Which of the following statements about property and casualty insurance company
operating results is (are) true?
I. An insurance company can have a combined ratio greater than 1 (or 100 percent) and
still be required to pay income taxes.
II. By all measures, the property and casualty insurance industry is highly profitable
when compared to other industries.
A) I only
B) II only
C) both I and II
D) neither I nor II
A property and liability insurance company’s loss reserve and unearned premium
reserve are
A) assets.
B) liabilities.
C) income.
D) expenses.
The U.S. government is concerned that terrorists might try to crash a vehicle filled with
explosives into a U.S. embassy in a foreign country. Inside the gate to the embassy, they
installed steel and cement posts in the road. These posts can be raised up from the
ground to form a barrier against suicide bombers. The posts can be lowered back into
the ground to allow safe vehicles to pass. This physical barrier system illustrates which
risk management technique?
A) risk avoidance
B) insurance transfer
C) loss prevention
D) noninsurance transfer
Which of the following statements about “open-perils” coverage is (are) true?
I. All losses are covered except those losses specifically excluded.
II. The burden of proof is on the insured to prove that a loss is covered.
A) I only
B) II only
C) both I and II
D) neither I nor II
Which of the following statements about ocean marine insurance coverages is (are)
true?
I. Hull insurance limits coverage to the breakdown of a ship’s machinery and
equipment.
II. Protection and indemnity insurance provides liability insurance to the ship owner for
bodily injury and property damage to third parties.
A) I only
B) II only
C) both I and II
D) neither I nor II
James purchased liability insurance with a $100,000 limit from Insurer A. When Insurer
A denied a claim that James thought should be covered, he bought a second liability
insurance policy with a $150,000 limit from Insurer B. Before he cancelled the policy
with Insurer A, a $60,000 loss occurred. If this loss is settled on a pro rata basis, how
much must each insurer pay?
A) Insurer A will pay $10,000 and Insurer B will pay $50,000.
B) Insurer A will pay $20,000 and Insurer B will pay $40,000.
C) Insurer A will pay $24,000 and Insurer B will pay $36,000.
D) Insurer A will pay $40,000 and Insurer B will pay $20,000.
Cassie, age 62, paid a life insurer $100,000 in exchange for a life annuity. If Cassie dies
before receiving 120 monthly payments from the insurer, the remaining payments will
be made to a beneficiary. If Cassie dies after receiving 120 payments, no additional
payments are made by the insurer. Cassie has purchased a(n)
A) life annuity, no refund.
B) life annuity with guaranteed payments.
C) installment refund annuity.
D) cash refund annuity.
Which of the following statements is true about uninsured motorists coverage under the
Personal Auto Policy?
A) The benefits are paid without regard to fault.
B) The insured collects from his or her own insurer, and the insurer can recoup the loss
payment from the other driver.
C) Uninsured motorists benefits are limited to the medical expenses of the insured.
D) States require the purchase of uninsured motorists coverage to be able to license an
auto.
Insurance companies collect premiums in advance of loss, and the funds collected are
not needed to pay immediate losses and expenses; these funds can be loaned to
businesses. Because of this fact, insurance benefits society by
A) enhancing credit.
B) providing a source of investment funds.
C) indemnifying losses.
D) providing an incentive for loss prevention.
Dave and Meagan Philips borrowed $150,000 from Fifth National Bank to help fund
the purchase of a new home. The home serves as collateral for the loan. Fifth National
has an insurable interest in the home based on
A) potential responsibility for legal liability.
B) being a secured creditor.
C) expectation of ownership.
D) having a contractual right.
A shortcoming of state regulation of insurance found by Congressional committees and
the General Accounting Office is that state regulation
A) leads to decentralized governmental power.
B) provides opportunities for innovation.
C) provides inadequate consumer protection.
D) is more responsive to local needs.
Which of the following statements is (are) true regarding the taxation of distributions
from individual annuities?
I. Individual annuity distributions are never taxable.
II. Once the annuitant has recovered the premiums he or she paid for the annuity, the
entire annuity distribution is taxable.
A) I only
B) II only
C) both I and II
D) neither I nor II
When Ben applied for life insurance, he was asked on the application if he smoked or
used tobacco products. Ben answered “No.” In reality, Ben smokes two packs of
cigarettes a day. The policy was issued at the “preferred, nonsmoker rate.” If Ben dies 6
months after the policy is issued, upon what grounds will the insurer be able to legally
deny the claim?
A) warranty
B) misrepresentation
C) waiver
D) concealment
Which of the following statements about claim settlement is (are) true?
I. The fair payment of claims requires an insurer to adopt a very liberal claims policy.
II. To prevent lawsuits, an insurer should provide no personal assistance to a claimant
other than that which is required by contractual obligations.
A) I only
B) II only
C) both I and II
D) neither I nor II
Which of the following statements about group long-term disability income plans is
true?
A) The definition of disability becomes less restrictive after a worker has been disabled
for 2 years.
B) Coverage is provided for both occupational and nonoccupational disabilities.
C) Benefits are increased if a worker is eligible for Social Security or workers
compensation benefits.
D) Maximum monthly benefits under long-term disability income plans are lower than
the benefits paid under short-term disability income plans.