Which of the following statements about trust fund plans is (are) true?
I. The trustee typically purchases annuities for retiring employees.
II. The trustee guarantees the adequacy of the fund to pay the promised benefits.
A) I only
B) II only
C) both I and II
D) neither I nor II
A common situation involving strict liability includes which of the following?
A) operating a motor vehicle
B) blasting operations
C) manufacturing a product
D) mining operations
Carl would like to purchase life insurance. He would also like to invest in a mutual
fund. An agent told Carl about a form of life insurance in which Carl could select where
the saving component is invested. This form of life insurance has fixed premiums and
the cash value is not guaranteed. This type of life insurance is called
A) universal life insurance.
B) whole life insurance.
C) variable life insurance.
D) current assumption whole life.
The purpose of gap insurance is to
A) pay the difference between the bodily injury liability limit purchased and the actual
amount of bodily injury liability if it exceeds the limit.
B) pay the difference between the amount the insurer pays if a car is a total loss and the
amount owed on a lease or car loan.
C) pay the difference between the medical payments coverage limit and the actual
medical expenses of injured family members or passengers in the insured auto.
D) pay the difference between the uninsured motorists coverage limit and the actual
amount of the medical expenses incurred by the insured.
Jacob sold his house to Shelia for $140,000 in cash. Jacob “threw in” insurance on the
house as part of the deal and did not bother telling the insurer that there was a new
owner. Four months after Shelia purchased the home, a windstorm damaged the roof.
Which of the following legal characteristics of insurance contracts could the insurer use
to legally deny payment for the damage to the roof?
A) Insurance contracts are unilateral contracts.
B) Insurance contacts are contracts of adhesion.
C) Insurance contracts are aleatory contracts.
D) Insurance contracts are personal contracts.
Advantages of selecting the paid-up additions dividend option in a life insurance policy
include which of the following?
I. Evidence of insurability is not required to purchase additional insurance.
II. The additions are purchased at net rates without a loading for expenses.
A) I only
B) II only
C) both I and II
D) neither I nor II
Which of the following statements about the capital retention approach for determining
life insurance needs is (are) true?
I. It assumes that life insurance proceeds will be liquidated to provide income to
survivors.
II. It requires the preparation of a personal balance sheet.
A) I only
B) II only
C) both I and II
D) neither I nor II
The production facility for ABC Manufacturing is located in a flood plain. Although the
risk of flood is low, ABC’s risk manager is concerned that a flood could damage the
plant and equipment. He got bids on flood insurance from two insurance agents, but
decided the cost of coverage was too high relative to the risk. So he did not purchase
flood insurance. Which risk management technique is ABC using with respect to the
risk of flood?
A) active retention
B) noninsurance transfer
C) passive retention
D) avoidance
Which of the following statements about the condominium commercial-unit owners
coverage form is (are) true?
I. It provides coverage for the unit owner’s proportionate financial interest in the
condominium building.
II. It provides coverage for the business personal property of the unit owner.
A) I only
B) II only
C) both I and II
D) neither I nor II
Which of the following statements about the ISO businessowners policy is true?
A) The current form is written on a named-perils basis, but an “open-perils” (all risks)
endorsement is available.
B) It provides business income and extra expense coverage as an additional coverage.
C) The policy covers business personal property but does not cover buildings.
D) The policy is designed to meet the special needs of large businesses.
A navigation error caused a cargo ship to run aground on a reef. The ship, valued at
$1.5 million, was carrying $1.5 million in grain and $1.5 in electronic devices. The ship
sustained $150,000 in physical damage. If this loss is a “particular average” loss, how
will the loss be settled?
A) The owners of each of the three interests are responsible for $50,000.
B) The owner of the ship is responsible for the entire $150,000 loss.
C) The two cargo owners are each responsible for $75,000 of the loss.
D) The owner of the ship is responsible for the first $100,000 of the loss, and the two
cargo owners are each responsible for $25,000 of the loss.
In the ISO Commercial Crime Coverage form, safe burglary 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 within a locked safe or vault by someone who
enters the safe or vault as evidenced by marks of forcible entry upon the exterior.
All of the following statements about the independent agency system are true EXCEPT
A) Agents are often authorized to adjust small claims.
B) Agents are compensated on the basis of commissions.
C) The insurer rather than the agent owns the renewal rights to the business.
D) The agent is an independent business person who represents several insurers.
Which of the following statements about errors and omissions insurance is (are) true?
I. It is purchased by professionals to protect against claims arising for negligent acts,
errors, and omissions.
II. It is designed to meet the needs of stock brokers, attorneys, engineers, architects and
other professionals who give advice to clients.
A) I only
B) II only
C) both I and II
D) neither I nor II