop-loss insurance that is used with self-insured group medical expense plans?

to have a commercial insurer pay claims that exceed a specified limit

What is the intent of the family purpose doctrine?

to impose liability on the owner of an automobile for the negligence of immediate family members operating the automobile

Kim purchased a one-year property insurance policy. She agreed to pay half the premium when she bought the coverage, and the other half six months later. If Kim fails to pay the second premium, the insurer cannot sue her for the premium because insurance contracts are

unilateral contracts.

All of the following are historical reasons for the increase in health care expenditures in the U.S. EXCEPT

universal health insurance coverage.

Which of the following is a covered peril under the personal property coverage (Coverage C) of an unendorsed Homeowners 3 policy?

windstorm

Which of the following is classified as casualty insurance?

workers compensation insurance

Malcolm was involved in an auto accident. He was judged to be 20 percent at fault in the accident, and the other party was judged to be 80 percent at fault. Malcolm's actual damages were $40,000. Under a pure comparative negligence rule, how much will Malcolm receive for his injuries?

$32,000

ABC Company insured its building on a replacement cost basis for $700,000 under a property insurance policy that included an 80 percent coinsurance clause. The building had a replacement cost of $1 million when it sustained a $40,000 loss. How much will ABC Company receive from its insurer, assuming no deductible applies?

$35,000

Beth purchased a $50,000 nonparticipating whole life insurance policy. The annual premium was $1,278. The cash value of the policy after 10 years will be $13,740. The future value of $1 deposited at the start of the year for 10 years, assuming 5 percent interest, is $13.207. If the premiums were invested at 5 percent interest for 10 years, the premiums would grow to $16,878.55. Assuming 5 percent interest, what is the surrender cost of this policy, per thousand per year, over the first 10 years the policy is in force?

$4.75

Ann Parks and Robert Evans jointly own a grocery store. Ann and Robert are both named insureds on the property insurance covering the store, but Ann is the first named insured. Which of the following statements is true with regard to Ann's status as the first named insured?

Ann is responsible for making sure that the premium has been paid.

Jenny purchased a Personal Auto Policy (PAP) that included property damage liability, collision coverage, medical payments coverage, and other-than-collision coverage. Jenny had too much alcohol to drink at a graduation party. While driving home from the party, Jenny ran off the road and hit a tree. Police responded to the accident, and Jenny was arrested for driving under the influence of alcohol. Which of the following statements is true regarding the damage to Jenny's car?

Damage to the car is covered under Jenny's collision coverage.

One provision of the Affordable Care Act creates in each state a transparent and competitive insurance marketplace where individuals and small firms can purchase affordable and qualified health coverage. This marketplace is called a

Health Insurance Marketplace.

Jose and Maria would like "open-perils" coverage on their home and their personal property. Which unendorsed homeowners form provides this coverage?Homeowners 5

Homeowners 5

Which of the following statements about insurance brokers is (are) true? I.They legally represent the insured rather than the insurance company. II.They are prohibited from being licensed as agents.

I only

Which of the following statements about the investments of property and liability insurers is (are) true?I.Income from investments is important in offsetting any unfavorable underwriting experience.II.Because premium income is continually being received, the investment objective of liquidity is of little importance

I only

Which of the following statements concerning the proposed optional federal charter for life insurers is (are) true?I.Large insurers operating in many states would more likely prefer a state charter while smaller, regional, insurers would more likely choose a federal charter.II.Proponents of the federal charter argue that it would speed the development and approval of new products.

II only

Which of the following statements is (are) true about savings bank life insurance (SBLI)? I.Each depositor at the savings bank receives life insurance equal to his or her savings account balance.II.The goal of SBLI is to provide low-cost life insurance to consumers.

II only

Which of the following statements is (are) true about the loss ratio method of class rating? I.The pure premium is calculated, and it is loaded to cover expenses, profit, and contingencies. II.The actual loss ratio is compared to the expected loss ratio, and the rate is adjusted accordingly.

II only

Which of the following statements is (are) true concerning the value reporting form?

II only

Which of the following statements is (are) true regarding provisions of the Affordable Care Act (ACA)?

II only

Kate is covered under her employer's group health plan. She is also covered as a dependent under her husband's group health plan. Under the usual coordination-of-benefits provision, how will each company respond to a claim filed by Kate?

Kate's plan is primary, and her husband's plan is excess.

Which statement regarding Section II of an unendorsed homeowners 3 policy is true?

Liability arising out of a home business is not covered.

All of the following statements about individual disability income policies are true EXCEPT

Most disability income insurance policies contain an elimination period of 10 or fewer days.

Which of the following statements about the additional coverage for damage to property of others in Section II of the homeowners policy is true?

Payments are made on the basis of the replacement cost of the damaged property.

Which of the following is a result of adverse selection?

Persons most likely to have losses are also most likely to seek insurance at standard rates.

Monopoly Insurance is the only company marketing a certain line of insurance in a state. After complaints from several consumers, the State Insurance Department investigated Monopoly's rates. The regulators determined that Monopoly was taking advantage of being the only insurer offering the line by charging more than double the actuarial cost of the coverage. Which regulatory rating objective was Monopoly violating?

Rates must not be excessive.

John occasionally borrows the car of his friend, Sophie. Sophie has a PAP with liability limits of 100/300/50. John also has a PAP, and his liability limits 250/500/50. John had an accident while using Sophie's car and was found to be legally liable for $300,000 in bodily injury liability for injuries suffered by one person. How much will be paid by each policy?

Sophie's policy will pay $100,000, John's policy will pay $200,000.

Paul has a personal auto policy with a per-person liability limit of $300,000. He also has a personal umbrella policy with a limit of $2,000,000 and a self-insured retention of $1,000. How much will be paid by each policy if a person wins a judgment of $500,000 against Paul as a result of bodily injury arising from the auto accident?

The auto policy will pay $300,000, and the umbrella policy will pay $200,000.All of the following are exclusions in the ISO Personal Umbrella Policy EXCEPT

Which of the following is considered to be a collision loss under Part D (coverage for damage to your auto) of the PAP?

The covered auto is damaged when it slid off an icy road and hit a fence.

Which of the following is a characteristic of most inland marine floater policies?

