Question 1

Which of the following statements about stock insurance companies is true?

Accepted Answer

A)  Stockholders provide operating capital and receive dividends. 
B)  They are nonprofit organizations. 
C)  The insureds own the company. 
D)  They are more likely to provide lower-cost insurance than mutuals. 
A)  Stockholders provide operating capital and receive dividends. 
B)  They are nonprofit organizations. 
C)  The insureds own the company. 
D)  They are more likely to provide lower-cost insurance than mutuals.

Question 2

Mrs. Barker has a poodle that she loves very much. The poor little dog is killed in a house fire, and Mrs. Barker asks her homeowners insurance company to pay $100,000 for the loss of the dog. The insurer denies the claim. On what grounds would it be able to do this?

Accepted Answer

A)  Too much moral hazard potential exists with the loss of pets. 
B)  It's impossible to measure, economically, the value of a beloved pet. 
C)  Animals are never insurable items. 
D)  The insurer could not legally deny the claim. 
A)  Too much moral hazard potential exists with the loss of pets. 
B)  It's impossible to measure, economically, the value of a beloved pet. 
C)  Animals are never insurable items. 
D)  The insurer could not legally deny the claim.

Question 3

Subsidization in insurance pools occurs if a 40-year-old male is charged the same life insurance premium as a 20-year-old male.

Accepted Answer

A) True 
 B)False

Question 4

"Subsidization" in an insurance pool means:

Accepted Answer

A)  the bad risks pay more for insurance than good risks 
B)  the premiums collected by the insurers don't adequately cover the losses experienced by the pool 
C)  those who experience losses have their premiums raised 
D)  exposures that should be charged higher insurance rates are averaged in a pool so that the good as well as bad exposures pay the same rate 
A)  the bad risks pay more for insurance than good risks 
B)  the premiums collected by the insurers don't adequately cover the losses experienced by the pool 
C)  those who experience losses have their premiums raised 
D)  exposures that should be charged higher insurance rates are averaged in a pool so that the good as well as bad exposures pay the same rate

Question 5

If you were an underwriter of homeowners insurance coverage, asking which of the following underwriting questions would probably be socially unacceptable to the homeowner applicant?

Accepted Answer

A)  What religious beliefs do you have? 
B)  Does anyone in your family smoke cigarettes in the house? 
C)  Do you have an alarm system installed and working? 
D)  Do you have a swimming pool? 
A)  What religious beliefs do you have? 
B)  Does anyone in your family smoke cigarettes in the house? 
C)  Do you have an alarm system installed and working? 
D)  Do you have a swimming pool?

Question 6

Reciprocal exchanges are unincorporated.

Accepted Answer

A) True 
 B)False

Question 7

Dividends from mutual insurers are a part of the contract, and minimum dividends are guaranteed.

Accepted Answer

A) True 
 B)False

Question 8

A reciprocal exchange is:

Accepted Answer

A)  a nonprofit corporation 
B)  unincorporated 
C)  a mutual insurance company 
D)  a federal insurance company 
A)  a nonprofit corporation 
B)  unincorporated 
C)  a mutual insurance company 
D)  a federal insurance company

Question 9

Which of the following is not a type of mutual insurance organization?

Accepted Answer

A)  Assessment 
B)  Advanced-premium 
C)  Perpetual 
D)  Reciprocal 
A)  Assessment 
B)  Advanced-premium 
C)  Perpetual 
D)  Reciprocal

Question 10

Adverse selection results in which of the following?

Accepted Answer

A)  No underwriting is necessary. 
B)  Applicants for insurance have a higher probability of loss than the average group of insureds. 
C)  The federal government must write the insurance. 
D)  Better insureds are attracted to the group. 
A)  No underwriting is necessary. 
B)  Applicants for insurance have a higher probability of loss than the average group of insureds. 
C)  The federal government must write the insurance. 
D)  Better insureds are attracted to the group.

Question 11

Mutual insurance companies legally are nonprofit organizations.

Accepted Answer

A) True 
 B)False

Question 12

A mutual insurance company might be characterized by all of the following except:

Accepted Answer

A)  policyholder ownership 
B)  non-profit operations 
C)  taxable dividends to owners 
D)  assessable policies 
A)  policyholder ownership 
B)  non-profit operations 
C)  taxable dividends to owners 
D)  assessable policies

Question 13

Reciprocal exchanges are operated by managers known as notary publics.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following is not an evaluation criterion to determine whether a risk classification is appropriate?

