The National Association of Insurance Commissioners (NAIC) has drafted a “Life
Insurance Policy Illustration” model law that most states have adopted. Which of the
following statements concerning this model law is (are) true?
I. The policy illustration must include a narrative summary describing the basic
characteristics of the policy.
II. The policy illustration must include a numeric summary showing the premium
outlay, the value of the accumulation account, the cash surrender value, and the death
benefit.
A) I only
B) II only
C) both I and II
D) neither I nor II
All of the following statements about long-term care insurance are true EXCEPT
A) Premiums can be reduced by electing shorter elimination periods.
B) A common benefits trigger is the inability to perform a certain number of activities
of daily living.
C) Protection against inflation is usually made available as an optional benefit.
D) Policies currently sold are guaranteed renewable.
The insurance company’s options for settling a collision loss to a covered auto under the
PAP include which of the following?
I. Pay the loss in money.
II. Repair or replace the damaged auto.
A) I only
B) II only
C) both I and II
D) neither I nor II
Insurer A began to provide crime insurance coverage for JKL Company three months
ago. Insurer B provided coverage up until the time Insurer A’s coverage became
effective. Forty-five days after the effective date of Insurer A’s coverage, a loss was
discovered that occurred while Insurer B was providing coverage. The loss would have
been covered under Insurer A’s policy had it been in effect the previous period. Which
policy provision in the current Insurer A policy would make Insurer A responsible for
this loss?
A) loss sustained during prior insurance not issued by us
B) termination as to any employee
C) extended reporting period
D) loss sustained form
Which of the following is an additional coverage provided under Section I of the
Homeowners 3 policy?
A) medical payments to others
B) debris removal
C) personal liability
D) intentional property damage caused by an insured
Two buildings are located close together at a production facility. The probability that
either of these buildings will experience a fire loss is 4 percent. However, if one
building has a fire, the probability that the second building will have a fire is 60
percent. What is the probability that both buildings will have a fire?
A) 1.6 percent
B) 2.4 percent
C) 8.0 percent
D) 64.0 percent
Which of the following statements about retrospective rating is true?
A) The premium for the current period is determined by the loss experience in prior
periods.
B) The premium for the current period is determined by the loss experience during the
current period.
C) The premium for future periods is determined by the average loss experience for the
current and previous periods.
D) The premium for future periods is determined by the loss experience for the current
period.
Jenkins Company purchased a commercial umbrella policy with a $10 million limit and
a $100,000 self-insured retention. The insurer required Jenkins Company to carry a $1
million per-occurrence limit on its general liability policy and a $1 million
per-occurrence limit on its business auto policy. Jenkins purchased these required
limits. A Jenkins driver was negligent while operating a company vehicle and killed
another motorist. The court ruled that Jenkins must pay $5 million. How much of this
amount will be paid by the umbrella policy?
A) $1.0 million
B) $3.9 million
C) $4.0 million
D) $5.0 million
A grid charting the potential frequency and severity of losses is called a
A) risk management information system.
B) risk management Intranet.
C) risk management web site.
D) risk map.
Which of the following statements about covered perils under the personal property
coverage (Coverage C) of the Homeowners 3 policy is true?
A) Theft losses to boats and watercraft are covered only if they occur at the insured’s
residence.
B) Damage from an explosion is covered only if the explosion is the result of fire or
lightning.
C) Property damage from vehicles is covered only if it is caused by the insured.
D) Smoke damage is covered only if it arises from agricultural or industrial operations.
Maria’s property was damaged by an earthquake. Maria is unsure whether earthquake is
covered by her property insurance. Which two sections of the property insurance policy
should Maria review to determine whether earthquake damage to her property is
covered?
A) exclusions and declarations
B) insuring agreement and exclusions
C) definitions and insuring agreement
D) conditions and declarations
HMOs typically pay network physicians or medical groups a fixed annual or monthly
payment for each member, regardless of the frequency or type of service provided. This
payment is called a
A) pro-rata charge.
B) persistency bonus.
C) capitation fee.
D) corridor payment.
Calculating the present value of a future amount is called
A) interpolating.
B) discounting.
C) compounding.
D) regression analysis.
Which of the following is a principal method of ensuring the solvency of insurers?
A) requiring submission of annual financial statements to state regulators
B) tracking and investigating market conduct complaints against insurers
C) disciplining agents of the insurer for illegal sales practices
D) regulating the forms (applications and policies) employed by the insurer
Alan has been involved in three accidents and has been ticketed for a number of driving
violations. He tried to purchase auto insurance, but three insurers refused to sell him
coverage. The generic name for state plans designed to insure drivers like Alan is the
A) exchange market.
B) residual market.
C) voluntary market.
D) excess market.
Which of the following statements about the Homeowners 3 policy is (are) true?
I. Losses to the dwelling are always settled on an actual cash value basis.
II. Coverage on personal property is limited to $5,000.
A) I only
B) II only
C) both I and II
D) neither I nor II