The insurance can be tailored to the specific type of personal property insured.

Which of the following statements about Coverage E: Personal Liability under the homeowners 3 policy is true?

The insured must be legally liable for insurer to pay damages.

Michelle had four matching end tables in her home. A fire damaged the home, destroying two of the end tables. Michelle's home was covered by an unendorsed Homeowners 3 policy. Which of the following is true with regard to the settlement for the end tables in this case?

The insurer can elect to pay the difference in actual cash value of the property before and after the loss.

Which of the following statements about reinsurance is true?

The insurer transferring business to a reinsurer is called the ceding company.

XYZ Insurance Company writes coverage for most perils which can damage property. XYZ, however, does not write flood insurance on property located in flood plains. Which requirement of an ideally insurable risk might be violated if XYZ wrote flood insurance on property located in flood plains?

The loss should not be catastrophic.

Which of the following statements about retrospective rating is true?

The premium for the current period is determined by the loss experience during the current period.

Which of the following statements about speculative risks is true?

They may benefit society even though a loss occurs.

Which of the following statements about the federal flood insurance program is true?

Under the write-your-own program, each insurer services the policies it writes.

Under common law, which of the following persons is most likely to be classified as an invitee?

a mail carrier

Paul is shopping for a life insurance policy. An agent asked Paul if he would like to purchase a participating policy. What is a "participating" policy?

a policy which pays dividends

The loss settlement under which of the following supports the principle of indemnity?

actual cash value property insurance

Sue double-majored in mathematics and statistics in college. She also enrolled in a number of finance courses. After graduation, she was hired by Econodeath Insurance Company. Her job is to calculate premium rates for life insurance coverages. Sue is a(n)

actuary.

A total loss under a valued policy is settled on the basis of the

amount of insurance covering the loss.

The policyholders' surplus of an insurer is defined as the difference between its

assets and its liabilities.

Purposes of the coinsurance provision in medical expense insurance policies include which of the following?

both I and II

Under the Affordable Care Act, which of the following statements are true?

both I and II

Which of the following statements about the causes-of-loss special form of the ISO commercial package policy is (are) true?

both I and II

Which of the following statements about underwriting standards is (are) true? I.One purpose of underwriting standards is to reduce adverse selection against the insurer. II.Equitable rates should be charged so that each group of policyowners pays its own way in terms of losses and expenses.

both I and II

Which of the following statements concerning individual medical expense insurance is (are) correct?

both I and II

Which of the following statements concerning regulatory objectives of rate making is (are) true?I. Rates must not be unfairly discriminatory.II. Rates must be adequate

both I and II

Ken purchased a PAP with liability limits of 100/300/50, medical payments coverage, and collision coverage. Ken fell asleep while driving late at night. He crossed the center line and hit a car approaching from the other direction. The following losses occurred.

collision coverage

The homeowners policy excludes a loss brought about by two or more perils where one peril is covered under the policy and the other perils are excluded. This situation is called

concurrent causation.

The policy provision requiring the filing of proof of loss with the insurer is an example of a(n)

condition.

That part of a property and liability insurance contract that contains information about the property or activity to be insured is called the

declarations.

Five years ago, Shannon decided to start investing monthly in the common stock of ABC Telecom Company. Her financial well-being will be harmed if the price of ABC Telecom stock drops significantly. The risk of investment loss can be reduced if she invests in other companies and other types of financial assets. The risk Shannon faces with regard to her investments is a(n)

diversifiable risk.

The Affordable Care Act requires all new medical expense plans to provide a comprehensive set of coverages and services. This comprehensive set of coverages and services that must be provided are called

essential health benefits.

The exclusion of flood in a homeowners policy is an example of an

excluded peril.

All of the following are considered insured locations for medical payments to others (Coverage F) under a homeowners policy EXCEPT

farmland owned by the insured.

The leaders of a religious group decided to start a life insurance organization to insure members of the religious group. The insurer will operate as a nonprofit organization, thus receiving favorable tax treatment. The insurer formed will be a

fraternal insurer.

Ellen purchased a health insurance policy. Under the provisions of the Affordable Care Act, which of the following renewal provisions must the insurer use in the policy?

guaranteed issue

Kevin has an individual disability income policy that his insurer agrees to keep in force until age 60. However, the company has the right to increase the premium each year for the underwriting class in which Kevin has been placed. Which renewal provision is found in Kevin's policy?

guaranteed renewable

Fly-By-Night Insurance Company had much larger losses than forecast. The company did not charge adequate premiums nor did the company purchase reinsurance. If Fly-By-Night becomes insolvent, which of the following will help pay the unpaid claims of the insurer?

guaranty fund

Mark has been an underwriter for 20 years. An application he recently reviewed looked strange to him. The building value in the application seemed far too high, and Mark suspected the applicant might be planning to destroy the property after it is insured. Mark hired an outside firm to investigate the applicant and to prepare a report about the applicant. This report is called a(n)

inspection report.

A credit-based score that is highly predictive of future claims cost is an individual's

insurance score.

Trisha was injured when the delivery truck for a local furniture store struck her. The delivery driver claimed the brakes of the delivery truck failed, causing the accident. Trisha filed suit, and in her lawsuit named the delivery driver, the furniture store, the service station responsible for vehicle maintenance, and the manufacturer of the vehicle. Even though the manufacturer of the vehicle may be only 1 percent responsible for the accident, it may be required to pay a large percentage of the damages under the

joint and several liability rule.

Faking an accident to collect insurance proceeds is an example of

moral hazard.

LMN Insurance sells homeowners insurance. The LMN homeowners policy combines property and casualty insurance in the same contract. Insurance policies combining property and casualty coverage in the same contract are called

multiple-line policies.

Consumer experts typically recommend which of the following rules when purchasing life insurance?

neither I nor II

Ken purchased a PAP with liability limits of 100/300/50, medical payments coverage, and collision coverage. Ken fell asleep while driving late at night. He crossed the center line and hit a car approaching from the other direction. The following losses occurred.

property damage liability

Which of the following types of risks best meets the requirements for being insurable by private insurers?

property risks

The process of transferring risk to the capital markets through the use of financial instruments such as bonds, futures contracts, and options is known as

securitization of risk.

