Bridget started to fund a variable annuity. Three years later, she experienced financial
difficulty. She called her agent and cancelled the contract. The insurer returned all but 4
percent of the account balance. The 4 percent kept by the insurer is a(n)
A) account administration fee.
B) investment management fee.
C) front-end load.
D) surrender charge.
Which statement is true concerning the economic problem of premature death in the
United States?
I. The economic impact of premature death of the breadwinner varies for different types
of families.
II. Increased life expectancy has increased the economic problem of premature death
over time.
A) I only
B) II only
C) both I and II
D) neither I nor II
Which of the following statements about hedging is (are) true?
I. Hedging is a form of risk transfer.
II. Hedging is used to address the risk of unfavorable price fluctuations.
A) I only
B) II only
C) both I and II
D) neither I nor II
Bernice is an underwriter. She is reviewing a commercial crime coverage application.
The coverage will be written using the discovery form. Bernice is concerned that a large
undiscovered loss may exist prior to the policy’s inception date. Which provision should
Bernice add to the policy to protect the insurer against liability for such previous
losses?
A) extended reporting endorsement
B) loss sustained during prior insurance provision
C) waiver of inventory provision
D) retroactive date endorsement
All of the following are requirements that must be satisfied before premiums are waived
under a waiver-of-premium provision EXCEPT
A) The insured must furnish proof of disability to the insurer.
B) The insured must be disabled before some specified age, such as age 60 or 65.
C) The insured must satisfy the definition of disability.
D) The insured must satisfy a 2-year waiting period.
RST Company has production facilities in Salt Lake City and Cleveland. The
probability that in any given year a fire will damage the production facility in Salt Lake
City is 5 percent. The probability that in any given year a fire will damage the
Cleveland production facility is 4 percent. What is the probability that AT LEAST ONE
of the production facilities will be damaged by fire in any given year?
A) 0.20 percent
B) 2.00 percent
C) 8.80 percent
D) 9.00 percent
Which of the following statements about captive insurance companies is (are) true?
I. A captive insurance company established by a U.S. company must be domiciled in the
United States.
II. A captive insurance company may be owned by several parents.
A) I only
B) II only
C) both I and II
D) neither I nor II
All of the following are characteristics of the liability risk that most people face
EXCEPT
A) a lien may be placed on your income and assets to satisfy a legal judgment.
B) substantial legal expenses may be incurred defending the claim.
C) there is no upper limit on the amount of the loss.
D) owning liability insurance eliminates the possibility of being held legally liable.
Rapid inflation, cyclical unemployment, war, hurricanes, and floods are all examples of
A) diversifiable risks.
B) physical hazards.
C) nondiversifiable risks.
D) speculative risks.
Individual major medical insurance is characterized by which of the following?
A) narrow range of benefits
B) no lifetime benefit limits
C) no exclusions
D) first-dollar coverage
Which of the following statements regarding group long-term disability income
insurance plans is (are) true?
I. These plans are usually limited to occupational disabilities.
II. These plans typically use a more restrictive definition of disability after an initial
period, such as two years.
A) I only
B) II only
C) both I and II
D) neither I nor II
All of the following persons are eligible for a benefit under the retirement portion of the
Social Security program EXCEPT
A) a divorced spouse, age 55, who was married to the retired worker for 6 years.
B) a retired worker’s 63 year-old spouse who is no longer caring for children.
C) a retired worker’s 52 year-old spouse who is caring for a 12 year-old daughter of the
retired worker.
D) a retired worker’s unmarried 20 year-old son who has been severely disabled
because of an automobile accident while he was in elementary school.
Lionel purchased a $200,000 ordinary life insurance policy when he was 25 years old
and had significant life insurance needs. Now Lionel is 50. His mortgage is almost
paid-off and his children have left home and are financially independent. Lionel no
longer wants to pay premiums, but he would like to have some permanent life insurance
in force. Which nonforfeiture option could Lionel employ to meet these objectives?
A) cash value
B) reduced paid-up insurance
C) paid-up additions
D) extended term insurance
Which of the following statements is (are) true regarding insurance agents and
insurance brokers?
I. A property and liability insurance agent has the authority to bind the insurer for
certain types of coverage.
II. A licensed broker who is not a licensed agent has the legal authority to bind an
insurer.
A) I only
B) II only
C) both I and II
D) neither I nor II
Which statement is (are) true concerning catastrophe models?
I. Businesses other than insurance companies use catastrophe models.
II. Catastrophe models are able to precisely predict disaster occurrences and loss values.
A) I only
B) II only
C) both I and II
D) neither I nor II
All of the following statements about the termination provisions of the PAP are true
EXCEPT
A) The insured can cancel the policy for any reason.
B) The insurer can cancel a newly-written policy if it has been in force for fewer than
60 days.
C) The insurer can cancel the policy after it has been in force for 60 days only if the
insured has three or more traffic violations.
D) The insurer can refuse to renew the policy at its annual anniversary date as long as
proper notice is given prior to the end of the policy period.
Which of the following statements about various coverages under a Personal Articles
Floater is (are) true?
I. Each item of jewelry is described and is insured for a specified amount.
II. Stamp and coin collections can be insured on a blanket basis.
A) I only
B) II only
C) both I and II
D) neither I nor II