Beth purchased a $50,000 nonparticipating whole life insurance policy. The annual
premium was $1,278. The cash value of the policy after 10 years will be $13,740. The
future value of $1 deposited at the start of the year for 10 years, assuming 5 percent
interest, is $13.207. If the premiums were invested at 5 percent interest for 10 years, the
premiums would grow to $16,878.55. Assuming 5 percent interest, what is the net
payment cost of this policy, per thousand per year, over the first 10 years the policy is in
force?
A) $12.71
B) $14.82
C) $17.24
D) $25.56
Which of the following conditions is (are) appropriate for using retention?
I. Losses are difficult to predict.
II. The worst possible loss is not serious.
A) I only
B) II only
C) both I and II
D) neither I nor II
Which of the following losses would be covered under the medical payments coverage
of the Homeowners 3 policy?
A) injuries to another person arising out of the insured’s negligent operation of an
automobile
B) medical payments resulting from the transmission of a communicable disease
C) injury to a resident employee at the insured’s home
D) workers compensation medical payments
Under Part A of Medicare, how is reimbursement for inpatient hospital care
determined?
A) The amount billed to Medicare by the hospital is the amount Medicare pays.
B) Eighty percent of the hospital’s regular charge for care is paid.
C) The hospital’s usual, reasonable, and customary charge is paid.
D) Hospital care is classified into diagnosis-related groups (DRGs) and the amount
reimbursed depends on the DRG classification of the care delivered.
To better understand her company’s operations, a risk manager asked a production
manager to draw a diagram tracing the steps in the production and distribution of the
company’s products. Such a diagram, which is useful in risk identification, is called a
A) financial statement.
B) risk management matrix.
C) flowchart.
D) risk management audit.
Which of the following is a current problem with workers compensation programs?
A) declining involvement of lawyers in workers compensation claims
B) exclusion of deaths and injuries attributable to terrorism
C) reduced benefits for occupational illness
D) rising share of medical costs as a share of total benefits
Two tellers of a Tenth National Bank branch colluded to embezzle $40,000 over a
six-month period. State bank examiners detected the embezzlement during a routine
bank examination. Tenth National purchased a financial institution bond. Under which
of the following insuring agreements is this loss covered?
A) Insuring Agreement A – Fidelity
B) Insuring Agreement B – On Premises
C) Insuring Agreement C – In Transit
D) Insuring Agreement D – Forgery or Alteration
Which of the following statements about disability benefits under Social Security is
true?
A) There is a one-year waiting period before benefits are payable.
B) Benefits are payable as long as the disabled worker is unable to perform his or her
regular occupation.
C) Benefits are payable only if the condition causing the disability is expected to result
in death prior to age 65.
D) In addition to the disabled worker receiving the benefits, benefits can also be paid to
eligible dependents.
Gina would like to buy a house. She will pay 10 percent of the cost of the house as a
down payment and borrow the other 90 percent from a mortgage lender. The home will
serve as collateral for the loan. The lender requires Gina to purchase property insurance
on the home so that the collateral supporting the loan will be protected. This scenario
illustrates which of the following benefits of insurance to society?
A) enhancement of credit
B) reduction of fear and worry
C) source of investment funds
D) incentives for loss prevention
Under one life insurance marketing system, individual producers conduct sales
interviews at the workplace with the approval of the management of the business. There
are few direct costs to the employer, and this marketing system is especially appropriate
for the low-income and middle-income workers. This life insurance marketing system is
called the
A) direct response system.
B) worksite marketing.
C) independent agency system.
D) personal producing general agency system.
Sarah purchased a Personal Auto Policy with liability limits of 50/100/25. Sarah ran a
stop sign and hit a van. The van sustained $15,000 in damages. The following bodily
injuries were suffered by passengers in the van: Passenger #1, $15,000; Passenger #2,
$60,000; and Passenger #3, $10,000. Sarah sustained $5,000 in medical expenses, and
Sarah’s car sustained $10,000 in damages. How much will Sarah’s insurer pay under
Part A: Liability Coverage?
A) $90,000
B) $100,000
C) $115,000
D) $125,000
Which of the following statements about the personal property replacement cost
endorsement used with the homeowners policy is (are) true?
I. The damaged or destroyed property must be repaired or replaced, no matter the size
of the loss.
II. It is designed primarily for antiques and fine art.
A) I only
B) II only
C) both I and II
D) neither I nor II
Which of the following statements about the typical commercial umbrella policy is
(are) true?
I. The policy is designed to cover only those loss exposures specifically excluded by the
underlying insurance contracts.
II. The policy is excess over the required underlying coverages.
A) I only
B) II only
C) both I and II
D) neither I nor II
All of the following statements about a surety are true EXCEPT
A) A surety theoretically expects no losses to occur.
B) The principal is the party who agrees to answer for the debt, default, or obligation of
another party.
C) The surety has the legal right to recover a loss payment from the defaulting
principal.
D) There are three parties to a surety bond: the principal, the surety, and the obligee.
Under one type of HMO, the physicians are employees of the HMO and are paid a
salary and sometimes an incentive bonus to hold down costs. This type of HMO is
called a(n)
A) individual practice association (IPA).
B) staff model.
C) group model.
D) network model.
Purchasing health insurance illustrates the use of which personal risk management
technique?
A) avoidance
B) risk transfer
C) risk control
D) risk retention
What is the purpose of the extended nonowned liability coverage endorsement to the
PAP?
A) to provide liability coverage for an insured’s employer when an insured uses his or
her auto for business purposes
B) to provide liability coverage for an insured who occasionally operates a nonowned
auto
C) to provide liability coverage for anyone who loans a covered auto to another driver
D) to provide liability coverage for an insured who operates a nonowned auto on a
regular basis
Liability arising out of which of the following is covered under the personal injury
endorsement to the homeowners policy?
A) bodily injury
B) property damage
C) slander
D) professional liability