Some investors decided to start an insurance company. Each investor contributed $50,000 to raise the capital required to charter a new company. Each investor received an ownership interest in the company. The company will raise additional capital by selling ownership rights to other investors. Under this type of organization, the customer and owner functions are separate. This type of insurer is called a

stock company.

Most group health insurance plans have adopted the coordination-of-benefits rules developed by the National Association of Insurance Commissioners. Under these rules, if a dependent child is covered by both of the health insurance plans of the child's married parents, which health plan is primary for the child's medical expenses?

the plan of the parent whose birthday occurs first in the calendar year

Objective risk is defined as

the relative variation of actual loss from expected loss.

All of the following situations are excluded from coverage under Section II of the homeowners policy EXCEPT

the rental of a spare bedroom which is used by the tenant as an office.

Adverse selection occurs

when applicants with a higher-than-average chance of loss seek insurance at standard rates.

A dwelling with a replacement cost of $150,000 was insured under a Homeowners 3 policy for $100,000 at the time the roof was destroyed by a windstorm. The actual cash value of the loss was $9,000, but it will cost $12,000 to replace the roof. Ignoring any deductible, what will the insurer pay to settle this loss?

$10,000

David has a Homeowners 3 policy that provides $280,000 of insurance on his dwelling, which has a current replacement value of $400,000. Ignoring any deductible, how much will David collect if a roof with a replacement value of $16,000 but an actual cash value of $10,000 is destroyed in a fire?

$14,000

Tina purchased a personal umbrella policy with a $1 million limit. Her insurer required her to carry liability limits of 250/500/50 under her auto insurance policy. The personal umbrella policy was written with a $1,000 self-insured retention. Tina was responsible for an auto accident in which the other driver was severely injured. The other driver's bodily injuries were $400,000 and the property damage was $20,000. How much will the insurer pay under Tina's umbrella policy?

$150,000

Connie has an individual medical expense policy with a $1,000 deductible. She is required to pay 20 percent of covered expenses in excess of the deductible. The insurer will pay 80 percent of expenses in excess of the deductible. If Connie has eligible medical expenses of $26,000, how much will be paid by her insurer?

$20,000

Frank's property insurance requires periodic reporting of inventory values. Frank believes he can save money by under-reporting the inventory. Last period, Frank reported $200,000 when the value was really $400,000. Shortly after filing the report, when the value was $500,000, the inventory was destroyed. Ignoring any deductible, how much will Frank's insurer pay?

$250,000

Andrea purchased an auto insurance policy with bodily injury liability limits of 250/500 ($250,000/$500,000). She also purchased a personal umbrella policy with a $1 million limit and a $500 self-insured retention. Andrea was talking on her cell phone while driving, and her car struck and killed a pedestrian in a crosswalk. The court ordered her to pay $750,000 to the spouse of the person she killed. How will this claim be settled?

$250,000 will be paid under the auto policy and $500,000 will be paid by the umbrella policy.

Laura's medical insurance policy includes a $500 deductible. Laura is required to pay 20 percent of covered expenses in excess of the deductible, and her insurer will pay 80 percent of covered expenses in excess of the deductible. Laura was hospitalized and her covered medical expenses were $10,500. How much of the $10,500 will be paid by the insurer?

$8,000

XYZ Mutual Insurance Company has total assets of $10 million. The policyholders' surplus is $2 million. What are XYZ Mutual's total liabilities?

$8.0 million

Mark owns a building that he insured for $90,000. The replacement cost of the building is $100,000. Mark's property insurance policy has an 80 percent coinsurance clause. Ignoring any deductible, if Mark's building is destroyed by a covered peril, how much will Mark receive from his insurer?

$90,000

Sarah purchased a Personal Auto Policy with liability limits of 50/100/25. Sarah ran a stop sign and hit a van. The van sustained $15,000 in damages. The following bodily injuries were suffered by passengers in the van: Passenger #1, $15,000; Passenger #2, $60,000; and Passenger #3, $10,000. Sarah sustained $5,000 in medical expenses, and Sarah's car sustained $10,000 in damages. How much will Sarah's insurer pay under Part A: Liability Coverage?

$90,000

Sam's furniture was destroyed by a fire. The furniture cost $1200 when it was purchased, but similar new furniture now costs $1800. Assuming the furniture was 50 percent depreciated, what is the actual cash value of Sam's loss?

$900

Tina purchased a personal umbrella policy with a $1 million limit and a $1,000 self-insured retention. Her insurer required her to carry a $300,000 liability limit under her homeowners policy. Tina was held responsible for slandering a public official. The public official won a $100,000 judgment against Tina. The insurer that wrote Tina's homeowners policy denied coverage. How much will the insurer pay under Tina's personal umbrella policy?

$99,000

Which of the following statements is (are) true regarding the results of the 2016 study by the Life Insurance Market Research Association (LIMRA) on the adequacy of life insurance owned by households in the United States?I.The average household is adequately insured against the risk of premature death.II.The average household is significantly underinsured against the risk of premature death.

II only

James purchased liability insurance with a $100,000 limit from Insurer A. When Insurer A denied a claim that James thought should be covered, he bought a second liability insurance policy with a $150,000 limit from Insurer B. Before he cancelled the policy with Insurer A, a $60,000 loss occurred. If this loss is settled on a pro rata basis, how much must each insurer pay?

Insurer A will pay $24,000 and Insurer B will pay $36,000.

All of the following statements about the methods of regulating insurance are true EXCEPT

Insurers are totally exempt from regulation by federal agencies and laws.

Maria is covered under a group medical expense plan as an employee. She is also covered under her husband's plan as a dependent. If Maria is hospitalized, how will each plan respond to her medical bills if both plans have the typical coordination-of-benefits provision?

Maria's plan is primary, and her husband's plan is excess.

The Affordable Care Act has a provision that expands a public assistance program designed to make health coverage available to low-income individuals by increasing the maximum amount of income that can be earned and still qualify for benefits. As a result, millions of individuals are eligible for coverage under this program. This public assistance program is called

Medicaid.

One source of life and health insurance underwriting information is an organization that life and health insurance companies can join. As a member, life and health insurance companies report health impairments of applicants, and this information is shared with member companies. Although the information is shared, the underwriting decision of the member company is not disclosed. What is this organization called?

