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.
A) I only
B) II only
C) both I and II
D) neither I nor II
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
A) blackout period.
B) dependency period.
C) emergency period.
D) readjustment period.
Rita went to work for a manufacturing company. The company offers a defined-benefit
pension plan. The benefit at retirement is equal to 1.5 percent multiplied by years of
service with the company, with the result multiplied by average salary in the three
highest consecutive years of paid employment with the company. The benefit formula
used at Rita’s company is a
A) flat dollar amount for all employees.
B) flat percentage of annual earnings.
C) flat dollar amount for each year of service.
D) unit-benefit formula.
Which of the following is an example of consequential (indirect) loss?
A) the theft of a person’s jewelry
B) the destruction of a firm’s manufacturing plant by an earthquake
C) the cost of renting a substitute vehicle while a collision-damaged car is being
repaired
D) the vandalism of a person’s automobile
Brenda identified all of the pure loss exposures her family faces. Then she analyzed
these loss exposures, developed a plan to treat these risks, and implemented the plan.
The process Brenda conducted is called
A) personal insurance programming.
B) personal estate planning.
C) personal financial planning.
D) personal risk management.
The right of the states to regulate the business of insurance was first established by
A) the South-Eastern Underwriters Association case.
B) Paul v. Virginia.
C) the Financial Modernization Act.
D) the Sherman Act.
Which of the following statements about the principle of insurable interest is (are) true?
I. It makes it difficult to measure the amount of an insured’s loss.
II. It reduces moral hazard.
A) I only
B) II only
C) both I and II
D) neither I nor II
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
A) major medical plans.
B) managed care plans.
C) point-of-service plans.
D) indemnity plans.
Ted Thomas is risk manager of XYZ Company. He is concerned his company might be
sued by current or former employees alleging wrongful termination, failure to promote,
racial or gender discrimination, or sexual harassment. What type of liability insurance
can Ted purchase to cover these types of claims?
A) workers compensation insurance
B) employer liability insurance
C) employment-related practices liability insurance
D) directors and officers liability insurance
Which of the following is an advantage of federal regulation of insurance over state
regulation of insurance?
A) greater opportunity for innovation
B) more effective treatment of systemic risk
C) greater responsiveness to local needs
D) more competent regulators
As an alternative to the Original Medicare Plan, beneficiaries can elect to enroll in
private health insurance plans that cover all services that the Original Medicare Plan
covers except hospice care. These private health insurance plans that are an alternative
to the Original Medicare Plan are called
A) Medigap Insurance Programs.
B) PACE Programs.
C) Medicare Advantage Plans.
D) Medicare Prescription Drug Plans.
Which of the following statements about a reciprocal exchange is (are) true?
I. It usually specializes in health insurance.
II. It is an unincorporated mutual insurance company.
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 the treatment of legal
defense costs under the ISO Commercial General Liability policy?
I. Legal defense costs usually are counted against the policy limit.
II. Once the insurer has paid out the applicable limit of liability, the insurer’s duty to
defend ends.
A) I only
B) II only
C) both I and II
D) neither I nor II
Metro City would like a pedestrian bridge constructed across Big Creek. The city will
accept bids on the project until a specified date. Bidders must submit a bid bond that
guarantees if the bid is accepted, the bidder will sign the construction contract and
furnish a bond that guarantees the construction work will be completed according to
contract specifications. This second bond the bidder must post is a
A) performance bond.
B) payment bond.
C) maintenance bond.
D) completion bond.
Which of the following statements regarding Section II conditions under the
homeowners policy is true?
A) Other insurance is handled on a pro rata basis.
B) Under no circumstances may the insured bring a lawsuit against the insurer.
C) The liability limit is the same regardless of the number of persons injured in a
covered occurrence.
D) There is no requirement for the insured to submit written notification of a possible
claim to the insurer.