Tina purchased a personal umbrella policy with a $1 million limit and a $1,000
self-insured retention. Her insurer required her to carry a $300,000 liability limit under
her homeowners policy. Tina was held responsible for slandering a public official. The
public official won a $100,000 judgment against Tina. The insurer that wrote Tina’s
homeowners policy denied coverage. How much will the insurer pay under Tina’s
personal umbrella policy?
A) nothing
B) $49,000
C) $99,000
D) $100,000
Harrison Company just received notice from the Internal Revenue Service that there is a
problem with its retirement plan. Because over 60 percent of the benefits are designated
for highly compensated employees, a special set of rules apply. These rules require
more rapid vesting for non-highly compensated employees and certain minimum
benefits for non-highly compensated employees. What name is given to such plans?
A) top-heavy plans
B) top-hat plans
C) golden handshake plans
D) defined-benefit plans
Which of the following statements about yearly renewable term insurance is (are) true?
I. It requires evidence of insurability for renewal.
II. It is most appropriate when an insured needs lifetime protection.
A) I only
B) II only
C) both I and II
D) neither I nor II
Which of the following statements about the use of deductibles is (are) true?
I. They represent risk retention by insurance purchasers.
II. They tend to increase the cost of adjusting small claims.
A) I only
B) II only
C) both I and II
D) neither I nor II
Which of the following types of water damage is covered under an unendorsed
Homeowners 3 policy?
A) damage from flood
B) damage from water backing up through a drain
C) damage from water below the surface of the ground that seeps into a basement
D) damage from water that overflows from a malfunctioning washing machine
Life insurance policy reserves
A) are always equal to the policy’s cash surrender value.
B) are a major asset of life insurance companies.
C) are paid to the beneficiary when the insured dies.
D) are a major liability of life insurance companies.
Lynn calculated the future value of the first twenty premiums she will pay under her
nonparticipating whole life insurance policy. Then she subtracted the cash value after
20 years. Next, she divided this value by the future value annuity due factor for 20
years to arrive at an annual cost of insurance. Finally, she divided the annual cost by the
number of thousands of dollars of life insurance purchased to arrive at the cost per
thousand per year. Lynn calculated the
A) traditional net cost per thousand per year.
B) the Linton Yield.
C) the surrender cost per thousand per year.
D) the net payment cost per thousand per year.
All of the following statements about the conversion of a term policy are true EXCEPT
A) Under an attained age conversion, the premium is based on the insured’s attained age
at the time of conversion.
B) Under an original age conversion, the policyowner must pay a financial adjustment
in addition to the premium for the new policy.
C) Most insurers require original age conversion to take place within a specified period
(5 years, for example) of the issue of the term policy.
D) Evidence of insurability is required before a conversion is permitted.
Which of the following statements regarding recent developments in
employer-sponsored health plans is (are) true?
I. Preferred provider organizations (PPOs) continue to dominate group health insurance
markets.
II. The number of employers offering medical benefits to workers who retire early has
increased.
A) I only
B) II only
C) both I and II
D) neither I nor II
According to the law of large numbers, what happens as the number of exposure units
increases?
A) Actual results will increasingly differ from probable results.
B) Actual results will more closely approach probable results.
C) Nondiversifiable risk will decrease.
D) Objective risk will increase.
George has a personal auto policy with a per-person liability limit of $300,000. He also
has a personal umbrella policy with a limit of $2,000,000 and a self-insured retention of
$1,000. How much will be paid by each policy if a person wins a judgment of $500,000
against George as a result of bodily injury arising from the auto accident?
A) The auto policy will pay nothing, and the umbrella policy will pay $449,000.
B) The auto policy will pay nothing, and the umbrella policy will pay $500,000.
C) The auto policy will pay $300,000, and the umbrella policy will pay $199,000.
D) The auto policy will pay $300,000, and the umbrella policy will pay $200,000.
Which of the following statements is true with regard to the Medicare program?
A) While Social Security old-age benefits are available at age 62, Medicare Part A
benefits are not available, in most cases, until age 65.
B) If an individual delays collecting Social Security old-age benefits until after the full
retirement age, he or she is not eligible for Medicare benefits until he or she begins to
collect old-age benefits.
C) Part B of Medicare is funded through a payroll tax.
D) Beneficiaries must pay a monthly premium for Medicare Part A coverage.
Greta purchased a long-term care policy. Greta’s eligibility for benefits under the policy
may be triggered by
A) how long premiums have been paid.
B) inability to perform activities of daily living.
C) continuous hospitalization for at least 60 days.
D) eligibility for Medicare benefits.
Bob purchased insurance on his home with an insurer that was not licensed to do
business in the state. In this case, which requirement to form a binding insurance
contract is lacking?
A) exchange of consideration
B) offer and acceptance
C) legal purpose
D) competent parties
Perils insured under Dwelling Property 1 (basic form) include which of the following?
I. Earthquake
II. Smoke
A) I only
B) II only
C) both I and II
D) neither I nor II
Which of the following statements about taxation of Social Security retirement benefits
under federal law is (are) true?
I. Social Security retirement benefits are never considered taxable income.
II. Up to 85 percent of Social Security retirement benefits may be considered taxable
income, depending on the amount of other income received by the beneficiary.
A) I only
B) II only
C) both I and II
D) neither I nor II