Medical Information Bureau (MIB)

Which of the following statements about the coverage for medical payments to others (Coverage F) under the homeowners policy is true?

Medical expenses incurred within 3 years of an accident are covered.

Roger owns some farmland that he rents to a tenant. The tenant lives in an old farmhouse on the property and raises crops on the land. Roger is concerned about legal liability if the tenant injures someone. Roger requires the tenant to have liability insurance and to add himself to the liability coverage through an endorsement. Under the tenant's liability insurance, Roger is a(n)

additional insured.

ABC Appliance offers a warranty requiring an annual fee. The warranty may be purchased at the time of sale or at any time within the first year after the appliance was purchased. The warranty fee after the date of purchase is twice the time-of-purchase fee. When asked why the fee was higher after the date of purchase, ABC's president said, "Buying a warranty is voluntary. We've noted that those who buy the warranty after the purchase date have a greater need for service." Charging the same rate or a lower rate after the date of purchase would expose ABC to what problem that also impacts private insurers?

adverse selection

BBB Auto Club provides emergency road service and other services to its members. BBB Auto Club charges a higher membership fee to new members than it charges to members who are renewing their membership. When asked to explain this pricing policy, the auto club president noted, "New members often sign-up prior to taking a long road trip, so we have to charge more as first-year members have higher service utilization rates." A similar phenomenon observed in insurance markets is called

adverse selection.

Most insurance companies require their marketing representatives to submit an evaluation of the prospective insured. This important source of underwriting information is called the

agent's report.

Renee is risk manager of XYZ Company. She purchased a Commercial Package Policy for her company and added one optional coverage. This option suspends the coinsurance clause and substitutes a new agreement covering any loss in the same proportion that the limit of insurance purchased bears to a value specified in the declarations. This provision is known as

agreed value coverage.

Bruce believes a local manufacturer is responsible for contaminating some land he owns. He filed suit against the company. Rather than have the case go to court, the manufacturing company's legal team suggested mediation or arbitration to settle the case. Methods that are employed to resolve legal disputes without litigation, such as mediation, are called

alternative dispute resolution techniques.

One of the additional coverages under the building and personal property coverage form is "increased cost of construction." The coverage is payable if

an ordinance or building code increases the cost of construction.

Ellen believes the value of the loss to her home is $30,000. The insurer has offered $18,000 to settle the loss. If Ellen and the insurer cannot agree on the value of the loss, which homeowners policy provision specifies how this dispute will be settled?

appraisal clause

Life insurance policyholders may borrow the cash value from their life insurance policies. Where are life insurance policy loans shown on a life insurance company's financial statements?

as an asset

Under one doctrine, a person who understands the danger inherent in an activity cannot recover damages in the event of injury from the activity. This doctrine is called the

assumption of risk doctrine.

A reciprocal exchange is managed by a corporation that is authorized to collect premiums, pay losses, invest funds, seek new members, and perform other functions. This corporate manager is called a(n)

attorney-in-fact.

All of the following are programs to insure nondiversifiable risks EXCEPT

auto physical damage insurance.

Legal liability arising out of "driverless cars" is a developing issue. Another name for "driverless cars" is

autonomous vehicles.

Why does the insured get the benefit of the doubt if an insurance policy contains any ambiguities or uncertainties?

because insurance contracts are contracts of adhesion

Dave and Meagan Philips borrowed $150,000 from Fifth National Bank to help fund the purchase of a new home. The home serves as collateral for the loan. Fifth National has an insurable interest in the home based on

being a secured creditor.

Bill is attempting to determine how much life insurance to purchase. He has two dependent children and his wife does not work outside of the home. An advisor suggested that Bill should consider Social Security benefits when doing his life insurance planning. One concern in this regard is the period after Social Security benefits to a widow terminate until they resume again. This period is called the

blackout period.

Ken purchased a PAP with liability limits of 100/300/50, medical payments coverage, and collision coverage. Ken fell asleep while driving late at night. He crossed the center line and hit a car approaching from the other direction. The following losses occurred:

bodily injury liability

Reasons for regulation of insurance include which of the following? I.Maintaining insurer solvency II.Ensuring reasonable rates

both I and II

Reasons why a peril may be considered uninsurable and therefore excluded from insurance contracts include which of the following? I.The losses from the occurrence of the peril may be due to a predictable decline in value. II.The losses from the occurrence of the peril may be incalculable and catastrophic

both I and II

Reasons why market, financial, and production risks are often uninsurable include which of the following?I.The potential to produce a catastrophic loss is great.II.The chance of loss cannot be accurately estimated.

both I and II

The National Association of Insurance Commissioners (NAIC) has drafted a "Life Insurance Policy Illustration" model law that most states have adopted. Which of the following statements concerning this model law is (are) true?

both I and II

The requirement that losses should be accidental and unintentional in order to be insurable results in which of the following?I.Decrease in moral hazardII.More accurate prediction of future losses

both I and II

Under the Personal Auto Policy, which of the following statements is true concerning transportation network platforms through which drivers are connected with passengers for pre-arranged transportation for a fee?

both I and II

Which of the following is a reason why premature death may result in economic insecurity?I.Additional expenses associated with death may be incurred.II.The income of the deceased person's family may be inadequate to meet its basic needs.

both I and II

Which of the following is implied by the requirement that a loss should be determinable and measurable to be insurable? I.The loss must be definite as to place. II.The loss must be definite as to amount.

both I and II

Which of the following statements about Blue Cross and Blue Shield plans is (are) true?I.Blue Cross and Blue Shield plans can be organized on a nonprofit basis or on a for-profit basis.II.Blue Cross provides coverage for hospital services; Blue Shield provides coverage for physicians' and surgeons' fees.

both I and II

Which of the following statements about hedging is (are) true? I.Hedging is a form of risk transfer. II.Hedging is used to address the risk of unfavorable price fluctuations.

both I and II

Which of the following statements about schedule rating is (are) true?I.It involves the determination of a basis rate for each exposure, which is then modified by credits or debits.II.It is based on the assumption that certain physical characteristics of the insured's operations will influence the insured's future loss experience.

