The loss settlement under which of the following supports the principle of indemnity?
A) life insurance
B) valued policies
C) replacement cost property insurance
D) actual cash value property insurance
To level a net single premium (NSP), the NSP is divided by
A) the maximum number of years the premium could be paid.
B) the ordinary life annuity factor for the premium payment period.
C) the present value of a life annuity due of $1 for the premium payment period.
D) the deferred life annuity factor for the premium payment period.
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
A) the risk-based capital requirements.
B) an insurance guaranty fund.
C) the Insurance Regulatory Information System (IRIS).
D) the assessment method.
Which of the following statements concerning Medicare Prescription Drug Plans is
(are) true?
I. The monthly premium is based on the health status of the beneficiary and the number
of prescriptions the beneficiary needs.
II. After the beneficiary has paid an initial deductible, Medicare pays the entire cost of
all prescription drugs the beneficiary needs.
A) I only
B) II only
C) both I and II
D) neither I nor II
Which of the following statements about the factors affecting automobile insurance
rates is true?
A) The cost of collision coverage increases as a car gets older.
B) Because of high speeds in rural areas, rural drivers tend to pay more for auto
insurance than city drivers pay for auto insurance.
C) Young unmarried male drivers tend to have fewer accidents than young married
male drivers in the same age category.
D) People who drive a car to and from work tend to be charged higher rates than those
who use a car for pleasure purposes.
A key feature of group medical expense plans is the employee being required to pay a
percentage of covered expenses in excess of the deductible. This feature is
A) other insurance.
B) coinsurance.
C) pro-rated insurance.
D) reinsurance.
All of the following are reasons for a primary insurer to use reinsurance EXCEPT
A) to increase the unearned premium reserve.
B) to increase underwriting capacity.
C) to protect against catastrophic losses.
D) to stabilize profits.
RST Insurance is an interesting company. It doesn’t have any agents. Instead, the
company sells insurance through radio ads, telemarketers, and newspaper and magazine
inserts. This distribution method is called
A) reciprocal exchange.
B) direct response system.
C) mass merchandising.
D) multiple distribution system.
In addition to the named insured, all of the following are insureds under the
Commercial General Liability Policy EXCEPT
A) suppliers of products to the named insured’s business.
B) the insured’s employees while acting within the scope of their employment.
C) the manager of the insured’s real estate.
D) partners of the named insured.
Which of the following statements about the guaranteed purchase option is true?
A) It is usually available with term insurance policies.
B) The premium when an option is exercised is based on the insured’s age at the time
the original policy was issued.
C) The option permits the insured to purchase specified amounts of life insurance in the
future even if the insured has become uninsurable.
D) If a guaranteed purchase option expires without being used, it can be exercised at a
later date.
Which of the following is covered under the liability coverage of a businessowners
policy?
A) damage to the insured’s property
B) bodily injury liability
C) automobile liability
D) professional liability
An insurance company estimates its objective risk for 10,000 exposures to be 10
percent. Assuming the probability of loss remains the same, what would happen to the
objective risk if the number of exposures were to increase to 1 million?
A) It would decrease to 1 percent.
B) It would decrease to 5 percent.
C) It would remain the same.
D) It would increase to 20 percent.
The transfer of insurable risk to the capital markets through the creation of a financial
instrument is called
A) coefficient of risk.
B) securitization of risk.
C) financial risk management.
D) enterprise risk management.
Which statement about a company’s cost of risk is (are) true?
I. Cost of risk includes insurance premiums and retained losses.
II. Reducing the cost of risk increases profitability.
A) I only
B) II only
C) both I and II
D) neither I nor II
What is the purpose of stop-loss insurance that is used with self-insured group medical
expense plans?
A) to require employees to buy insurance for losses in excess of some specified amount
B) to have a commercial insurer pay claims that exceed a specified limit
C) to obtain administrative services from a commercial insurer
D) to exempt self-insured plans from state insurance laws that require mandated
benefits