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Question 1 of 10
1. Question
What is this type of mutual insurer, which provides life and health insurance to members of a social or religious organization?
Correct
Under the state’s insurance code, a fraternal insurer, also known as fraternal benefit society, must have some type of social or religious organization in existence. Also, it must be a nonprofit entity that does not issue common stock; it must operate solely for the benefit of its members or beneficiaries; it must have a representative form of government with a ritualistic form of work.
Incorrect
Under the state’s insurance code, a fraternal insurer, also known as fraternal benefit society, must have some type of social or religious organization in existence. Also, it must be a nonprofit entity that does not issue common stock; it must operate solely for the benefit of its members or beneficiaries; it must have a representative form of government with a ritualistic form of work.
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Question 2 of 10
2. Question
What is this type of private insurer, which is defined as an insurer owned by a parent firm to insure the parent firm’s loss exposures?
Correct
Captive insurers are formed due to the following reasons:
(1) A parent firm may have difficulty in obtaining insurance.
(2) Some captives are formed offshore to take advantage of a favorable regulatory environment.
(3) The parent’s insurance costs may be lower.
(4) A captive insurer makes access to reinsurers easier.
(5) The captive insurer may be a source of profit to the parent of other parties who are insured as well.
(6) There may be income-tax advantages to the parent under certain conditions.Incorrect
Captive insurers are formed due to the following reasons:
(1) A parent firm may have difficulty in obtaining insurance.
(2) Some captives are formed offshore to take advantage of a favorable regulatory environment.
(3) The parent’s insurance costs may be lower.
(4) A captive insurer makes access to reinsurers easier.
(5) The captive insurer may be a source of profit to the parent of other parties who are insured as well.
(6) There may be income-tax advantages to the parent under certain conditions. -
Question 3 of 10
3. Question
When you buy insurance, you will probably purchase it from an agent. Which of the following statements best describes an agent?
I. An agent has the authority to represent the insurer based on the express authority
II. An agent does not have the authority to bind the insurer
III. An agent has the authority to represent the insurer based on implied authority
IV. An agent has the authority to represent the insurer based on apparent authorityCorrect
An agent is someone who legally represents the principal and has the authority to act on the principal’s behalf. The principal is legally responsible for the acts of an agent whenever the agent is acting within the scope of express, implied, or apparent authority.
Incorrect
An agent is someone who legally represents the principal and has the authority to act on the principal’s behalf. The principal is legally responsible for the acts of an agent whenever the agent is acting within the scope of express, implied, or apparent authority.
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Question 4 of 10
4. Question
The majority of life insurance policies and annuities sold today are through personal selling distribution systems. Which of the following are examples of personal selling distribution?
I. Career agents
II. Multiple line exclusive agency systems
III. Risk Managers
IV. BrokersCorrect
Personal selling distributions include the following:
(1) Career agents
(2) Multiple line exclusive agency systems
(3) Independent property and casualty agents
(4) Personal-producing general agent
(5) BrokersIncorrect
Personal selling distributions include the following:
(1) Career agents
(2) Multiple line exclusive agency systems
(3) Independent property and casualty agents
(4) Personal-producing general agent
(5) Brokers -
Question 5 of 10
5. Question
What is this insurance operation, which is defined as the pricing of insurance and the calculation of insurance premiums?
Correct
The premium paid by the insured is the result of multiplying a rate determined by actuaries by the number of exposure units and then adjusting the premium by various rating factors.
Incorrect
The premium paid by the insured is the result of multiplying a rate determined by actuaries by the number of exposure units and then adjusting the premium by various rating factors.
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Question 6 of 10
6. Question
Underwriting refers to the process of selecting, classifying, and pricing applicants for insurance. What are the basic underwriting principles?
I. Attain an underwriting profit
II. Select prospective insureds according to personal underwriting standards
III. Provide equity among the insurer
IV. Provide equity among the policyholdersCorrect
Underwriting is based on several principles. Three principles are essentially important:
(1) The primary objective of underwriting is to attain an underwriting profit.
