Which of the following statements about Lloyd’s of London is true?
A) Coverage is actually written by syndicates who belong to Lloyd’s of London.
B) New individual members or Names who belong to the various syndicates have
unlimited legal liability.
C) It operates as an admitted insurer throughout the United States.
D) It allows underwriters to write coverage without meeting stringent financial
requirements.
When must an insurable interest legally exist in life insurance?
A) only at the time of the insured’s death
B) only at the inception of the policy
C) only at the time the beneficiary is paid
D) both at the time of the insured’s death and at the inception of the policy
Which of the following statements is (are) true concerning settlement options?
I. A straight life annuity provides the lowest amount of periodic income of all the life
income options.
II. Fixed-period and fixed-amount are life income options.
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 risk-based capital requirements is
(are) true?
I. Insurers must have a certain amount of capital depending on the riskiness of their
investments and insurance operations.
II. Insurers may be required to take certain actions depending on how much capital they
have relative to their risk-based capital requirements.
A) I only
B) II only
C) both I and II
D) neither I nor II
Which of the following statements about withdrawals from Section 401(k) plans is (are)
true?
I. The penalty tax does not apply to hardship withdrawals.
II. Withdrawals may be made without penalty at age 59.5 or older.
A) I only
B) II only
C) both I and II
D) neither I nor II
Which of the following coverages are provided by an unendorsed ISO Dwelling
Program form?
I. Theft of personal property
II. Named-perils coverage for personal property
A) I only
B) II only
C) both I and II
D) neither I nor II
Persons insured for personal liability under the homeowners policy include which of the
following?
I. Relatives while visiting the named insured.
II. Overnight guests who are not relatives of the named insured.
A) I only
B) II only
C) both I and II
D) neither I nor II
Which of the following types of loss exposures may be appropriately handled through
the purchase of insurance?
I. High-frequency, low-severity loss exposures
II. Low-frequency, high-severity loss exposures
A) I only
B) II only
C) both I and II
D) neither I nor II
Al was named the beneficiary in his mother’s life insurance policy. His mother died
during the contestable period. The insurer denied payment, citing a material
misrepresentation on the application. Al believes the insurer should pay the claim
because the misrepresentation occurred on the application, and the application is not
part of the formal agreement between the insurer and the policyholder. Which provision
protects the insurer by making the application part of the formal agreement between the
parties to the contract?
A) incontestable clause
B) entire contract clause
C) ownership clause
D) reinstatement clause
JKL Insurance Company estimates that 14 out of every 100 homeowners it insures will
file a claim each year. Last year, JKL insured 200 homeowners. According to the law of
large numbers, what should happen if JKL insures 2,000 homeowners this year?
A) The total number of claims filed by JKL policyowners should decrease.
B) The total dollar value of claims will decrease.
C) The average size of loss will decline in value.
D) The actual results will more closely approach the expected results.
Morris Company self-insures its workers compensation loss exposure. The risk
manager of Morris Company is concerned about the possible impact of a single
catastrophic claim. She decided to set a retention limit of $500,000 per-claim, and to
purchase insurance that will be begin to pay once Morris Company has paid $500,000
on a single claim. The insurance the risk manager purchased is called
A) captive insurance.
B) excess insurance.
C) primary insurance.
D) umbrella insurance.
The term used to describe plans in which automobile insurers participate to make
insurance available to drivers unable to obtain coverage in the standard market is the
A) foreign market.
B) fair market.
C) residual (shared) market.
D) high-premium market.
Faking an accident to collect insurance proceeds is an example of
A) physical hazard.
B) objective risk.
C) moral hazard.
D) attitudinal hazard.
A car damaged in an auto accident may have reduced market or resale value after it is
repaired. Some insureds have sought to recover this reduction in market or resale value.
This loss in value is called
A) gap coverage.
B) betterment.
C) diminution.
D) subrogation.
A strip-mall includes eight identical-sized retail units. All of the units were built at the
same time and each has an identical sprinkler system. Unit number two is a dry
cleaning business. Unit number three is a bar and grill. Unit number four is a dress
shop. The owners of these three units are all insured by the same insurance company,
but the property insurance premiums vary significantly. Which of the following rating
factors best explains the difference in premiums?
A) exposure
B) protection
C) construction
D) occupancy
Which of the following statements about variable annuities is true?
A) The periodic payments received by the annuitant are fixed.
B) Variable annuities typically provide a guaranteed death benefit payable to a
beneficiary if the annuitant dies prior to retirement.
C) Insurers offering variable annuities are not permitted to charge administrative fees.
D) Although the value of annuity units fluctuates, accumulation units have a fixed
value.