both I and II

Which of the following statements about the Linton yield is (are) true?

both I and II

Which of the following statements about the Personal Articles Floater is (are) true?

both I and II

Which of the following statements about the insurance industry as a source of investment funds is (are) true? I.These funds result in a lower cost of capital than would exist in the absence of insurance. II.These funds tend to promote economic growth and full employment.

both I and II

Which of the following statements about the regulation of life insurance companies is (are) true? I.The percentage of assets a life insurance company may invest in a specific type of asset (e.g., stocks or bonds) is generally limited by law.II.The purpose of limiting the accumulation of surplus is to prevent an insurer from increasing its surplus at the expense of policyowner dividends.

both I and II

Which of the following statements about the use of risk-based capital requirements is (are) true? I.Insurers must have a certain amount of capital depending on the riskiness of their investments and insurance operations.II.Insurers may be required to take certain actions depending on how much capital they have relative to their risk-based capital requirements.

both I and II

Which of the following statements is (are) true concerning benefit payments under long-term care insurance?

both I and II

Which of the following statements is (are) true concerning investments of property and casualty insurers and life insurers? I.Property and casualty insurance companies place greater emphasis on liquidity than do life insurers.II.Life insurance company investments are, on average, of longer duration than property and casualty insurance company investments.

both I and II

Which of the following statements is true regarding the information systems functional area of an insurance company? I.Computers and information systems are able to perform some tasks that previously were performed directly by employees.II.Information systems can speed the processing of policies by insurers.

both I and II

Nancy's employer provides an interesting employee benefit plan. Each employee is given 250 employee benefit credits to spend. A wide array of benefits is available, and the employee uses benefit credits to select the benefits that he or she wants. This type of employee benefit plan is called a(n)

cafeteria plan.

The section of the insurance policy that includes provisions that qualify or limit the insurer's promise to perform is the

conditions.

Some employers offer employees a choice of health care plans which are designed to make employees more sensitive to health care costs, to provide an incentive to avoid unneeded care, and to seek low-cost health care providers. Such plans are called

consumer-directed health plans.

Jenkins Manufacturing is concerned that a competitor may attempt to hack its computer network and insert malware on Jenkins Manufacturing computers, causing the computers to crash. That stand-alone property insurance policy can Jenkins Manufacturing purchase to pay for such damage to their computers?

cyber property insurance

All of the following are additional coverages under Section I of the Homeowners 3 policy EXCEPT

damage to trees and shrubs caused by a windstorm.

Which of the following is an expense for a life insurance company?

death benefits paid to a beneficiary

An elimination (waiting) period is an example of a(n)

deductible.

Brandie's first job out of college was working for a national insurance brokerage. Her boss gave her a book to review that contained many different insurance forms. One interesting form provides open-perils coverage, but excludes losses usually covered by standard property insurance contracts (fire, wind, hail, explosion, etc.). Brandie boss told her that some businesses purchase the coverage to supplement their other property coverages, as it provides flood coverage, earthquake coverage and insurance for other losses that are not excluded. The interesting policy form Brandie found was

difference in conditions insurance.

RST Insurance Company does not have any agents. Instead, the company sells insurance through radio ads, telemarketers, and newspaper and magazine inserts. This distribution method is called

direct response system.

A property and casualty insurer in which the salesperson is an employee of the insurer, not an independent contractor, is called a

direct writer.

All of the following are examples of tort reform proposals EXCEPT

eliminating caps on noneconomic damages.

Shauna hurt her back and was unable to work. She filed a claim under her disability income insurance policy. Under terms of the policy, a period of time must pass between when the injury occurred and when the insurer begins to replace lost earnings. This time period is called a(n)

elimination (waiting) period.

All of the following are benefits to society that result from insurance EXCEPT

elimination of moral hazard.

Which of the following is a characteristic of a health maintenance organization (HMO)?

emphasis on cost containment

The Affordable Care Act requires employers with 100 or more employees to provide health insurance on the employees or pay a penalty if at least one employee receives a tax credit and coverage through the Health Insurance Marketplace. This requirement-providing insurance or paying a fine-is known as the

employer shared responsibility.

Which of the following may give rise to imputed negligence?

employer-employee relationships

Gina would like to buy a house. She will pay 10 percent of the cost of the house as a down payment and borrow the other 90 percent from a mortgage lender. The home will serve as collateral for the loan. The lender will not make the loan to Gina unless the home is insured. Using insurance to secure the collateral for a loan illustrates which of the following benefits of insurance to society?

enhancement of credit

The number of title insurance companies operating in State Z is relatively low. Recently, the largest of these companies (50 percent market share) acquired the second largest company (30 percent market share). Immediately after the acquisition, the insurer raised premiums by 75 percent. This scenario demonstrates which of the following rationales for the regulation of insurance?

ensure reasonable rates

Frank asked his company's employee benefits director if his group health coverage could be converted to individual coverage. The benefits director said, "Yes, you can convert to an individual policy, and the coverage is identical to your group coverage." Frank quit his job and converted to an individual policy. Six months later he filed a claim. He was dismayed to learn the conversion policy was more limited compared to the group coverage, and his claim was denied. What legal doctrine will allow Frank to bring a successful legal action against his former employer because he was financially harmed due to his reasonable reliance upon a representation of fact?

estoppel

ABC Insurance Company calculated the amount that it expected to pay in claims for each policy sold. Rather than selling the insurance for the amount it expected to pay in claims, ABC added an allowance to cover the cost of doing business, including commissions, taxes, and acquisition expenses. This allowance is called a(n)

expense loading.

Under one type of merit rating, the class or manual rate is adjusted upward or downward based on past loss history. This type of merit rating is called

experience rating.

The unit of measurement used in property and casualty insurance pricing is called the

exposure unit.

Mike and Susan built their "dream home." They insured their home for its full replacement cost. They also added an endorsement that will pay up to an additional 20 percent of the policy limit in case the cost of rebuilding the home after a loss is greater than the policy limit. The basis under which Mike and Susan insured their home is called

extended replacement cost.

