Which of the following statements is (are) true with respect to the Medicare Advantage
Plans?
I. These plans replace the original Medicare program, Parts A and B, which are no
longer available to new retirees.
II. These plans provide an opportunity for retirees to receive Medicare coverage
through private health care plans.
A) I only
B) II only
C) both I and II
D) neither I nor II
All of the following statements about 403(b) plans are correct EXCEPT
A) Contributions to a 403(b) reduce an employee’s taxable income.
B) 403(b) plans are designed for employees of public school systems and tax-exempt
organizations.
C) The law limits the amount of income that an employee can elect to defer under a
403(b) plan.
D) Matching employer contributions are not permitted under a 403(b) plan.
Which of the following statements is (are) true with respect to the Social Security
earnings test?
I. The earnings test does not apply to dividends, interest, and rental income.
II. The earnings test does not apply to work earnings for those individuals who have
reached the full retirement age under Social Security.
A) I only
B) II only
C) both I and II
D) neither I nor II
Which of the following statements about life insurance cash values is (are) true?
I. Cash values are a result of the level premium method of purchasing life insurance.
II. The cash value of a policy must always exceed the policy’s legal reserve.
A) I only
B) II only
C) both I and II
D) neither I nor II
Winslow Corporation has many long-term employees. The company has never had a
pension plan. Recently, a new management team was hired. The new president said he
would like to start a pension plan through which he could reward the long-term service
provided by many employees. Which of the following types of plans should Winslow
Corporation adopt?
A) section 403(b) plan
B) section 401(k) plan
C) money-purchase plan
D) defined benefit plan
Following catastrophic hurricane losses, South Coast Insurance Company changed its
deductible provision. Rather than using a specified dollar value, $250 for example; the
dollar value of the deductible increases with the size of the loss. The type of deductible
that South Coast changed to is called a(n)
A) calendar-year deductible.
B) aggregate deductible.
C) straight deductible.
D) percentage deductible.
All of the following statements about the rules governing agency relationships are true
EXCEPT
A) An agent must be authorized to act on behalf of a principal.
B) An agency agreement may grant certain powers to the agent as well as denying the
agent other powers.
C) The principal is responsible for the acts of agents only if the acts are criminal.
D) Knowledge of the agent is presumed to be knowledge of the principal with respect to
matters within the scope of the agency relationship.
Which of the following statements about universal life insurance is (are) true?
I. The current interest rate credited to the cash value at the time the policy is issued
remains fixed for the life of the policy.
II. A monthly deduction is made from the policy’s cash value for the cost of insurance
protection.
A) I only
B) II only
C) both I and II
D) neither I nor II
Catastrophe bonds are made available to institutional investors in the capital markets
through an entity that is specially created for that purpose. This is entity is called a
A) risk retention group.
B) fraternal insurance company.
C) captive insurance company.
D) special purpose reinsurance vehicle.
The property and liability insurance industry is characterized by a repetitive pattern of
loose underwriting standards with low premiums followed by tight underwriting
standards with high premiums. This repetitive pattern is called the
A) underwriting by exception method.
B) business cycle.
C) underwriting cycle.
D) account underwriting method.
Which of the following is a source of information a risk manager could use to help
identify pure loss exposures?
A) commodity prices
B) physical inspections
C) currency exchange rates
D) interest rate movements
ABC Insurance Company entered into a reinsurance agreement with XYZ Reinsurance.
Under the contract, XYZ Re has no liability unless ABC’s loss ratio exceeds 75 percent
for the year. XYZ Re agreed to pay all losses in excess of the 75 percent loss ratio. ABC
Insurance Company is using reinsurance to
A) stabilize profits.
B) reduce the unearned premium reserve.
C) provide large risk capacity.
D) retire from a line or territory.
All of the following statements about endorsements and riders are true EXCEPT
A) They are usually written.
B) They can be used to add or delete policy provisions.
C) They normally take precedence over other conflicting policy provisions.
D) They are primarily used to circumvent legislation requiring specific policy
provisions.
An immediate life annuity offers all of the following benefits EXCEPT
A) Immediate annuity payments are entirely exempt from federal income tax.
B) Simplicity for the purchaser as he or she does not have to manage investment funds.
C) Security for the purchaser as stable lifetime income that cannot be outlived is
provided.
D) The principal is safe as the funds are guaranteed by the assets of the insurer.
A pure risk is defined as a situation in which there is
A) only the possibility of loss or no loss.
B) only the possibility of profit.
C) a possibility of neither profit nor loss.
D) a possibility of either profit or loss.
A few states have enacted laws to make minimum amounts of liability insurance
available at reduced rates to individuals who cannot afford regular insurance or who
have limited financial assets to protect. The coverage made available through such a
plan is called
A) probationary insurance.
B) uninsured motorists insurance.
C) no-fault auto insurance.
D) low-cost auto insurance.