Why are some mutual insurers referred to as “assessment mutuals”?
A) They charge low premiums because the loss exposures of their insureds are
thoroughly assessed before a policy is written.
B) They are noted for being very thorough in their assessment of investment
opportunities.
C) They are assessed for state premium taxes only if they make a profit.
D) They can assess policyholders if premiums are insufficient to pay losses and
expenses.
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.
A) I only
B) II only
C) both I and II
D) neither I nor II
LMN Insurance markets 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
A) mono-line policies.
B) multi-year policies.
C) multiple-line policies.
D) manuscript policies.
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
A) binder.
B) warranty.
C) waiver.
D) deductible.
Tom and Tammy Evans were ready to purchase a home. The home was to serve as
collateral for their mortgage loan. Two insurers declined to insure the home, citing “an
adverse CLUE report.” Why would an insurer reject a homeowners insurance
application because of an adverse CLUE report?
A) because the previous owner had defaulted on the mortgage loan
B) because the home is located in an area where the zoning law had been changed
C) because there had been previous property insurance claims filed on the home
D) because the home is located in an area that does not have a certified fire department
All of the following persons are insured for personal liability under the homeowners
policy EXCEPT
A) children of the named insured under age 24 who are attending college full time and
temporarily residing elsewhere.
B) foster children under the age of 21 who reside with the named insured.
C) nonresident employees of the named insured.
D) the spouse of the named insured if a resident of the same household.
Which of the following statements about the grace period in a whole life insurance
contract is (are) true?
I. The purpose of the grace period is to prevent the policy from lapsing by giving the
policyowner additional time to pay an overdue premium.
II. If the insured dies during the grace period, the death benefit is reduced by 50
percent.
A) I only
B) II only
C) both I and II
D) neither I nor II
Which of the following statements is (are) true with respect to an equity-indexed
annuity?
I. The maximum percentage gain is usually capped.
II. There is no downside protection against loss of principal if the annuity is held to
term.
A) I only
B) II only
C) both I and II
D) neither I nor II
Liability arising out of work performed by independent contractors is referred to as
A) contractual liability.
B) contingent liability.
C) care, custody, and control liability.
D) customer’s liability.
All of the following statements about regulatory objectives of insurance rate making are
true EXCEPT
A) One purpose of rate adequacy is to maintain the solvency of insurers.
B) Rates unfairly discriminate if loss exposures that are similar with respect to losses
and expenses are charged substantially different rates.
C) Insurers know in advance if the coverages marketed will be profitable, so rate
regulation is not needed.
D) Rates are excessive if policyholders are paying substantially more than the actual
value of their protection.
All of the following are disadvantages of using insurance in a risk management
program EXCEPT
A) There is an opportunity cost because premiums must be paid in advance.
B) Considerable time and effort must be spent selecting and negotiating coverages.
C) It results in considerable fluctuations in earnings after losses occur.
D) Attitudes toward loss control may become lax when losses are insured.
Disadvantages of life insurance settlement options include which of the following?
I. Higher yields can often be obtained elsewhere.
II. Life income options have limited usefulness at younger ages.
A) I only
B) II only
C) both I and II
D) neither I nor II
Owen rents an apartment and parks his car in the lot behind the apartment building. A
hailstorm occurred one evening, and his car was severely damaged. Which PAP
coverage, if Owen purchased it, would cover this damage to his auto?
A) property damage liability
B) uninsured motorists property damage
C) collision
D) other-than-collision
All of the following statements about liability coverage under the businessowners
policy are true EXCEPT
A) Liability arising out of personal injury is covered as part of the insuring agreement.
B) Medical payments coverage is provided.
C) Employees acting within the scope of their employment are excluded from coverage.
D) Coverage is included for the legal costs of defending the insured.
David owns a liquor store in a high-crime area. In order to obtain a reduced insurance
premium, David promised to have a burglar alarm operating at the store when the store
was closed. This agreement, which was incorporated into the insurance contract, is an
example of a
A) representation.
B) binder.
C) rider.
D) warranty.
Juanita paid a life insurer $45,000 in exchange for an immediate life annuity. Juanita
will receive $500 per month from the insurer, and her life expectancy is 15 years (180
months). If Juanita is alive 20 years later, how much of the $6,000 received during the
year is taxable?
A) nothing
B) $3,000
C) $4,500
D) $6,000
All of the following are exclusions in the homeowners policy that apply to medical
payments to others (Coverage F) EXCEPT
A) bodily injury resulting from nuclear radiation.
B) bodily injury to persons who are social guests at the insured location.
C) bodily injury to persons eligible to receive workers compensation benefits.
D) bodily injury to residents of the household who are in the care of an insured.