A property and liability insurance company’s loss ratio was 74 percent in 2011, 68
percent in 2012, and 66 percent in 2013. The same insurer’s expense ratio was 31
percent in 2011, 33 percent in 2012, and 30 percent in 2013. Which of the following
statements is true about the company’s underwriting results?
A) The insurer made money from its underwriting activities each year.
B) The insurer’s profitability from underwriting has been deteriorating each year.
C) The insurer’s profitability from underwriting has been improving each year.
D) The insurer lost money from its underwriting activities each year.
All of the following statements about the cancellation of a Homeowners 3 policy are
true EXCEPT
A) The insurer may cancel a new policy for any reason if it has been in force for less
than 60 days and is not a renewal policy.
B) At least 100 days’ notice of cancellation must be given if an insurer cancels a policy
for nonpayment of premium.
C) A policy written for longer than 1 year can be cancelled for any reason on the
anniversary date by giving the insured at least 30 days’ notice of cancellation.
D) After a policy has been in force for at least 60 days, it can be cancelled by the
insurer if the risk has increased substantially since the policy was issued.
Which of the following is an example of a commercial risk?
A) the risk of insufficient retirement income
B) the loss of business income
C) the risk of premature death
D) the risk of being unemployed
Which of the following statements is (are) true with regard to IRAs?
I. Contribution limits are higher for workers aged 50 and older.
II. A spouse who does not work outside of the home may make a fully deductible
contribution to a traditional IRA even if his or her spouse is covered by a retirement
plan at work.
A) I only
B) II only
C) both I and II
D) neither I nor II
The residual market for auto insurance is designed to provide insurance to
A) superior risks who qualify for substantial discounts.
B) owners of vintage/antique autos where the replacement cost far exceeds the actual
cash value.
C) drivers who are unable to obtain coverage in the standard market.
D) businesses that need to insure a fleet of vehicles under a single policy.
All of the following are reasons why employers self-insure medical expense plans
EXCEPT
A) to reduce certain costs, such as premium taxes and commissions.
B) to provide mandated state benefits.
C) to retain funds until needed to pay claims.
D) to eliminate the need to comply with separate state laws.
An HMO that contracts with two or more independent group practices to provide
medical services to covered members is called a(n)
A) group model HMO.
B) network model HMO.
C) staff model HMO.
D) individual practice association HMO.
Each of the following helps to reduce federal estate taxes EXCEPT
A) the marital deduction.
B) the applicable unified tax credit amount.
C) life insurance policies in which the deceased had an incidents of ownership at the
time of death.
D) expenses such as the cost of the funeral, estate settlement costs, and probate costs.
Which of the following statements is (are) true with respect to the time value of money?
I. Money received today is worth more than the same amount of money received in the
future.
II. The present value of a future amount is greater than the future amount.
A) I only
B) II only
C) both I and II
D) neither I nor II
Heather sued Robert for injuries suffered in an automobile accident. Based upon the
facts presented, the jury concluded that Heather was 40 percent at fault in the accident
and Robert was 60 percent at fault. Under the common law doctrine of contributory
negligence, the jury should award Heather
A) nothing.
B) 40 percent of her actual damages.
C) 60 percent of her actual damages.
D) 100 percent of her actual damages.
Beth purchased a $50,000 nonparticipating whole life insurance policy. The annual
premium was $1,278. The cash value of the policy after 10 years will be $13,740. The
future value of $1 deposited at the start of the year for 10 years, assuming 5 percent
interest, is $13.207. What is the traditional net cost of this policy, per thousand per year,
over the first 10 years the policy is in force?
A) -$2.86
B) -$2.14
C) -$1.92
D) -$0.88
In schedule rating, each building is individually rated on several factors. One factor
refers to the quality of the city’s water supply and fire department, and the risk control
devices installed in the building. This factor is called
A) exposure.
B) occupancy.
C) protection.
D) housekeeping.
MedProf Insurance markets medical malpractice insurance. The company’s combined
ratio in 2012 was 95.4. Its expense ratio was 25.4. What was the company’s loss ratio?
A) 60.4
B) 70.0
C) 88.2
D) 120.8
Functions of an insurance company’s legal department include which of the following?
I. Lobbying for legislation favorable to the insurance industry.
II. Drafting policy provisions.
A) I only
B) II only
C) both I and II
D) neither I nor II
Dennis was involved in an accident. He believes the damage to his auto is $6,000. His
insurer believes the damage is only $3,500. Which PAP provision is designed to handle
disputes between the insurer and the insured over the amount of the loss?
A) other insurance provision
B) agreed amount endorsement
C) coinsurance provision
D) appraisal provision
All of the following are coverage options under the physical damage coverage in the
Business Auto Coverage Form EXCEPT
A) comprehensive coverage.
B) specified causes-of-loss coverage.
C) collision coverage.
D) property damage liability coverage.
Which of the following is implied by the requirement that a loss should be determinable
and measurable to be insurable?
I. The loss must be definite as to place.
II. The loss must be definite as to amount.
A) I only
B) II only
C) both I and II
D) neither I nor II
ABC Company offers a qualified retirement plan. ABC selected a funding instrument
with an insurer in which the insurer guarantees a relatively high interest rate for a
number of years on a lump sum deposit. This funding instrument is called a
A) trust-fund plan.
B) group deferred annuity.
C) separate investment account.
D) guaranteed investment contract.
Which of the following is a characteristic of insurance?
A) pooling of losses
B) avoidance of risk
C) payment of intentional losses
D) certainty about specific losses that will occur
The unearned premium reserve of an insurer is
A) an asset representing the investments made with premium income.
B) a liability representing the unearned portion of gross premiums on outstanding
policies.
C) a liability representing claims that have been filed, but not yet paid.
D) the portion of the insurer’s net worth belonging to policyowners.