(2) The second principle is to select prospective insureds according to the company’s underwriting standard.
(3) A final underwriting principle is an equity among the policyholders.Incorrect
Underwriting is based on several principles. Three principles are essentially important:
(1) The primary objective of underwriting is to attain an underwriting profit.
(2) The second principle is to select prospective insureds according to the company’s underwriting standard.
(3) A final underwriting principle is an equity among the policyholders. -
Question 7 of 10
7. Question
What is this insurance operation, which is defined as an arrangement by which the primary insurer that initially writes the insurance transfers to another insurer part or all of the potential losses associated with such insurance?
Correct
Reinsurance is used for several reasons. The most important reasons include the following:
(1) Increase underwriting capacity.
(2) Stabilize profits.
(3) Reduce unearned premium reserve.
(4) Provide protection against a catastrophic loss.Incorrect
Reinsurance is used for several reasons. The most important reasons include the following:
(1) Increase underwriting capacity.
(2) Stabilize profits.
(3) Reduce unearned premium reserve.
(4) Provide protection against a catastrophic loss. -
Question 8 of 10
8. Question
What is this variation of whole life insurance, wherein the death benefit and cash surrender values will increase or decrease with the investment experience of the separate account?
Correct
Variable life insurance can be defined as a fixed premium policy in which the death benefit and cash values vary according to the investment experience of a separate account, which is similar to a mutual fund maintained by the insurer.
Incorrect
Variable life insurance can be defined as a fixed premium policy in which the death benefit and cash values vary according to the investment experience of a separate account, which is similar to a mutual fund maintained by the insurer.
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Question 9 of 10
9. Question
Current assumption whole life insurance is a nonparticipating whole life policy in which the cash values are based on the insurer’s current mortality, investment, and expense experience. What are the common features of a current assumption whole life insurance?
I. An accumulation account reflects the cash value under the policy
II. If the policy is surrendered, a surrender charge is deducted from the accumulation account
III. A flexible interest rate is used to determine cash values
IV. A flexible death benefit and maximum premium level at the time of issue are stated in the policyCorrect
Although the current assumption whole life products vary among insurers, they share some common features, summarized as follows:
(1) An accumulation account reflects the cash value under the policy.
(2) If the policy is surrendered, a surrender charge is deducted from the accumulation account.
(3) A guaranteed interest rate and current interest rate are used to determine cash values.
(4) A fixed death benefit and maximum premium level at the time of issue are stated in the policy.
(5) The premium is periodically predetermined or adjusted based on the experience of the block of policies since the last redetermination date. Depending on the policy, the redetermination can be done annually, every two years, or every five years.Incorrect
Although the current assumption whole life products vary among insurers, they share some common features, summarized as follows:
(1) An accumulation account reflects the cash value under the policy.
(2) If the policy is surrendered, a surrender charge is deducted from the accumulation account.
(3) A guaranteed interest rate and current interest rate are used to determine cash values.
(4) A fixed death benefit and maximum premium level at the time of issue are stated in the policy.
(5) The premium is periodically predetermined or adjusted based on the experience of the block of policies since the last redetermination date. Depending on the policy, the redetermination can be done annually, every two years, or every five years. -
Question 10 of 10
10. Question
What is this type of whole life policy, wherein the premiums are lower for the first 3 to 5 years and higher thereafter?
Correct
The major advantage of a modified life policy is that applicants for insurance can purchase permanent insurance immediately even though they cannot afford the higher premiums for a regular whole life policy. This policy is particularly attractive to persons who expect that their income will increase in the future and that higher premiums will not be financially burdensome.
Incorrect
The major advantage of a modified life policy is that applicants for insurance can purchase permanent insurance immediately even though they cannot afford the higher premiums for a regular whole life policy. This policy is particularly attractive to persons who expect that their income will increase in the future and that higher premiums will not be financially burdensome.