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Stack #2476860

financial test 2

Question	Answer
What is the role of insurance?	Provide a solution for economic uncertainty and loss
Which law requires fair and accurate reporting of information about consumers?	Fair Credit Reporting Act
Which of the following statements is correct when comparing participating policies with non-participating policies?	Premiums for participating policies are usually higher than for non-participating policies
The State Guaranty Association guarantees	that a claim will be paid if an insurer becomes insolvent
All of the following methods support the sale of insurance through agents	Independent agency, Personal producing general agency, Career agency Not Direct selling
Dividends from a stock company are paid to stockholders, whereas in a mutual company dividends are	paid to the policyowners
Participating insurers allow their policyowners to	share in any company earnings and receive a dividend
Which of the following is a contract that involves one party which indemnifies another when a loss arises from an unknown event?	Insurance contract
Nonparticipating insurers do not allow their policyowners to receive the following	dividends
Which of the following is a benefit of insurance?	Reduces the uncertainty of loss exposures, Makes a loss whole again, Source of investment funds Not Losses due to fraud are eliminated
All of the following are systems that support the sale of insurance through agents and brokers	Career Agency System, Personal Producing General Agency System, Independent Agency System Not Fraternal Benefit Society System
A life insurance company that shares its suplus earnings with its insureds is known as	a participating company
Which title can a life insurance agent use when conducting business?	Broker
An agent is required to provide which of the following to the applicant when they make a proposal of insurance	Buyer's guide and policy summary
Which of the following statements regarding types of insurers is correct?	Mutual insurance companies are "owned" by their policyowners, Stock insurance companies seek a profit for their shareholders, Fraternal benefit societies must be nonprofit organizations. Not Reinsurers usually deal with group policyowners.
Mutual insurers pay dividends to participating policyowners if the insurer has which of the following?	Divisible surplus
Which of the following is a commercial insurer	Stock Company, Mutual Company, Industrial Company Not Fraternal Company
John has an insurance policy that gives him the right to share in the insurer's surplus. What kind of policy is this?	Participating
Who is considered the owner of a mutual insurance company?	Policyholders
All the following types of insurance companies may be approved to operate in nearly all states EXCEPT	Lloyds of London
Which entity has as one of its objectives preserving state regulation of insurance?	National Association of Insurance Commissioners
Explain the difference between what a general agent does as compared to a PPGA?	PPGA's primarily sell. General agents primarily recruit, train, and manage
Which of the following is a type of insurance where an insurer transfers loss exposures from policies written for its insureds?	Reinsurance
A participating company is also referred to as which type of insurer?	Mutual Insurer
Companies that sell more than one type of insurance are	multi-line insurers
What type of agent may represent a number of insurance companies under separate contractual agreements	Independent agent
What is a participating life insurance policy?	Contract that allows the policyowner to receive a share of surplus in the form of policy dividends
Which of the following requires insurers to disclose when an applicant's consumer or credit history is being investigated	1970 - Fair Credit Reporting Act
The major difference between participating and nonparticipating policies is the	presence of policy dividends
What is the purpose of insurance?	To replace the uncertainty of risk with guarantees
What is defined as uncertainty regarding loss?	Risk
Purchasing disability insurance best represents which treatment of risk?	Transference
An accident is classified as which of the following?	Peril
The principle that the larger the amount of exposures that are combined into a group, the more certainty there is to the amount of loss incurred in any given period is known as	Law of large numbers
Which of the following would NOT be accomplished with the purchase of an insurance policy?	Risk is eliminated
Moral hazard is described as the	increased chance of a loss because of an insured's dishonest tendencies
Which of the following statements is CORRECT?	Only pure risks are insurable.
All of the following situations must exist for a risk to be insurable EXCEPT a	certain gain or loss
What is known as the immediate specific event causing loss and giving rise to risk?	Peril
A situation in which there is ONLY a chance of loss or no loss is a	pure risk
Which of the following is a circumstance in which there is a possibility of both a loss or a gain?	Speculative risk
Which type of risk is gambling?	Speculative risk
All of the following elements must exist for a risk to be insurable	loss due to chances, definite and measurable loss, predictable loss Not catastrophic loss
Bill decides to put aside a large amount of money from his life's savings to devote for taking care of his family's future financial needs in the event of his death. This treatment of risk can be described as	Retention
Which of the following refers to a condition that may increase the chance of a loss?	Hazard
Which of the following insurance concepts is founded on the ability to predict the approximate number of deaths or frequency of disabilities within a certain group during a specific time?	Law of large numbers
Which of the following statements does describe an element of an insurable risk?	The loss must be definite and measurable, The loss cannot be catastrophic, The loss exposures to be insured must be large Not The loss must not be due to chance.