If a life insurance policy lapses for nonpayment of premiums, and the policyholder has not elected another option, which nonforfeiture option usually goes into effect in most policies?

extended term insurance

Rick is risk manager of Herald News, a daily newspaper in a competitive market. Rick wants to make sure that if Herald's printing facility is damaged or destroyed, the paper will continue to be published. What type of insurance can Rick purchase to cover the added cost of continuing to print the paper after a physical damage loss has occurred?

extra expense coverage

The Personal Auto Policy states that the insurer has no duty to provide coverage if the insured fails to comply with certain listed duties. In practice, however, the insurer is only relieved of its duty to provide coverage if

failure to comply with the duties is prejudicial to the insurer.

One method of ensuring the solvency of insurers is a periodic review, every three to five years, of insurers that operate on a multistate basis. This review is coordinated by the NAIC. This review is called a(n)

field examination.

Big Life Insurance Company purchased Regional Bank. Regional Bank has 27 branches in four states. Big Life Insurance Company required one employee at each bank branch to become a licensed life insurance agent and to sell Big Life Insurance Company annuities and life insurance products. This distribution channel is an example of the

financial institution distribution system.

Which of the following statements about the needs approach for estimating the amount of life insurance to purchase is (are) true? I.It involves an analysis of various family needs which must be met if a family breadwinner dies. II.Its use is appropriate only if a person currently has no life insurance protection.

i only

The risk-based capital requirements for life insurers are based on a formula that considers four types of risk. One risk reflects whether the insurer will have enough surplus if claims are higher than expected. This risk is called

insurance risk.

In determining insurance limits and deductibles, an important concept is that insurance should be used to pay big losses rather than small losses. The objective is to insure big losses that could cause financial ruin and to exclude small losses that can be budgeted out of current income. This concept is called the

large-loss principle.

Louise was in a hurry and tried to cross the street in the middle of the block rather than at a street corner. A car struck her. Even though Louise placed herself in danger, she may still be able to collect for her injuries if the driver had an opportunity to avoid hitting her but failed to do so. This rule is called the

last clear chance rule.

ABC Insurance Company sells auto insurance in one state. Recently, the state legislature passed a law that limits the use of an individual's credit history by insurers when selecting applicants to insure. This change in law will increase the possibility of unprofitable results for ABC. This type of hazard is an example of

legal hazard.

Taylor Tobacco Company is concerned that the company may be held liable in a court of law and ordered to pay a large damage award to a smoker harmed by the company's cigarettes. The characteristics of the judicial system that increase the frequency and severity of loss are known as

legal hazard.

Mark owns a bar. The bar has a back room where Mark has some slot machines. Mark lets some of his patrons play the machines, and Mark keeps any profits. This type of gambling is illegal where Mark lives. Mark wanted to purchase insurance in case his slot machines were confiscated by the police. Such an insurance contract would not be enforceable. Which requirement needed to form a valid insurance contract is missing?

legal purpose

All of the following are exclusions in the ISO Personal Umbrella Policy EXCEPT

liability arising from bodily injury.

Following good health habits can be categorized as

loss prevention.

One item that appears on an insurance company's financial statements is a liability that represents an estimate of the claims reported and adjusted but not yet paid, claims reported and filed but not yet adjusted, and claims incurred but not yet reported to the company. This liability is called the insurer's

loss reserves.

Lisa does not want her life insurance policy included in her gross estate when she dies. Lisa can remove the life insurance policy from her estate if she does which of the following more than 3 years before she dies?

make an absolute assignment of the policy to someone else

Vincent is a specialized wholesale producer who had been vested with underwriting authority by an insurer. Vincent helps to write professional liability insurance, surplus lines, and some personal lines in a sparsely populated area in his territory. Vincent is a(n)

managing general agent.

When Ben applied for life insurance, he was asked on the application if he smoked or used tobacco products. Ben answered "No." In reality, Ben smokes two packs of cigarettes a day. The policy was issued at the "preferred, nonsmoker rate." If Ben dies 6 months after the policy is issued, upon what grounds will the insurer be able to legally deny the claim?

misrepresentation

Curt borrowed money from a bank to purchase a fishing boat. He purchased property insurance on the boat. Curt had difficulty making loan payments because he did not catch many fish, and fish prices were low. Curt intentionally sunk the boat, collected from his insurer, and paid off the loan balance. This scenario illustrates the problem of

moral hazard.

Which of the following statements about life income settlement options is (are) true? I.Under a joint-and-survivor income option, payments cease at the death of the first annuitant. II.Under a life income with guaranteed period, a contingent beneficiary is guaranteed a minimum number of payments regardless of when the primary beneficiary dies.

neither I nor II

Which of the following statements about premium taxes is (are) true? I.They are levied by the federal government as a result of the McCarran-Ferguson Act. II.Their primary purpose is to provide funds for insurance regulation.

neither I nor II

Which of the following statements about the Homeowners 8 policy is (are) true?

neither I nor II

Which of the following statements about the sale of property and liability insurance through the direct response system is (are) true?I.Selling expenses are higher because market segmentation tends to be less precise than with other marketing methods.II.It is the most appropriate system for selling complex products.

neither I nor II

Which of the following statements about yearly renewable term insurance is (are) true?I. It requires evidence of insurability for renewal.II. It is most appropriate when an insured needs lifetime protection.

neither I nor II

Which of the following statements is (are) true regarding the quality of insurance regulation?I.The quality of insurance regulation is uniform from state to state.II.All evidence suggests federal regulation of insurance would improve the quality of regulation.

neither I nor II

Individual medical expense insurance sold in the Health Insurance Marketplace is characterized by which of the following?

no lifetime benefit limits

Rapid inflation, cyclical unemployment, war, hurricanes, and floods are all examples of

nondiversifiable risks.

The long-run relative frequency of an event based on the assumption of an infinite number of observations with no change in the underlying conditions is called

objective probability.

A strip-mall includes eight identical-sized retail units. All of the units were built at the same time and each has an identical sprinkler system. Unit number two is a dry cleaning business. Unit number three is a bar and grill. Unit number four is a dress shop. The owners of these three units are all insured by the same insurance company, but the property insurance premiums vary significantly. Which of the following rating factors best explains the difference in premiums?

occupancy

Most family heads need substantial amounts of life insurance. However, with limited income, money spent on life insurance reduces the amount of discretionary income available for other high-priority needs. What an insured person gives up when he or she purchases life insurance instead of using the premium dollars for other purposes is called the

opportunity cost of buying life insurance.

