Acme Company has three identical manufacturing plants, one on the Texas Gulf Coast,
one in southern Alabama, and one in Florida. Each plant is valued at $200 million.
Acme’s risk manager is concerned about the damage which could be caused by a single
hurricane. The risk manager believes there is an extremely low probability that a single
hurricane could destroy two or all three plants because they are located so far apart.
What is the maximum possible loss associated with a single hurricane?
A) $0 million
B) $200 million
C) $400 million
D) $600 million
Which of the following statements about a typical accidental death benefit rider is (are)
true?
I. Accidental injury must be the cause of death for the increased benefit to be paid.
II. The accidental death must occur prior to some specified age for the increased benefit
to be paid.
A) I only
B) II only
C) both I and II
D) neither I nor II
Under what type of rate regulation are insurers required to obtain approval of rates
before using them if the rate change exceeds a specified predetermined range?
A) flex-rating law
B) prior-approval law
C) file-and-use law
D) use-and-file law
Laura’s major medical insurance policy includes a $500 deductible. Laura is required to
pay 20 percent of covered expenses in excess of the deductible, and her insurer will pay
80 percent of covered expenses in excess of the deductible. Laura was hospitalized and
her covered medical expenses were $10,500. How much of the $10,500 will be paid by
the insurer?
A) $7,500
B) $7,900
C) $8,000
D) $10,000
What is the legal significance of a material concealment by an insurance applicant?
A) The contract is automatically voided from its inception.
B) The contract is voidable at the insurer’s option.
C) Loss payments are reduced by the degree of the concealment.
D) The insurer is immediately entitled to a higher premium.
If a life insurance policy lapses for nonpayment of premiums, and the policyholder has
not elected another option, which nonforfeiture option usually goes into effect in most
policies?
A) reduced paid-up insurance
B) one-year term insurance
C) extended term insurance
D) payment of cash value cash value
Which of the following statements about recent developments in group medical
coverage is (are) true?
I. After increasing for many years, the premiums for group medical expense coverage
have finally started to decline.
II. A growing number of employers are offering plans with higher deductibles for
employees.
A) I only
B) II only
C) both I and II
D) neither I nor II
What is the length of the readjustment period which is considered when the needs
approach is used to determine the amount of life insurance to own?
A) 3 to 6 months
B) 1 to 2 years
C) until the youngest child reaches age 18
D) until the surviving spouse reaches age 65
Which of the following statements is true about fraternal insurers?
A) They are a form of stock insurer.
B) They specialize in writing life and health insurance.
C) They are taxed more heavily than other types of insurers because of discriminatory
marketing practices.
D) They account for the majority of life insurance in force in the United States.
Which of the following statements regarding watercraft liability under Section II of an
unendorsed HO-3 policy is (are) true?
I. No coverage is available for watercraft liability.
II. Liability arising out of the use of watercraft that are under certain length and
horsepower limits is covered.
A) I only
B) II only
C) both I and II
D) neither I nor II
ABC Health Insurance Company sells health insurance in one state. Recently, that
state’s legislature passed a law forbidding health insurers from considering an
individual’s health history when selecting applicants to insure. This change in law will
increase the possibility of unprofitable results for ABC. This type of hazard is an
example of
A) physical hazard.
B) legal hazard.
C) moral hazard.
D) attitudinal hazard.
Which of the following statements about judgment rating is true?
A) It involves the manual rating of exposures.
B) It is used when the loss exposures are so diverse that a class rate cannot be
calculated.
C) It is a form of experience rating.
D) It is only used when credible loss statistics are available.
Which of the following is (are) covered under an unendorsed Commercial General
Liability Policy?
I. False arrest of a customer wrongly accused of shoplifting
II. Publication of material that violates an individual’s right to privacy
A) I only
B) II only
C) both I and II
D) neither I nor II
The fundamental purpose of a variable annuity is to
A) provide funding flexibility to the purchaser.
B) provide a hedge against inflation.
C) fund the purchase of cash value life insurance.
D) guarantee a fixed-dollar benefit throughout retirement.