What term best describes the approximate number of deaths that will occur among a certain group during a certain period?	Mortality rate
Which of the following is considered to be a situation that has the potential for loss?	Loss exposure
All of the following actions are examples of risk avoidance	Bill won't fly in an airplane, Wendy keeps her money out of the stock market, John never drives a car. Not Pat pays his insurance premium.
Which method of determining the financial value of a person’s life is based on computing the current value of a person’s future earnings?	Human Life Value Approach
When a large group of people spread a risk for a small certain cost it's known as	loss sharing
Which of the following is considered to be a definition of the term "loss"?	An insurable event that takes place which results in a payment made by the insurance company, Unintentional decrease in the value of an asset due to a peril, The amount an insurance company must pay because of an insurable event Not Probability event
Which of the following best describes the function of insurance?	It spreads financial risk over a large group to minimize the loss to any one individual.
Accepting a risk and confronting it if it occurs is referred to as risk	reduction
All of the following circumstances must be met for loss retention to be an effective risk management technique	Loss cannot be catastrophic, Highly predictable losses, Loss must be measurable Not Probability of loss is unknown
Which risk involves the chance of both loss and gain?	Speculative risk
Which of the following is considered a definition of risk?	The potential for loss, Exposure to danger, Uncertainty Not The cause of a loss
Buying insurance is one of the most effective ways of	transferring risk
Which of the following describes the statement "The more times an event is repeated, the more predictable the outcome becomes"?	Law of large numbers
The owner of a camera store is worried that her new employees may help themselves to items from inventory without paying for them. What kind of hazard is described?	Moral hazard
Which of the following describes the increase in the probability of a loss due to an insured's dishonest tendencies?	Moral hazard
Individual tendencies that arise from an attitude or state of mind, causing indifference to loss is what kind of hazard?	Morale
Which of the following is an element of an insurable risk?	Loss must be due to chance, Loss must be predictable, Loss must be measurable Not Loss must be catastrophic
A tornado is an example of	a peril
What chance is involved in pure risk?	Loss only
Restoring an insured to the same condition as before a loss is known as	Principle of indemnity
In the insurance business, risk can best be defined as	uncertainty regarding financial loss.
Carl buys his wife Mary a $50,000 diamond ring. When she is not wearing the ring, she keeps it in a safe deposit box at a local bank. This is an example of risk	reduction
Which of these statements correctly describes risk?	Pure risk is the only insurable risk
An insurer is considered authorized if it	is licensed or authorized by the state
Insurable interest must exist at what time?	At the time of application
Which of the following is a requirement of a contract?	Parties involved must be competent, Contract must have a legal purpose, Offer and acceptance must be involved Not Equal consideration is required between the involved parties
Which of the following is an example of legal consideration?	Application and initial premium
Which of the following statements regarding insurable interest is correct?	Insurable interest exists when the applicant is the insured. The applicant must be subject to loss death, illness,or disability of insured. The person be insured must give consent before a policy is issued, even if the applicant has an insurable interest.
Which course of action is the insurer entitled to when deliberate concealment is committed by the insured?	Rescinding the contract
The authority given by an insurer or employer to a licensee to transact insurance or adjust claims on their behalf is called	authorization
All of the following are considered to be typical characteristics describing the nature of an insurance contract	Unilateral, Aleatory, Adhesion Not Bilateral
Doug approaches Ed about purchasing term life insurance. Ed has access to many different life insurance companies to get the best quote for Doug. In this situation, Ed would best be described as a(an)	Broker
An insurance contract is prepared by one party, the insurer, rather than by negotiation between the contracting parties. Which of the following statements explains this characteristic of insurance contracts?	The insurance contract is a contract of adhesion.
Which of the following terms is used for the voluntary relinquishment of a known right?	Waiver
A unilateral contract is one in which	only one party (the insurer) makes any kind of legally enforceable promise
Special features of insurance contracts include all of the following	conditional, aleatory, unilateral Not estoppel
Which of the following contracts is defined as "one that restores an injured party to the condition that was present before the loss"?	Indemnity contract
Which of the following is required in the content of a policy?	Parties involved in the contract, Period to which the coverage exists, Risk insured against Not Probability of loss
Which of the following statements about authority is NOT correct?	Express authority is granted by means of the agent's contract. Implied authority is not overtly extended in the agent's contract but does permit many of the agent's operations. Apparent authority can be assumed from the actions of the principal.
