Question 1

A difference between a contract issued on a "named peril" basis versus an "open peril" or "all-risk" basis is:

Accepted Answer

A)  the "named peril" contract usually covers more perils 
B)  the "named peril" contract is usually more expensive than the "open peril" contract 
C)  in the "named peril" contract the insured must prove the peril is covered where in the "open peril" contract the burden of proof is on the insurer to show no coverage 
D)  in the "open peril" or "all risk" contract there are no exclusions to loss 
A)  the "named peril" contract usually covers more perils 
B)  the "named peril" contract is usually more expensive than the "open peril" contract 
C)  in the "named peril" contract the insured must prove the peril is covered where in the "open peril" contract the burden of proof is on the insurer to show no coverage 
D)  in the "open peril" or "all risk" contract there are no exclusions to loss C

Question 2

The scope of insurance:

Accepted Answer

A)  limits the tax-deductibility of premiums 
B)  is limited to social insurance 
C)  is not clearly defined 
D)  does not include weddings 
A)  limits the tax-deductibility of premiums 
B)  is limited to social insurance 
C)  is not clearly defined 
D)  does not include weddings C

Question 3

The Financial Definition of insurance:

Accepted Answer

A)  is that insurance is a contract in which one party agrees to compensate another party for losses covered by the contract 
B)  is that insurance is a financial agreement that transfers the risk of insured losses to a risk pool by an insurer 
C)  differs from state to state 
D)  is that it is any pool for which the insurance mechanism works 
A)  is that insurance is a contract in which one party agrees to compensate another party for losses covered by the contract 
B)  is that insurance is a financial agreement that transfers the risk of insured losses to a risk pool by an insurer 
C)  differs from state to state 
D)  is that it is any pool for which the insurance mechanism works B

Question 4

The loading expenses plus a fair rate of return minus any investment income is the starting point for the calculation of the risk premium for an insurance policy.

Accepted Answer

A) True 
 B)False

Question 5

Most investment income of insurance companies comes from medium to high risk investments in order to reduce the price of insurance as much as possible.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following statements is not correct about the insurance premium?

Accepted Answer

A)  The forecast of policyholders' losses is the starting point for the calculation of the risk premium for an insurance policy. 
B)  The fair rate of return, which is a part of the insurance premium, is governed by law. 
C)  Loading expenses increases the insurance premium. 
D)  Most investment income of insurance companies comes from low risk investments, which reduces the insurance premium. 
A)  The forecast of policyholders' losses is the starting point for the calculation of the risk premium for an insurance policy. 
B)  The fair rate of return, which is a part of the insurance premium, is governed by law. 
C)  Loading expenses increases the insurance premium. 
D)  Most investment income of insurance companies comes from low risk investments, which reduces the insurance premium.

Question 7

Private insurance can be classified according to coverage. Distinct types mentioned in the text include all the following except:

Accepted Answer

A)  Property 
B)  Commercial Lines 
C)  Auto 
D)  Submarine 
A)  Property 
B)  Commercial Lines 
C)  Auto 
D)  Submarine

Question 8

Bodacious D, a famous singer, is performing at a concert. He does not have his body guards and security team present for the concert. A crazed fan runs up on stage, declares her love for Bodacious D, and throws herself at him. Bodacious D lands on the floor, and breaks his back. Which of these is the HAZARD(S), and which is the PERIL?

Accepted Answer

A)  The peril is not having a body guard present; the hazard is the crazed fan. 
B)  The peril is being attacked by the fan, and the hazard is not having a body guard present. 
C)  The peril is not having a body guard present, and the hazard is being pushed to the floor. 
D)  The peril is both the crazed fan and the lack of security; there is no hazard in this case. 
A)  The peril is not having a body guard present; the hazard is the crazed fan. 
B)  The peril is being attacked by the fan, and the hazard is not having a body guard present. 
C)  The peril is not having a body guard present, and the hazard is being pushed to the floor. 
D)  The peril is both the crazed fan and the lack of security; there is no hazard in this case.

Question 9

The aggregate increased costs to society of operating the insurance mechanism includes all of the following except:

Accepted Answer

A)  cost of operating the insurance company 
B)  losses due to uninsured flood losses 
C)  the occurrence of intentional losses to collect insurance 
D)  the tendency of insureds to exaggerate the amount of actual losses in the claim process 
A)  cost of operating the insurance company 
B)  losses due to uninsured flood losses 
C)  the occurrence of intentional losses to collect insurance 
D)  the tendency of insureds to exaggerate the amount of actual losses in the claim process

Question 10

Explain briefly why insurance functions as an antimonopoly device.

Accepted Answer

Insurance enables smaller comp

Question 11

The efficient insurance market requires all of the following conditions except:

Accepted Answer

A)  numerous sellers and buyers 
B)  well-informed consumers 
C)  numerous purchase substitutes (homogeneity) 
D)  a government subsidy for lower-income citizens 
A)  numerous sellers and buyers 
B)  well-informed consumers 
C)  numerous purchase substitutes (homogeneity) 
D)  a government subsidy for lower-income citizens

Question 12

Which of the following is not provided on the private insurance market?

