A useful measure for an organization is the total of the organization’s expenditures for
treating loss exposures including retained losses, loss control expenses, insurance
premiums, and other related expenses. This measure is called the organization’s
A) cost of capital.
B) cost of goods sold.
C) cost of risk.
D) cost of equity.
The 2005 PAP states that the insurer has no duty to provide coverage if the insured fails
to comply with certain listed duties. In practice, however, the insurer is only relieved of
its duty to provide coverage if
A) the insured was unaware of the listed duties.
B) failure to comply with the duties is prejudicial to the insurer.
C) the claim involves bodily injuries of more than $50,000.
D) the claim occurred in another state.
Alternative techniques for resolving legal disputes without litigation include which of
the following?
I. Arbitration
II. Mediation
A) I only
B) II only
C) both I and II
D) neither I nor II
One type of managed care plan has a network of preferred providers. When care is
needed, the member has the option to seek care in the network or to go outside the
network. If care is received outside the network, the member must pay substantially
higher deductibles and coinsurance. This type of managed care plan is a(n)
A) individual practice association plan.
B) staff model plan.
C) point-of-service plan.
D) network model plan.
Which of the following statements about the additional coverages under Section I of the
Homeowners 3 policy is true?
A) There is coverage for the reasonable cost incurred to protect property from further
damage after a covered loss occurs.
B) There is unlimited coverage for furnishings of the landlord in an apartment on the
premises that is rented to others.
C) Property removed from the premises because it is endangered by an insured peril is
covered on a named-perils basis while it is outside the insured premises.
D) Damage caused by the settling of the insured structure is covered as a collapse.
Because of the Affordable Care Act, beginning in 2014, all new medical expense plans
that offer individual and group coverage must accept all individuals and employers in
the state who apply for coverage. These insurers are required to continue to renew the
coverage at the option of the individual or plan sponsor. Thus, under the Affordable
Care Act, the renewal provision is
A) conditionally renewable.
B) guaranteed issue.
C) nonrenewable.
D) renewable at the insurer’s option.
All of the following are circumstances under which withdrawals from a traditional IRA
may be made prior to age 59.5 without incurring a substantial penalty EXCEPT
A) The withdrawal is in substantially equal installments paid over the individual’s life
expectancy.
B) The withdrawal is used to pay living expenses after unemployment insurance
benefits cease.
C) The distribution is to the beneficiary of a deceased IRA owner.
D) The withdrawal is because of income needed due to the individual’s disability.
Uncertainty based on a person’s mental condition or state of mind is known as
A) objective risk.
B) subjective risk.
C) objective probability.
D) subjective probability.
Liability Insurance Company (LIC) was approached by a regional airline to see if LIC
would write the airline’s liability coverage. LIC agreed to write the coverage and
entered into an agreement with a reinsurer. Under the agreement, LIC retains 25 percent
of the premium and pays 25 percent of the losses, and the reinsurer receives 75 percent
of the premium and pays 75 percent of the losses. This reinsurance arrangement is best
described as
A) excess-of-loss reinsurance.
B) surplus-share reinsurance.
C) quota-share reinsurance.
D) pool reinsurance.
Which of the following is a covered person under the medical payments coverage of the
PAP?
A) a family member of the named insured if struck by an auto while crossing the street
B) a pedestrian struck by the named insured’s auto
C) the named insured while she is operating her car as a taxi
D) a carjacker who is involved in an accident after stealing the insured’s car
One branch of government insurance programs has a number of distinguishing
characteristics. These programs are compulsory, they are financed by mandatory
contributions rather than general tax revenues, and benefits are weighted in favor of
low-income groups. These government insurance programs are called
A) welfare programs.
B) social insurance programs.
C) casualty insurance programs.
D) private insurance programs.
Gwen purchased an interesting life insurance policy. A minimum interest rate is
guaranteed on the cash value, but additional interest may be credited based on the
investment performance of a group of common stocks. There is also a cap on the
additional interest credited to the policy. Based on this information, what type of life
insurance did Gwen purchase?
A) variable life insurance
B) indexed universal life insurance
C) current assumption whole life insurance
D) variable universal life insurance
Which of the following is characteristic of a typical mass merchandising plan?
A) higher commission scales for agents and higher administrative expenses
B) payment of premiums through payroll deduction
C) group rather than individual underwriting
D) contributions by the employer to the cost of coverage
Abandoning an existing loss exposure is an example of
A) avoidance.
B) retention.
C) noninsurance transfer.
D) insurance transfer.
All of the following statements about life insurance company investments are true
EXCEPT
A) Funds for these investments are derived primarily from premium income,
investment earnings, and maturing investments that must be reinvested.
B) Income from these investments reduces the cost of insurance.
C) A primary objective in making these investments is safety of principal.
D) The majority of these investments are short-term investments.
Which of the following is implied by the pooling of losses?
A) sharing of losses by an entire group
B) inability to predict losses with any degree of accuracy
C) substitution of actual loss for average loss
D) increase of objective risk
Which of the following statements is true with respect to a pure no-fault auto insurance
plan?
A) Under such a plan, you would collect from your own insurer and retain the right to
sue the other party if your injuries surpass a dollar or verbal threshold.
B) Most no-fault plans that have been adopted by states are pure no-fault plans.
C) Under such a plan, you would collect from your own insurer and retain the right to
sue the other party without having to satisfy a threshold.
D) Under such a plan, an accident victim cannot sue the other party, and no payments
are made for pain and suffering.