Which of the following statements correctly describes a contract of indemnity?	One party is restored to the same financial position the party was In before the loss occurred
An agent is an individual who has been authorized by an insurer to be its representative and to perform all of the following acts	solicit applications for insurance, collect premiums from policyowners, render services to prospects Not authorize payment of certain claims
Which of the following best describes the concept that the consideration is not equal in contract law?	Aleatory
All are competent parties who can enter into insurance contracts	Those under influence of alcohol
A contract requires	an offer and acceptance of the contract terms
In insurance, an offer is usually made when	The application is submitted
Which is considered a statement made by an applicant that he/she believes to be true?	Representation
An insurance company has how many years to challenge the validity of a life insurance contract?	Two
With life and health contracts, when must an insurable interest exist?	At the inception of the policy
Which of the following statements describes an insurable interest?	The policyowner must expect to suffer a loss when the insured dies or becomes disabled.
Because an insurance contract has been prepared by an insurance company with no negotiation it is considered	a contract of adhesion
Which of the following is a unique characteristic of an insurance contract?	Conditional
The following are all characteristics of insurance contracts	insurable interest, unilateral, valued or indemnity Not unconditional
A life insurance policy would be considered a wagering contract WITHOUT	insurable interest"
An agent is an individual that represents whom?	Insurer
When an agent is provided the materials from his/her company, which category of authority is the one which allows those items to be used?	Apparent
Which of the following statements regarding utmost good faith in insurance contracts is CORRECT?	Most state insurance laws consider statements made in an application for an insurance policy to be representations, not warranties.
Which principle is accurately described with the statement "Insureds are entitled to recover an amount NOT greater than the amount of their loss"?	Indemnity
The authority of an agent which is spelled out in the written words of the agency contract between the agent and the insurer is called	expressed authority
Which of the following statements describes the parol evidence rule?	A written contract cannot be changed by oral evidence.
Krissa and Janet enter into a contract in which Krissa agrees to fraudulently induce sick people to sell their insurance contracts to Janet's company. Krissa and Janet's contract can best be described as	Void
An agreement without legal effect is	void
Which statement is CORRECT when describing a contract of adhesion?	Contract may be accepted or rejected by the insured
Which characteristic of an insurance contract means there is a potential for unequal exchange of value for both parties	Aleatory
All of the following would be considered non-competent parties in an insurance contract	minors, the mentally infirm, those under the influence of drugs or alcohol Not the disabled
The authority that an insurer gives to its agent by means of the agent's contract is known as	express authority
The importance of a representation is demonstrated in what rule?	Materiality of concealment
What are the licensing requirements for someone who sells variable universal life insurance?	Life and securities
The cash values of life insurance policies belong to which of the following?	Policyowner
How is a family plan life insurance policy normally structured?	Whole life insurance on the husband or wife. Term insurance on the spouse. Term insurance on all of the children.
A policy in which the ages of the insureds are "averaged" and a single premium is charged is known as	joint life
A life insurance policy where the insured can choose where the cash value can be invested is called	variable life
What type of life insurance is known for small face values with premiums collected weekly or monthly by an agent at the policyowners home?	Industrial life insurance
A universal life policyowner may do all of the following	increase premium payments within limits of the insurance company and statutory law, change the frequency of premium payment, make partial withdrawals from the cash value account Not increase the amount at stated intervals without evidence of insurability
Which of the following is a life insurance policy that does require a physical exam?	Graded, Substandard, Noncancelable Not Non-medical
What feature best describes universal life insurance?	Flexible
Credit life insurance would provide coverage for a loss caused by	death
For cash value accumulations to receive favorable tax treatment, a specific percentage of universal life policy premiums must be used to purchase	death benefits
When a child under a family plan policy reaches a certain age, usually 18 or 21, they have the following option	convert their term policy to a whole life policy without evidence of insurability.
When level premium insurance is renewed, the premium amount rises to reflect the increased mortality risk of the insured's older age. What phrase best describes this approach to increasing premiums?	Step-rate
In a universal life policy, all of the following are tax-free.	Policy loan, Cash withdrawal, Death benefit of the insured Not Cash surrendered
When does the cash value in a limited pay life policy increase more rapidly?	As the premium payment period shortens
Carl purchases a $100,000 5-year level term policy. All of the following statements about Carl's coverage are correct	the policy provides a straight, level $100,000 of coverage for 5 years. If the insured dies at any time during the 5 years, his beneficiary will receive the policy's face value. if the insured lives beyond the 5 years, no benefits are payable.
Which of the following is true regarding a family policy that covers children?	Additional children can be added at no cost, Adopted children can be covered, Term insurance is used for the children's rider Not Conversion of child's coverage to permanent insurance requires evidence of insurability
A life insurance policy's limit of liability would be	the policy's face amount
Which of the following types of insurance attempts to make premiums more manageable by offering lower premiums during the first few years following issue?	Modified whole life
Why was variable life insurance created?	To help offset the effects of inflation on death benefits
All of the following statements about variable insurance policies are correct	sales presentations must be preceded or accompanied by a prospectus. state laws protect consumers and promote meaningful communication. full and fair disclosure must be provided to prospective policyowners.