Accepted Answer

A)  Bank deposit insurance 
B)  Life insurance 
C)  Health insurance 
D)  Commercial lines insurance 
A)  Bank deposit insurance 
B)  Life insurance 
C)  Health insurance 
D)  Commercial lines insurance

Question 13

The lack of annuities for life insurance is a serious problem in the U.S.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following factors is not considered when an insurance rate or premium is calculated?

Accepted Answer

A)  The cost of the actual losses 
B)  The cost of the insurance salesman and other company expenses 
C)  Investment earnings on prepaid premiums 
D)  The decision by the U.S. Supreme Court in 1943 
A)  The cost of the actual losses 
B)  The cost of the insurance salesman and other company expenses 
C)  Investment earnings on prepaid premiums 
D)  The decision by the U.S. Supreme Court in 1943

Question 15

Which of the following is not a direct social benefit of the insurance mechanism?

Accepted Answer

A)  Increased business and social stability 
B)  Better allocation of society's resources 
C)  Better choice of optimum size of business operations 
D)  Lower federal and state income taxes 
A)  Increased business and social stability 
B)  Better allocation of society's resources 
C)  Better choice of optimum size of business operations 
D)  Lower federal and state income taxes

Question 16

Which of the following is not a type of property and liability insurance?

Accepted Answer

A)  Bank deposit insurance 
B)  Commercial lines insurance 
C)  Business interruption coverage 
D)  Wedding insurance 
A)  Bank deposit insurance 
B)  Commercial lines insurance 
C)  Business interruption coverage 
D)  Wedding insurance

Question 17

Life insurance provides protection from the peril of death.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following is the correct calculation of the insurance premium?

Accepted Answer

A)  Insured Loss Claims + Loading Expenses + Fair Rate of Return - Investment Income 
B)  Insured Loss Claims + Loading Expenses + Investment Income - Fair Rate of Return 
C)  Insured Loss Claims - Loading Expenses - Investment Income + Fair Rate of Return 
D)  Insured Loss Claims - Loading Expenses + Fair Rate of Return + Investment Income 
A)  Insured Loss Claims + Loading Expenses + Fair Rate of Return - Investment Income 
B)  Insured Loss Claims + Loading Expenses + Investment Income - Fair Rate of Return 
C)  Insured Loss Claims - Loading Expenses - Investment Income + Fair Rate of Return 
D)  Insured Loss Claims - Loading Expenses + Fair Rate of Return + Investment Income

Question 19

Which of the following is not a type of property and liability insurance?

Accepted Answer

A)  Boiler and machinery insurance 
B)  Personal lines insurance 
C)  Health insurance 
D)  Commercial lines insurance 
A)  Boiler and machinery insurance 
B)  Personal lines insurance 
C)  Health insurance 
D)  Commercial lines insurance

Question 20

The insurance mechanism:

Accepted Answer

A)  redistributes the cost of insured losses 
B)  intends to make profits for social insurance policies 
C)  only applies to private insurance companies 
D)  is defined by law 
A)  redistributes the cost of insured losses 
B)  intends to make profits for social insurance policies 
C)  only applies to private insurance companies 
D)  is defined by law

Exam 6: Fundamentals of Insurance

A difference between a contract issued on a "named peril" basis versus an "open peril" or "all-risk" basis is:

The scope of insurance:

The Financial Definition of insurance:

The loading expenses plus a fair rate of return minus any investment income is the starting point for the calculation of the risk premium for an insurance policy.

Most investment income of insurance companies comes from medium to high risk investments in order to reduce the price of insurance as much as possible.

Which of the following statements is not correct about the insurance premium?

Private insurance can be classified according to coverage. Distinct types mentioned in the text include all the following except:

The aggregate increased costs to society of operating the insurance mechanism includes all of the following except:

Explain briefly why insurance functions as an antimonopoly device.

The efficient insurance market requires all of the following conditions except:

Which of the following is not provided on the private insurance market?

The lack of annuities for life insurance is a serious problem in the U.S.

Which of the following factors is not considered when an insurance rate or premium is calculated?

Which of the following is not a direct social benefit of the insurance mechanism?

Which of the following is not a type of property and liability insurance?

Life insurance provides protection from the peril of death.

Which of the following is the correct calculation of the insurance premium?

Which of the following is not a type of property and liability insurance?

The insurance mechanism:

Introduction to Enterprise Risk Management and Insurance

Risk Identification

Risk Assessment and Pooling

Risk-Handling Techniques: Loss Control, Risk Transfer, and Loss Financing

Risk-Handling Techniques: Diversification and Hedging

Insurable Perils and Insuring Organizations

Insurance Functions

Insurance Markets: Economics and Issues

Insurance Regulation

Insurance Contracts

The Personal Auto Policy

Homeowners Insurance

Professional Financial Planning

Life Insurance Policies

Standard Life Insurance Contract Provisions and Options

Annuities

Health Insurance and Disability Income

Employee Benefits

Social Security

Unemployment and Workers Compensation Insurance

Commercial Property Insurance

Commercial Liability Insurance

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