Question 1

Which type of life insurance policy can offer flexibility on the size and timing of premium payments?

Accepted Answer

A)  whole life 
B)  term 
C)  universal life 
D)  decreasing term 
A)  whole life 
B)  term 
C)  universal life 
D)  decreasing term C

Question 2

The most common use of funds for property and casualty insurance companies is for

Accepted Answer

A)  corporate bonds and municipal securities. 
B)  Treasury bills. 
C)  corporate stock. 
D)  commercial paper. 
A)  corporate bonds and municipal securities. 
B)  Treasury bills. 
C)  corporate stock. 
D)  commercial paper. A

Question 3

An insurance company's liquidity is measured as

Accepted Answer

A)  net profit minus losses 
B)  premium income minus policy expenses 
C)  invested assets divided by loss reserves and unearned premium reserves 
D)  none of the above 
A)  net profit minus losses 
B)  premium income minus policy expenses 
C)  invested assets divided by loss reserves and unearned premium reserves 
D)  none of the above C

Question 4

The ratio of an insurance company's net profit to policyholders' surplus is called

Accepted Answer

A)  liquidity ratio. 
B)  return on net worth. 
C)  net underwriting margin. 
D)  return on assets. 
A)  liquidity ratio. 
B)  return on net worth. 
C)  net underwriting margin. 
D)  return on assets.

Question 5

Which of the following is not involved in the regulation of the insurance industry?

Accepted Answer

A)  the National Association of Insurance Commissioners (NAI
C)  
B)  the Insurance Regulatory Information System (IRIS) 
C)  the Federal Deposit Insurance Corporation (FDI
C)  
D)  All of the above are involved in the regulation of the insurance industry. 
A)  the National Association of Insurance Commissioners (NAI
C)  
B)  the Insurance Regulatory Information System (IRIS) 
C)  the Federal Deposit Insurance Corporation (FDI
C)  
D)  All of the above are involved in the regulation of the insurance industry.

Question 6

Which of the following is not a characteristic commonly assessed by insurance regulators to detect any problems in an insurance company?

Accepted Answer

A)  liquidity of the asset portfolio 
B)  relative size of operating expenses 
C)  return on investment 
D)  All of the above are assessed by regulators. 
A)  liquidity of the asset portfolio 
B)  relative size of operating expenses 
C)  return on investment 
D)  All of the above are assessed by regulators.

Question 7

Property and casualty insurance and life insurance are similar in terms of the predictability of payouts to cover claims.

Accepted Answer

A) True 
 B)False

Question 8

With a(n) ____ insurance policy, the benefits awarded by the life insurance company to the beneficiary differ, depending on the assets backing the policy.

Accepted Answer

A)  universal life 
B)  whole life 
C)  variable life 
D)  group life 
E)  none of the above 
A)  universal life 
B)  whole life 
C)  variable life 
D)  group life 
E)  none of the above

Question 9

The moral hazard problem as related to the insurance industry means that some people take more risks once they are insured.

Accepted Answer

A) True 
 B)False

Question 10

____ is(are) not a typical source of funds for life insurance companies.

Accepted Answer

A)  Deposit insurance premiums 
B)  Annuity plans 
C)  Investment income 
D)  Life and health insurance premiums 
A)  Deposit insurance premiums 
B)  Annuity plans 
C)  Investment income 
D)  Life and health insurance premiums

Question 11

A ____ life insurance company is owned by its policyholders; most life insurance companies are ____.

Accepted Answer

A)  stock-owned; mutual 
B)  mutual; mutual 
C)  stock-owned; stock-owned 
D)  mutual; stock-owned 
A)  stock-owned; mutual 
B)  mutual; mutual 
C)  stock-owned; stock-owned 
D)  mutual; stock-owned

Question 12

Group insurance policies are very popular for employers and employees.

Accepted Answer

A) True 
 B)False

Question 13

____ insurance covers losses due to a contract not being fulfilled.

Accepted Answer

A)  Fidelity bond 
B)  Credit line 
C)  Surety bond 
D)  Business interruption 
A)  Fidelity bond 
B)  Credit line 
C)  Surety bond 
D)  Business interruption

Question 14

Life insurance companies can attempt to reduce their exposure to interest rate risk by

Accepted Answer

A)  increasing their proportion of long-term assets. 
B)  diversifying the age distribution of their customer base. 
C)  increasing their proportion of short-term assets. 
D)  concentrating on an older age distribution of their customer base. 
A)  increasing their proportion of long-term assets. 
B)  diversifying the age distribution of their customer base. 
C)  increasing their proportion of short-term assets. 
D)  concentrating on an older age distribution of their customer base.

