A property and casualty insurer in which the salesperson is an employee of the insurer,
not an independent contractor, is called a
A) fraternal insurance company.
B) risk retention group.
C) direct writer.
D) captive insurance company.
Jan is employed by an insurance company. She reviews applications to determine
whether her company should insure the applicant. If insurable, Jan assigns the applicant
to a rating category based on the applicant’s degree of risk. Jan is a(n)
A) underwriter.
B) actuary.
C) loss control engineer.
D) claims adjustor.
Dirk suffered a heart attack and was rushed to the hospital where heart surgery was
performed. His total bill for medical services was $50,000. Dirk has a major medical
policy with a $1,000 calendar-year deductible and a $5,000 out-of-pocket limit. His
coinsurance percentage is 20 percent. The out-of-pocket limit applies to coinsurance
only. Assuming this hospitalization was the first medical care that Dirk received during
the year and that all of the hospital services were eligible for coverage under the policy,
how much of the $50,000 bill will the insurer pay?
A) $39,000
B) $39,200
C) $40,000
D) $44,000
All of the following statements about optional disability income benefits are true
EXCEPT
A) Under a cost-of-living rider, benefits are periodically adjusted for inflation.
B) A Social Security rider pays additional benefits if the insured is turned down for
Social Security disability benefits.
C) Adding a return of premium rider results in a lower initial premium.
D) Under an option to purchase additional insurance, the insured has the right to buy
additional insurance at specified times without evidence of insurability.
All of the following statements about Part D (coverage for damage to your auto) of the
PAP are true EXCEPT
A) Coverage may be purchased with or without collision insurance.
B) Losses are paid regardless of fault.
C) Coverage applies to a nonowned auto occasionally driven by an insured.
D) No coverage is provided for newly-acquired vehicles.
ABC Insurance Company plans to sell homeowners insurance in five Western states.
ABC expects that 8 homeowners out of every 100, on average, will report claims each
year. The variation between the rate of loss that ABC expects to occur and the rate of
loss that actually does occur is called
A) objective probability.
B) subjective probability.
C) objective risk.
D) subjective risk.
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.
– The driver of the other car suffered $30,000 in bodily injuries.
– Ken’s car sustained $5,000 in damages.
– Ken incurred $5,000 in medical expenses.
– The car that Ken hit was a total loss.
Which of Ken’s Personal Auto Policy (PAP) coverages will cover Ken’s medical
expenses?
A) bodily injury liability
B) collision coverage
C) medical payments coverage
D) property damage liability
All of the following statements about current assumption whole life insurance are true
EXCEPT
A) It is a form of participating whole life insurance that pays annual dividends.
B) An accumulation account is credited with an interest rate based on present market
conditions and company experience.
C) Under the low-premium version, the premium is subject to change after an initial
guaranteed period.
D) Under the high-premium version, the premium may be discontinued after a period of
time.
Terrorists attacked the World Trade Center on September 11, 2001. The attack
simultaneously created large losses for life insurers, property insurers, workers
compensation insurers, health insurers, and liability insurers. What name is given to an
event that simultaneously creates large losses in several lines of insurance?
A) speculative loss
B) clash loss
C) retroactive loss
D) consequential loss
The premature death of an individual is an example of
A) a pure risk.
B) a speculative risk.
C) a nondiversifiable risk.
D) a physical hazard.
Which of the following statements is (are) true concerning the value reporting form?
I. Failure to report accurately suspends coverage.
II. If the insured underreports the property values at a location, and a loss occurs at that
location, recovery is limited to the proportion that the last value reported bears to the
value that should have been reported.
A) I only
B) II only
C) both I and II
D) neither I nor II
Which of the following items would not appear in the income section of an insurance
company’s income and expense statement?
A) gain on sale of securities
B) common stock dividends received
C) commissions
D) premiums
Which of the following statements is (are) true with regard to probability analysis?
I. If two events are independent, the occurrence of one event does not affect the
occurrence of the second event.
II. If two events are dependent, the occurrence of one event affects the occurrence of
the second event.
A) I only
B) II only
C) both I and II
D) neither I nor II
Which method of analyzing the cost of life insurance does not consider the cash value
of the policy in the analysis?
A) traditional net cost method
B) net payment cost index
C) the Linton Yield
D) the surrender cost index
Which of the following statements about retirement ages in defined benefit pension
plans is (are) true?
I. The normal retirement age in most plans is 65.
II. In a defined-benefit plan, the early retirement age is the earliest age an employee can
retire with full, unreduced benefits.
A) I only
B) II only
C) both I and II
D) neither I nor II
Under which of the following rules is actual cash value determined by taking into
consideration all relevant factors an expert would use to determine the value of the
property?
A) the circumstantial evidence rule
B) the broad evidence rule
C) the property indemnity rule
D) the objective value rule