All of the following statements regarding term life insurance are correct EXCEPT	a 3-year renewable policy allows a term policyowner to renew the same coverage for another 3 years. an option to convert provides that a term life insurance policy can be exchanged for a permanent one.
All of the following statements regarding basic forms of whole life insurance are correct	the owner of a 30-pay life policy will owe no more premiums after the 30th year the policy is in force. a single-premium life policy is purchased with a large one-time only premium.
Which of the following policies would best suit a prospective insured who desires permanent insurance but does not want to pay premiums indefinitely?	Limited pay life policy
In a modified endowment contract, the penalty tax imposed on withdrawals is	10%
Bryce purchased a $100,000 Joint Life policy that covered his life as well as his wife's. He died 3 years later in an airplane accident. How much of a death benefit will his wife receive?	$100,000
The insured purchases a policy in the face amount of $10,000. The agent tells the insured that the insured will have to pay the premium for 20 years and will then receive the entire $10,000. Which plan has the insured purchased?	20-year endowment
Which of the following statements do apply to child coverage in a family policy?	Child coverage is convertible to permanent insurance, Child coverage comes in the form of term insurance, Children are covered up to an age stated in the policy Not Only children born prior to policy's issue date may be included
An insurance policy written after 1988 that fails to pass the seven-pay test is known as	a modified endowment contract
All of the following statements about term insurance are correct	it pays a benefit only if the insured dies during the a specified period. level, decreasing, and increasing are basic forms of term insurance. it provides protection for a temporary period of time. Not builds cash value during the specified period.
Which of the following is a characteristic of universal life insurance?	Flexible premium and adjustable death benefit
Which of the following statements describing whole life insurance is CORRECT?	Whole life insurance is designed to mature at age 100.
Which of the following is a true description of non-medical life insurance?	Quicker processing of life insurance application, Less cost involved with underwriting the application, Demand on the medical profession reduced Not Applicants are not required to answer medical questions on the application
Mark, age 45, has a Modified Endowment Contract (MEC). What is the tax penalty for taking a loan against this policy prior to age 59 1/2?	10%
Adjustable life policies combine the following into a single plan	term and permanent insurance
Mrs. Williamson purchases a 5-year $50,000 level term policy with an option to renew. At the end of the 5-year term, she renews the policy. Which of the following statements is CORRECT?	The premium for the renewal period will be higher than the initial period.
Which is true concerning a variable life insurance policy?	It provides a guaranteed minimum death benefit.
Due to its design and flexibility, which of these are more expensive than conventional term or whole life policies?	Adjustable life
Which type of life coverage does provide both living and death benefits	Variable Life, Endowment, Universal Life Not Term
What type of term insurance has a benefit amount that can be tied in to a cost of living index?	Increasing term
Which of the following terms best describes a life insurance policy that provides a straight $100,000 of coverage for a period of five years?	Level term
Which of the following types of life insurance combines a savings element along with a flexible premium option?	Universal life
What type of policy would be best used when the need for protection declines from year to year?	Decreasing term
In a renewable term life insurance policy, the contract will usually	require a higher premium payable at each renewal
Insurers generally offer all of the following forms of term insurance EXCEPT	Level term, Decreasing term, Increasing term Not Modified graded term
Which form of life insurance would be purchased for a specific period and then expire without value?	Term life
Bo's bank approves him for a 100K loan to start a new business. What type of insurance will his bank require him to have?	Credit life insurance
John and Mary have a handicapped child that is financially dependent upon them. The death of one of the parents would not be financially disastrous, however the death of both likely would be. Which policy would be best suited for them?	Second-to-die policy
Which of the following characteristics does apply to a Variable Life policy?	A minimum death benefit is guaranteed, Cash values fluctuate and are not guaranteed, Death benefits fluctuate over the minimum Not Nonforfeiture amounts are guaranteed
The principal advantage of term policies being converted to permanent life insurance is that	no evidence of insurability is required
Increasing term insurance death benefits increase by	specific amounts or a percentage of the original face amount
Which of the following types of life insurance is normally associated with a mortgage loan?	Decreasing term
In contrast to traditional whole life insurance policies, which statement regarding variable life insurance products is correct?	Cash values are not guaranteed.
What is the proper order of initial life insurance premiums, from lowest to highest?	Modified premium, ordinary life, single premium
Which of the following statements regarding modified endowment contracts (MECs) is CORRECT	To avoid being classified as an MEC, a life insurance policy must satisfy the '7-pay test.' The "7-pay test
A life insurance policy that pays the face amount if the insured survives to a specified period of time is called	endowment insurance
An universal life insurance policy has all the following	It is considered a form of permanent life insurance, Contributions (premiums) may be increased or decreased by the policy payor. The face amount may be increased, or decreased. Not Without its adjustable features it resembles an endowment policy

Created by: huangyiken3

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