Question 15

The most common type of mortgage held by life insurance companies are ____ mortgages.

Accepted Answer

A)  commercial 
B)  residential 
C)  farm 
D)  none of the above 
A)  commercial 
B)  residential 
C)  farm 
D)  none of the above

Question 16

Policyholders who prefer to invest their savings themselves will likely opt for whole life insurance over term insurance.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following statements is incorrect?

Accepted Answer

A)  Insurance provides a payment to the insured under conditions specified by the insurance policy contract. 
B)  Individuals who are less exposed to specific conditions that cause financial damage are more likely to purchase insurance against those conditions. 
C)  Insurance can cause the insured to take more risks because they are protected. 
D)  Insurance companies employ underwriters to calculate the risk of specific insurance policies. 
A)  Insurance provides a payment to the insured under conditions specified by the insurance policy contract. 
B)  Individuals who are less exposed to specific conditions that cause financial damage are more likely to purchase insurance against those conditions. 
C)  Insurance can cause the insured to take more risks because they are protected. 
D)  Insurance companies employ underwriters to calculate the risk of specific insurance policies.

Question 18

The practice of adapting insurance prices to interest rates by lowering premiums when interest rates rise and raising premiums when interest rates decline is called:

Accepted Answer

A)  cyclical rate adjusting. 
B)  collateralizing premiums. 
C)  cash flow underwriting. 
D)  reinsurance. 
A)  cyclical rate adjusting. 
B)  collateralizing premiums. 
C)  cash flow underwriting. 
D)  reinsurance.

Question 19

Which type of life insurance policy specifically accommodates the needs of people who need more insurance now than later?

Accepted Answer

A)  whole life 
B)  term 
C)  decreasing term 
D)  universal life 
A)  whole life 
B)  term 
C)  decreasing term 
D)  universal life

Question 20

Which type of life insurance policy does not build a cash value for policyholders?

Accepted Answer

A)  whole life 
B)  term 
C)  universal life 
D)  All of the above build a cash value. 
A)  whole life 
B)  term 
C)  universal life 
D)  All of the above build a cash value.

Exam 25: Insurance Operations

Which type of life insurance policy can offer flexibility on the size and timing of premium payments?

The most common use of funds for property and casualty insurance companies is for

An insurance company's liquidity is measured as

The ratio of an insurance company's net profit to policyholders' surplus is called

Which of the following is not involved in the regulation of the insurance industry?

Which of the following is not a characteristic commonly assessed by insurance regulators to detect any problems in an insurance company?

Property and casualty insurance and life insurance are similar in terms of the predictability of payouts to cover claims.

With a(n) ____ insurance policy, the benefits awarded by the life insurance company to the beneficiary differ, depending on the assets backing the policy.

The moral hazard problem as related to the insurance industry means that some people take more risks once they are insured.

____ is(are) not a typical source of funds for life insurance companies.

A ____ life insurance company is owned by its policyholders; most life insurance companies are ____.

Group insurance policies are very popular for employers and employees.

____ insurance covers losses due to a contract not being fulfilled.

Life insurance companies can attempt to reduce their exposure to interest rate risk by

The most common type of mortgage held by life insurance companies are ____ mortgages.

Policyholders who prefer to invest their savings themselves will likely opt for whole life insurance over term insurance.

Which of the following statements is incorrect?

The practice of adapting insurance prices to interest rates by lowering premiums when interest rates rise and raising premiums when interest rates decline is called:

Which type of life insurance policy specifically accommodates the needs of people who need more insurance now than later?

Which type of life insurance policy does not build a cash value for policyholders?

Role of Financial Markets and Institutions

Determination of Interest Rates

Structure of Interest Rates

Functions of the Fed

Monetary Policy

Money Markets

Bond Markets

Bond Valuation and Risk

Mortgage Markets

Stock Offerings and Investor Monitoring

Stock Valuation and Risk

Market Microstructure and Strategies

Financial Futures Markets

Options Markets

Swap Markets

Foreign Exchange Derivative Markets

Commercial Bank Operations

Bank Regulation

Bank Management

Bank Performance

Thrift Operations

Finance Company Operations

Mutual Fund Operations

Securities Operations

Pension Fund Operations

Filters

A life insurance company is owned by its policyholders; most life insurance companies are .