Accepted Answer

A)  Separation 
B)  Reliability 
C)  Incentive Value 
D)  Simplicity 
A)  Separation 
B)  Reliability 
C)  Incentive Value 
D)  Simplicity

Question 15

All the following are necessary for an ideally insurable loss exposure except:

Accepted Answer

A)  large number of homogeneous exposures 
B)  losses must be accidental and unintentional from the point of view of the insured 
C)  losses must be measurable 
D)  low probability of loss 
A)  large number of homogeneous exposures 
B)  losses must be accidental and unintentional from the point of view of the insured 
C)  losses must be measurable 
D)  low probability of loss

Question 16

Buying insurance from a mutual may not always be desirable because:

Accepted Answer

A)  the mutual is trying to make a profit for the stockholders 
B)  you may be paying for other insureds' losses 
C)  premiums may be greater than that of a stock company if the mutual is improperly managed 
D)  the officers of the company are not responsible to the policy holders 
A)  the mutual is trying to make a profit for the stockholders 
B)  you may be paying for other insureds' losses 
C)  premiums may be greater than that of a stock company if the mutual is improperly managed 
D)  the officers of the company are not responsible to the policy holders

Question 17

An assessment mutual:

Accepted Answer

A)  provides primarily fire and windstorm insurance 
B)  is owned by stockholders who supply the capital 
C)  distribute all investment earnings to its policyholders in the form of a dividend 
D)  requires only assessments from each policyholder after the end of each year to cover losses 
A)  provides primarily fire and windstorm insurance 
B)  is owned by stockholders who supply the capital 
C)  distribute all investment earnings to its policyholders in the form of a dividend 
D)  requires only assessments from each policyholder after the end of each year to cover losses

Question 18

Private insurers are classified according to ownership arrangements. Distinct types mentioned in the text include all the following except:

Accepted Answer

A)  stock companies 
B)  mutual companies 
C)  reciprocals 
D)  reinsurer 
A)  stock companies 
B)  mutual companies 
C)  reciprocals 
D)  reinsurer

Question 19

In an insurer death spiral the insurance pool shrinks.

Accepted Answer

A) True 
 B)False

Question 20

Savings bank life insurance:

Accepted Answer

A)  is sold only in a few Eastern states in the U.S. 
B)  is a form of group credit life and disability coverage 
C)  can only be purchased in amounts of $5,000 or less 
D)  is the same as industrial life insurance 
A)  is sold only in a few Eastern states in the U.S. 
B)  is a form of group credit life and disability coverage 
C)  can only be purchased in amounts of $5,000 or less 
D)  is the same as industrial life insurance

Exam 7: Insurable Perils and Insuring Organizations

Which of the following statements about stock insurance companies is true?

Mrs. Barker has a poodle that she loves very much. The poor little dog is killed in a house fire, and Mrs. Barker asks her homeowners insurance company to pay $100,000 for the loss of the dog. The insurer denies the claim. On what grounds would it be able to do this?

Subsidization in insurance pools occurs if a 40-year-old male is charged the same life insurance premium as a 20-year-old male.

"Subsidization" in an insurance pool means:

If you were an underwriter of homeowners insurance coverage, asking which of the following underwriting questions would probably be socially unacceptable to the homeowner applicant?

Reciprocal exchanges are unincorporated.

Dividends from mutual insurers are a part of the contract, and minimum dividends are guaranteed.

A reciprocal exchange is:

Which of the following is not a type of mutual insurance organization?

Adverse selection results in which of the following?

Mutual insurance companies legally are nonprofit organizations.

A mutual insurance company might be characterized by all of the following except:

Reciprocal exchanges are operated by managers known as notary publics.

Which of the following is not an evaluation criterion to determine whether a risk classification is appropriate?

All the following are necessary for an ideally insurable loss exposure except:

Buying insurance from a mutual may not always be desirable because:

An assessment mutual:

Private insurers are classified according to ownership arrangements. Distinct types mentioned in the text include all the following except:

In an insurer death spiral the insurance pool shrinks.

Savings bank life insurance:

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

Fundamentals of Insurance

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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