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Reggie just purchased a home. A friend told him to consider insurance coverage for
natural disasters when insuring the home. A loss from which of the following perils is
covered under an unendorsed Homeowners 3 policy?
A) tsunami
B) earthquake
C) flood
D) forest fire
As Social Security slants benefits in favor of lower-paid workers, the Internal Revenue
Service permits employers to adjust pension contributions so that the overall
contributions (pension plus Social Security) are nondiscriminatory. This adjustment
permits employers to increase pension contributions for highly-compensated
employees. Adjusting contributions to consider Social Security contributions is called
A) prorating.
B) indexing.
C) offset.
D) integration.
Which of the following exposures is covered under a Commercial General Liability
Policy with no endorsements?
A) liability arising out of seepage of pollutants
B) employment-related practices liability
C) personal injury liability
D) aircraft liability
Reasons for having a minimum participation requirement before a group is eligible for
insurance include which of the following?
I. To lower the expense rate per unit of insurance
II. To minimize the possibility of insuring a group which consists largely of unhealthy
individuals
A) I only
B) II only
C) both I and II
D) neither I nor II
The unit of measurement used in property and casualty insurance pricing is called the
A) unit rate.
B) premium.
C) exposure unit.
D) experience unit.
Marco, a risk manager in California, is interviewing for a new position in the state of
Washington. When Marco asked about methods of providing workers compensation,
the answer surprised him. In Washington, employers can self-insure the risk or obtain
coverage through a state fund. Private insurers do not market workers compensation
insurance in Washington. Washington uses a
A) competitive state fund.
B) guaranty fund.
C) reinsurance facility.
D) monopoly state fund.
The doctrine of respondeat superior applies to a(n)
A) parent's liability for a negligent child.
B) pet owner's liability for the pet.
C) employer's liability for a negligent employee.
D) manufacturer's liability for a faulty product.
Michael wants to make sure that life insurance proceeds are available to pay his
outstanding mortgage balance if he dies. He purchased a type of life insurance in which
the amount of coverage gradually declines, just as his outstanding mortgage balance
gradually declines. This type of life insurance is called
A) modified life insurance.
B) decreasing term insurance.
C) re-entry term insurance.
D) current assumption whole life.
Sources of life insurance dividends include which of the following?
I. Excess interest earned on the assets necessary to maintain legal reserves
II. Favorable mortality experience
A) I only
B) II only
C) both I and II
D) neither I nor II
Julian, age 45, would like to determine how much life insurance to purchase using the
human life value approach. He assumes his average annual earnings over the next 20
years will be $40,000. Of this amount, $20,000 is available annually for the support of
his family. Julian will generate this income for 20 more years and he believes that 5
percent is the appropriate interest (discount) rate. The present value of one dollar
payable for 20 years at a discount rate of 5 percent is $12.46. What is Julian's human
life value?
A) $184,600
B) $249,200
C) $360,800
D) $400,000
Special vesting rules apply to qualified defined contribution plans with voluntary
employee contributions and matching employer contributions. Which of the following
statements is (are) true with respect to these vesting rules?
I. Employer contributions must vest immediately.
II. Graded vesting is permitted, and employer contributions must be 20 percent vested
after 2 years, with an additional 20 percent vested in each of the next 4 years.
A) I only
B) II only
C) both I and II
D) neither I nor II
Life insurance policy proceeds can be paid to a trustee upon the death of the insured.
All of the following statements about having the proceeds paid to a trustee are true
EXCEPT
A) Use of a trustee provides flexibility with regard to the timing and amount of the
payments.
B) Trustees are often used when the beneficiary is a minor child or an adult with
diminished mental capacity.
C) The trustee is not permitted to accept a fee for rendering services.
D) The trustee does not guarantee investment results.
Which of the following statements is (are) true with respect to variable annuities?
I. The price at which accumulation units can be purchased fluctuates during the funding
period.
II. The value of annuity units fluctuates over time.
A) I only
B) II only
C) both I and II
D) neither I nor II
Which of the following statements is (are) true with respect to vesting under a qualified
retirement plan?
I. Vesting helps to reduce labor turnover.
II. An employee who terminates employment after four years of service has no vested
retirement benefit under graded vesting.
A) I only
B) II only
C) both I and II
D) neither I nor II
New Liability Insurance Company began operations last year and has been very
successful. The company's ability to grow is being restricted by an accounting rule that
requires insurers to realize acquisition expenses immediately, while not realizing
premiums received as income until some time has passed. Reinsurance is often used in
such cases for which of the following purposes?
A) to stabilize profitability
B) to reduce the unearned premium reserve
C) to provide protection against catastrophic losses
D) to withdraw from a line of business or territory
