Some investors decided to start an insurance company. Each investor contributed
$50,000 to raise the capital required to charter a new company. Each investor received
an ownership interest in the company. The company will raise additional capital by
selling ownership rights to other investors. Under this type of organization, the
customer and owner functions are separate. This type of insurer is called a
A) stock company.
B) reciprocal exchange.
C) fraternal company.
D) mutual company.
The use of fire-resistive materials when constructing a building is an example of
A) risk transfer.
B) risk control.
C) risk avoidance.
D) risk retention.
Kevin has an individual major medical policy that his insurer agrees to keep in force
until age 65. However, the company has the right to increase the premium each year for
the underwriting class in which Kevin has been placed. Which renewal provision is
found in Kevin’s policy?
A) noncancellable
B) guaranteed renewable
C) conditionally renewable
D) nonrenewable.
Which of the following statements about benefits provided by workers compensation
programs is true?
A) Occupational disability and nonoccupational disability are covered.
B) Death benefits and benefits to eligible survivors are payable if a worker is killed on
the job.
C) Medical benefits are usually subject to deductibles, coinsurance, and numerous
exclusions.
D) Retirement benefits are payable to retired workers through workers compensation.
Which of the following statements about an earthquake endorsement for a homeowners
policy is (are) true?
I. The endorsement also covers landslides and volcanic eruptions.
II. The coverage for earthquakes is written without a deductible.
A) I only
B) II only
C) both I and II
D) neither I nor II
Which of the following statements about the personal liability coverage (Coverage E)
of an unendorsed homeowners policy is true?
A) Coverage is written on an accident basis.
B) Coverage is provided for bodily injury liability.
C) Coverage is provided for business and professional liability.
D) Coverage is provided for personal injury liability.
Dave is an agent for Easy Pay Insurance. Easy Pay insures only the highest-quality
applicants. Dave wanted to earn more commissions, so he sold some policies to
applicants he knew were below-average risks. When these policyowners started filing
claims, Easy Pay tried to deny the claims stating that Dave had not acted appropriately.
Which general rule of agency makes Easy Pay responsible for the claims of the
higher-than-average risk policyowners?
A) There is no presumption of an agency relationship.
B) Agents should be compensated based on the quality of the business they generate.
C) A principal is responsible for the acts of its agents who are acting within the scope of
their authority.
D) An agent must have authority to represent the principal.
Which of the following statements about a variable universal life insurance policy is
(are) true?
I. There is a minimum guaranteed interest rate for the cash value.
II. The policyowner has a variety of investment options for the investment of premiums.
A) I only
B) II only
C) both I and II
D) neither I nor II
State X hired Build-Right Construction to build a bridge. State X required that
construction be completed within 2 years after the contract was signed. Les Johnson is
the president of Build-Right. State X required that Build-Right’s promise to perform be
guaranteed by a third party. Build-Right purchased a performance bond from Rock
Solid Indemnity. The bond requires Rock Solid to be responsible if Build-Right does
not have the project completed on time. In this scenario, which party is the surety?
A) State X
B) Build-Right Construction
C) Les Johnson
D) Rock Solid Indemnity
Which of the following statements is (are) true regarding renters insurance?
I. Renters insurance is needed if you rent a house, but is not needed if you rent an
apartment.
II. The ISO renter’s policy provides open perils (“all-risks”) coverage on the insured’s
personal property.
A) I only
B) II only
C) both I and II
D) neither I nor II
Gail lives in southern Illinois, near the New Madrid Fault Line. She added an
earthquake endorsement to her Homeowners 3 policy. All of the following statements
about the endorsement are true EXCEPT
A) The deductible is expressed as a percentage of the coverage limit rather than as a
dollar amount.
B) The endorsement also covers landslides and volcanic eruptions.
C) Aftershocks occurring within 72 hours of an earthquake are considered part of the
same occurrence.
D) The endorsement also covers flood losses.
Which of the following statements about the provisions of the building and personal
property coverage form is (are) true?
I. A separate deductible must be satisfied for each building damaged in the same
occurrence.
II. Under the replacement cost option, there is no deduction for depreciation.
A) I only
B) II only
C) both I and II
D) neither I nor II