All of the following are endorsements that can be added to an ISO Homeowners 3 policy EXCEPT

personal liability endorsement.

Peggy is an independent insurance agent who places substantial amounts of business with XYZ Insurance Company. XYZ pays Peggy a bonus when she meets a sales goal. XYZ also allows Peggy to recruit and train sub-agents. She receives additional commissions based on the sales generated by the sub-agents. Based on this description, we can conclude that Peggy is a

personal producing general agent.

A group of farmers agreed that if any farmer suffered a property loss, the loss would be spread over the entire group. In this way, each farmer is responsible for the average loss of the group rather than the actual loss that each farmer sustained. Which characteristic of insurance is embodied in this agreement?

pooling of losses

Prior to passage of the Affordable Care Act, insurance policies typically contained a provision excluding coverage for impairments that were present or were treated during a specified period prior to the effective date of the policy. This provision is a(n)

preexisting-conditions clause.

Beth's disability income insurance policy provides benefits for accidental death, dismemberment, and loss of sight. The maximum amount payable under this benefit is known as the

principal sum.

The purpose of the Financial Analysis Solvency Tracking (FAST) system employed by the NAIC is to

prioritize insurance companies for additional regulatory action.

Which ocean marine coverage provides comprehensive liability insurance for property damage caused by the ship to piers and docks, damage to the ship's cargo, and injury to the passengers or crew?

protection and indemnity insurance

A shortcoming of state regulation of insurance according to Congressional committees and the General Accounting Office is that state regulation

provides inadequate consumer protection.

Grace is a life insurance agent. She is attempting to sell a large life insurance policy, but the prospective purchaser is having second thoughts. To persuade the prospective purchaser, Grace said, "I will earn a $1,000 commission if you buy this policy. I'll give you $500 of my commission if you buy the policy." In most states, what illegal sales practice will Grace be guilty of if she splits her commission with the purchaser?

rebating

One method through which reinsurance is provided is through an organization of insurers that underwrites insurance on a joint basis. Through the organization, financial capacity is available for large commercial risks. This reinsurance arrangement is a(n)

reinsurance pool.

Which of the following is a principal method of ensuring the solvency of insurers?

requiring submission of annual financial statements to state regulators

Prior to passage of the Affordable Care Act, insurers could go back to the date a health insurance policy became effective and render the policy void due to a clerical error. This practice, which is prohibited under the Affordable Care Act except in cases of fraud or intentional misrepresentation of a material fact, is called

rescission.

Liability items on an insurer's balance sheet that reflect obligations that must be met in the future are called

reserves.

Small Town used to be just that-a small town 6 miles from Large City. Over the years, the area between Small Town and Large City has developed, and now Small Town is part of the suburbs surrounding Large City. An auto insurer that operated in the area had a large increase in auto claims from Small Town insureds. The insurer did not adjust its rates, and this year will lose money because of claims attributable to higher population density. Which business rating objective did this insurer fail to meet?

responsiveness

The difference between a retail and a wholesale insurance producer is

retail producers deal directly with insurance purchasers, wholesale producers do not deal with the end consumer of insurance.

State X's premium tax rate is 2 percent. State Y's premium tax rate is 3 percent. State X insurers are required to pay the 3 percent rate on business written in State Y. State X requires insurers from State Y to pay a 3 percent premium tax on business written in State X, even though the premium tax rate is only 2 percent in State X. This practice is known as a

retaliatory tax law.

A manufacturing company just hired a new risk manager, and she has instituted several employee safety programs. She has persuaded the insurer writing the company's workers compensation insurance to base the premium on the company's actual loss experience during the current coverage period rather than on the company's historical performance. This type of plan is called a(n)

retrospectively rated plan.

Maggie purchased a life insurance policy. She was concerned that if she became disabled, she would no longer be able to pay the premiums. Her agent added an amendment of the policy stating that if she became disabled, future premium payments would be waived. Such an amendment to a life insurance policy is called a(n)

rider.

Linda wants to purchase a homeowners policy. She has some valuable personal property to which internal policy limits apply. Her agent said that she could obtain coverage under her homeowners policy by attaching a list of this valuable property with specific amounts of insurance. Such a listing is called a(n)

schedule.

To protect policyholders, state laws place limitations on a life insurance company's investments. The assets backing interest-sensitive products, such as variable life insurance and variable annuities, are not subject to these restrictions. Assets backing interest-sensitive products are placed in a special account called the life insurer's

separate account.

One long-term care insurance benefit trigger considers whether the insured needs supervision to protect against threats to health or safety due to memory loss or disorientation. This benefit trigger is referred to as a(n)

severe cognitive impairment trigger.

Which of the following is implied by the pooling of losses?

sharing of losses by an entire group

The corporate structure of mutual insurers has changed in recent years. All of the following are examples of significant changes EXCEPT

sharp increase in the number of mutual insurance companies.

Advantages of cafeteria plans include all of the following EXCEPT

simplicity of benefit administration.

Liability arising out of which of the following is covered under the personal injury endorsement to the homeowners policy?

slander

One branch of government insurance programs has a number of distinguishing characteristics. These programs are compulsory, they are financed by mandatory contributions rather than general tax revenues, and benefits are weighted in favor of low-income groups. These government insurance programs are called

social insurance programs.

ABC Insurance Company entered into a reinsurance agreement with XYZ Reinsurance. Under the contract, XYZ Re has no liability unless ABC's loss ratio exceeds 85 percent for the year. XYZ Re agreed to pay all losses in excess of the 85 percent loss ratio. ABC Insurance Company is using reinsurance to

stabilize profits.

Morgan was hired by an insurance company after she graduated from college. Upon completion of a training program, Morgan was assigned to a territory where she adjusts claims of the insurer's policyowners. Morgan is a(n)

staff claims representative.

One tort reform permits manufacturers to assert that as long as the product conformed to the prevailing technology and production methods at the time it was produced, it cannot be considered a defective product today. This defense is called the

state of the art defense.

