The assets of a property and liability insurance company are primarily
A) investments such as stocks and bonds.
B) loss reserves.
C) plant and equipment.
D) premiums paid by policyholders.
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?
A) Each policy will pay $35,000.
B) Joyce’s policy will pay $50,000, and the friend’s policy will pay nothing.
C) Joyce’s policy will pay $50,000, and the friend’s policy will pay $20,000.
D) The friend’s policy will pay $50,000, and Joyce’s policy will pay $20,000.
Some states have a law that requires payment of the face amount of insurance to the
insured if a total loss to real property occurs from a peril specified in the law. These
laws are called
A) agreed amount laws.
B) replacement cost laws.
C) homestead laws.
D) valued policy laws.
Which of the following statements about uninsured motorists coverage is true?
A) An innocent motorist must establish that the uninsured motorist is legally liable.
B) The amount of coverage in most states must be at least $300,000.
C) Property damage is covered in all states but bodily injury is not covered in all states.
D) The coverage is very expensive and beyond the means of all but wealthy insureds.
Jenna opened a successful restaurant. One night, after the restaurant had closed, a fire
started when the electrical system malfunctioned. In addition to the physical damage to
the restaurant, Jenna lost profits that could have been earned while the restaurant was
closed for repairs. The lost profits are an example of
A) direct loss.
B) nondiversifiable risk.
C) speculative risk.
D) indirect loss.
All of the following are benefits to society that result from insurance EXCEPT
A) less worry and fear.
B) elimination of moral hazard.
C) indemnification for loss.
D) loss prevention.
Which of the following statements about individual disability income policies that use a
two-part definition of total disability is (are) true?
I. During the initial period of disability, the insured must be unable to perform the
duties of any gainful occupation.
II. After the initial period of disability, the insured must be unable to perform the duties
of any occupation for which he or she is reasonably fitted by education, training, and
experience.
A) I only
B) II only
C) both I and II
D) neither I nor II
Objectives of unemployment insurance include which of the following?
I. To help unemployed workers find jobs.
II. To encourage employers to stabilize employment.
A) I only
B) II only
C) both I and II
D) neither I nor II
All of the following are duties of the mortgagee under the standard mortgage clause
EXCEPT
A) to reimburse the insurer for any loss payments.
B) to notify the insurer of any change in ownership of the property of which the
mortgagee is aware.
C) to provide a proof of loss form if the insured fails to do so.
D) to pay the premium if the insured fails to do so.
An individual’s personal estimate of the chance of loss is
A) an objective probability.
B) an objective risk.
C) a subjective probability.
D) an a priori probability.
Which of the following statements about group term life insurance is true?
A) It usually is written in the form of 5-year level term insurance.
B) An employee who leaves the group can usually convert the coverage to an individual
term life insurance policy.
C) Many employers provide a reduced amount of coverage on retired employees.
D) It represents only about 5 percent of the group life insurance in force.
Doris started a business 2 years ago. The business has been successful, and Doris is
thinking about starting to offer some employee benefits for her workers. She plans to
offer a group term life insurance benefit. All of the following are usual eligibility
requirements for participation in a group life insurance plan EXCEPT
A) full-time employment.
B) be actively at work when insurance becomes effective.
C) apply for insurance during the eligibility period.
D) satisfy a 2-year probationary period.
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 for 20 years, the
premiums would grow to $79,156. If the dividends were accumulated at 5 percent 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 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?
A) -$1.52
B) -$2.64
C) $5.17
D) $9.75
The portion of an insurance premium allocated to expenses, profit, and a margin for
contingencies is called the
A) loading.
B) pure premium.
C) gross premium.
D) experience rate.
Larry has $25,000 of bodily injury liability coverage under his PAP. This limit is the
minimum amount required by his state to be considered financially responsible. While
on a vacation, Larry visited a neighboring state which has a minimum financial
responsibility limit of $50,000 for bodily injury. Which of the following statements
describes the situation for Larry while he was in the neighboring state?
A) Larry’s policy was suspended while he was in the neighboring state.
B) Larry had only $25,000 of liability coverage.
C) Larry’s policy automatically provided $50,000 of liability coverage.
D) Larry’s policy automatically provided $100,000 of liability coverage.