Marion owns substantial financial assets. She was surprised that she qualified for Social
Security retirement benefits when she retired because of her high investment income.
What characteristic of social insurance programs is Marion overlooking with respect to
her Social Security retirement benefits?
A) Social insurance programs are financially self-supporting.
B) Social insurance program benefits are loosely related to earnings.
C) Social insurance benefits are not means tested.
D) Full funding of social insurance programs is unnecessary.
In the ISO Commercial Crime Coverage form, theft is defined as the
A) unlawful taking of property to the deprivation of the insured.
B) unlawful taking of property from the care and custody of a person by someone who
has caused or threatens to cause bodily harm or who has committed an unlawful act
witnessed by that person.
C) unlawful taking of money or securities through the alteration of a negotiable
instrument.
D) unlawful taking of property from inside the premises by someone who unlawfully
enters or leaves the premises as evidenced by marks of forcible entry or exit.
Consumer experts typically recommend all of the following rules when buying life
insurance EXCEPT
A) Consider the financial strength of the insurer.
B) Deal with a competent agent.
C) Ignore all factors other than cost.
D) Shop around for a low-cost policy.
The net amount at risk for an ordinary life insurance policy is the difference between
the
A) present value of future benefits and the present value of future premiums.
B) face amount of the policy and the total premiums that have been paid.
C) face amount of the policy and the legal reserve.
D) annual premium and the annual policyholder dividend.
Which of the following types of risks is normally uninsurable by private insurers?
A) personal risks
B) property risks
C) liability risks
D) political risks
James was injured in an auto accident caused by another motorist’s negligence. To
reimburse him for his hospital bills and lost earnings, items which can be specifically
itemized, James will receive
A) punitive damages.
B) special damages.
C) imputed damages.
D) general damages.
Which of the following is a reason why premature death may result in economic
insecurity?
I. Additional expenses associated with death may be incurred.
II. The income of the deceased person’s family may be inadequate to meet its basic
needs.
A) I only
B) II only
C) both I and II
D) neither I nor II
Some courts have ruled that an alternative to “replacement cost less depreciation”
should be used to determine the actual cash value of a property loss. Under this
alternative, the value of property lost is determined by the price a willing buyer would
pay a willing seller for the property in a free market. This method of determining actual
cash value is called the
A) intrinsic value method.
B) valued policy method.
C) fair market value method.
D) reconstruction cost method.
Tony has a PAP which provides medical payments coverage. Under which of the
following circumstances would the injured person be eligible for benefits under Tony’s
policy?
I. A friend in the car is injured while Tony is driving a covered auto.
II. A passenger on a motorcycle driven by Tony is injured when Tony hit another
vehicle.
A) I only
B) II only
C) both I and II
D) neither I nor II
What is the practical effect of an insurance policy being a conditional contract?
A) The insurer can refuse to a pay claim unless the insured has complied with all policy
provisions.
B) The insured can assign the policy only with the insurer’s consent.
C) The insurer can sue the insured for failure to pay any premiums.
D) The insured gets the benefit of the doubt if a policy contains any ambiguities or
uncertainties.
Which of the following statements is true concerning the ISO employment-related
practices liability form?
A) Coverage is provided without a co-payment provision.
B) Legal defense costs are included as part of the policy limit.
C) Wrongful termination is excluded from coverage.
D) Liability to employees is excluded from coverage.
Which of the following statements is (are) true about the National Flood Insurance
Program?
I. You can’t purchase flood insurance through this program if your property is located in
a high-flood-risk area.
II. Coverage is not available for any property which has been flooded previously.
A) I only
B) II only
C) both I and II
D) neither I nor II
Tom is planning to build a home. He is weighing many factors, including construction
materials, location, and other considerations. Which of the following statements is true
with regard to homeowners insurance and Tom’s new home?
A) The higher the construction costs are in the area, the lower Tom’s homeowners
insurance premiums will be.
B) The lower the homeowners deductible selected, the lower the premium will be.
C) Older homes cost more to insure than newer homes.
D) A wood frame home costs less to insure than a brick home.
Which of the following statements about the surrender cost index for measuring the cost
of life insurance is true?
A) It is based on the assumption that the policy will be in force indefinitely.
B) It takes into account the settlement options available in the policy.
C) It does not consider the cash value in the policy.
D) It takes the amount and timing of each dividend into consideration.
Purposes of the coinsurance provision in major medical insurance policies include
which of the following?
I. to reduce premiums
II. to prevent overutilization of policy benefits
A) I only
B) II only
C) both I and II
D) neither I nor II
Under one type of merit rating, the class or manual rate is adjusted upward or
downward based on past loss history. This type of merit rating is called
A) schedule rating.
B) judgment rating.
C) experience rating.
D) retrospective rating.
XYZ Company insured its building on a replacement cost basis for $450,000 under a
property insurance policy that included an 80 percent coinsurance clause. The building
had a replacement cost of $500,000 when it sustained a $50,000 loss. How much will
XYZ Company receive from its insurer, assuming no deductible applies?
A) $42,500
B) $45,000
C) $50,000
D) $56,250
Under financial responsibility laws, proof of financial responsibility is generally
required under which of the following circumstances?
A) The use of an auto by any driver with fewer than 3 years of driving experience
B) When an individual renews his or her driver’s license
C) Failure to pay a final judgment resulting from an auto accident
D) The accumulation of unpaid parking tickets exceeding a specified value
Which of the following statements about Dwelling Property 1 (basic form) is true?
A) Coverage on the dwelling is written on a replacement cost basis.
B) The full amount of personal property coverage applies to property away from the
insured premises.
C) Coverage for fair rental value of the dwelling is subject to both an overall maximum
and a monthly maximum.
D) “Open-perils” (all risks) coverage is automatically provided for both the dwelling
and personal property.
Which of the following statements about self-insurance is (are) true?
I. It is a form of planned retention.
II. State law usually prohibits its use for workers compensation.
A) I only
B) II only
C) both I and II
D) neither I nor II