Brian buys and sells investment securities for his clients. Brian also decided to become a licensed life insurance agent to better serve his customers. While Brian's primary focus is buying and selling financial securities for his clients in exchange for commissions, he also earns commissions on his life insurance sales. Brian is a(n)

stock broker.

Connors Company self-funds the medical expense benefits that it provides to its employees. Connors Company has a contract with a commercial health insurance company providing that the health insurance company will pay all claims in excess of $250,000. The arrangement with the health insurance company is called

stop-loss insurance.

Under the terms of Jenny's auto insurance policy, she must pay the first $500 of any physical damage loss to her vehicle before her insurer will pay anything. What type of deductible is included in Jenny's auto insurance policy?

straight deductible

Bruce, age 62, was approached by a representative of a group of investors. The representative asked Bruce to purchase a large life insurance policy which the investor group would purchase from Bruce. Bruce doesn't need life insurance. The investor representative told Bruce to tell the agent he needed the policy for estate liquidity. Bruce purchased the policy, and then sold it to the investor group. The arrangement described in this scenario is called a(n)

stranger-owned life insurance policy.

An individual's personal estimate of the chance of loss is a(n)

subjective probability.

All the following are common exclusions in a medical expense insurance policy EXCEPT

surgeons' fees.

Neil needs insurance that is unavailable in the state where he lives. To obtain insurance from a nonadmitted insurer, Neil should contact a

surplus lines broker.

Granite Insurance Company entered into a treaty reinsurance agreement with Rock Solid Reinsurance (RSR). Granite's retention limit is $400,000 and RSR agreed to provide reinsurance for up to $2.0 million. If Granite writes an $800,000 policy, RSR is responsible for 50 percent of the losses. If Granite insures a $1.6 million risk, RSR is responsible for 75 percent of any losses. What type of reinsurance arrangement did Granite enter into with RSR?

surplus share reinsurance

John purchased an unendorsed Homeowners 3 policy. The coverage will expire next month. Which of the following changes will lower the premium that John will pay?

switching to an HO-2 policy

One provision of the Dodd-Frank Act was creation of the Financial Stability Oversight Council. This council is charged with identifying nonbank financial companies that could increase the risk of collapse of the entire financial system. This risk is called

systemic risk.

The major difference between the dwelling coverage (Part A) of the Homeowners 2 (Broad From) policy and the Homeowners 3 (Special Form) policy is that

the HO-3 provides open perils ("all risks") coverage and the HO-2 provides named-perils coverage.

The National Association of Insurance Commissioners (NAIC) administers an "early warning system" to help ensure insurance company solvency. This system uses data provided in the annual statement to identify companies that may pose a solvency risk. This early warning system is called

the Insurance Regulatory Information System (IRIS).the Insurance Regulatory Information System (IRIS).

All of the following are covered as supplementary payments under the liability section of the PAP EXCEPT

the cost of a bail bond for a traffic violation when no accident is involved.

Which of the following is an example of consequential (indirect) loss?

the cost of renting a substitute vehicle while a collision-damaged car is being repaired

Maria's home was damaged by an earthquake. As Maria has open-perils coverage on her home, she was surprised to learn that her loss was not covered. Which section of a property insurance policy specifies which perils, property, and types of losses are not covered?

the exclusions

Nancy was injured when she drove her car through a stop sign and was struck by Philip's car. Philip saw Nancy and could have stopped. However, he failed to do so since he had the right-of-way. Nancy can recover damages from Philip under which of the following legal doctrines?

the last clear chance rule

Gary purchased a Personal Auto Policy (PAP) that included collision coverage. Gary lost control of his vehicle on an icy road. He slid off the road and hit a tree. Ignoring any deductible, what is the insurer's liability for damage to Gary's car?

the lesser of the actual cash value or the amount necessary to repair or replace the vehicle

Which of the following is an example of a commercial risk?

the loss of business income

If there is a conflict between state law and a provision in a homeowners policy,

the state law takes precedence.

Marshall is interested in determining the cost per thousand of his life insurance policy. Which of the following will provide Marshall the most meaningful measure of the cost per thousand dollars per year of his life insurance?

the surrender cost index

Under the traditional net cost method, the net cost of life insurance for a given period (e.g., 20 years) is determined by which of the following formulas?

the total premiums for the period less the sum of the total dividends received during the period and the cash value at the end of the period

All of the following are reasons why employers self-insure medical expense plans EXCEPT

to transfer the risk of medical expenses to another party.

All of the following are methods used to fund the Affordable Care Act EXCEPT

tort reform measures that reduce medical malpractice claims.

A legal wrong for which the law allows a remedy in the form of money damages is a

tort.

A firm wishing to insure a single shipment of merchandise sent by a common carrier would purchase a(n)

trip transit policy.

Angie was injured when her car was struck by a driver who ran a red light. The other driver carried the minimum liability coverage necessary to be considered financially responsible. Angie's injuries were $15,000 above the minimum bodily injury limit. There is a coverage that can be added to the PAP that applies when a negligent driver carries the minimum liability insurance required by the state, but is less than the insured's actual damages for bodily injury. This coverage is called

underinsured motorists coverage.

Patricia purchased a Personal Auto Policy (PAP). Her car was rear-ended by a driver who fled the scene. Patricia suffered whiplash, migraine headaches, and she was unable to work. Which of the following coverages will cover her lost work earnings?

uninsured motorists

Part D of the Personal Auto Policy pays for temporary transportation expenses incurred by the insured because of loss to a covered auto. The coverage provided is

up to $30 per day to a maximum of $900.

Liability arising out of which of the following is covered under Coverage E of an unendorsed Homeowners 3 policy?

use of the insured's golf cart at a golf course

Jerry built a home in a flood plain. He did not purchase flood insurance. Recently, a noted meteorologist predicted torrential rains for the area for the next 7 days. Jerry attempted to purchase flood insurance through the National Flood Insurance Program. Which flood insurance provision is likely to block Jerry's efforts to obtain coverage for protection against the predicted torrential rain?

waiting period

Robin plans to open a bar in a high-crime area. She had difficulty obtaining insurance for the business. She found an insurer willing to write the coverage, but only if Robin agreed to have a security alarm system in operation at all times when the business is closed. Robin's promise to have a security alarm system operational as a condition of having the insurance coverage in force is a

warranty.