Question 1

In Maryland, drivers who are unable to obtain auto insurance in the voluntary market are insured through a(n)

Accepted Answer

A)  state fund. 
B)  reinsurance facility. 
C)  joint underwriting association 
D)  automobile insurance plan. 
A)  state fund. 
B)  reinsurance facility. 
C)  joint underwriting association 
D)  automobile insurance plan. A

Question 2

In the state where Susan lives, drivers whom private insurance companies do not want to insure are placed in a common pool, and each insurer pays its pro rata share of pool losses and expenses. A common policy is used for all high-risk drivers. Susan's state handles high-risk drivers through a(n)

Accepted Answer

A)  automobile insurance plan. 
B)  joint underwriting association. 
C)  pure no-fault plan. 
D)  specialty auto insurer. 
A)  automobile insurance plan. 
B)  joint underwriting association. 
C)  pure no-fault plan. 
D)  specialty auto insurer. B

Question 3

The term used to describe plans in which automobile insurers participate to make insurance available to drivers unable to obtain coverage in the standard market is the

Accepted Answer

A)  foreign market. 
B)  fair market. 
C)  residual (shared) market. 
D)  high-premium market. 
A)  foreign market. 
B)  fair market. 
C)  residual (shared) market. 
D)  high-premium market. C

Question 4

Which of the following statements about the characteristics of current no-fault laws is true?

Accepted Answer

A)  Most laws in force today are pure no-fault laws. 
B)  Most laws apply to both bodily injury and property damage. 
C)  Most laws permit payment of survivor benefits to a surviving spouse and children. 
D)  States with add-on plans restrict the right of accident victims to sue negligent drivers. 
A)  Most laws in force today are pure no-fault laws. 
B)  Most laws apply to both bodily injury and property damage. 
C)  Most laws permit payment of survivor benefits to a surviving spouse and children. 
D)  States with add-on plans restrict the right of accident victims to sue negligent drivers.

Question 5

A state law that requires individuals who have been involved in an auto accident or who have been convicted for certain vehicle-related offenses to demonstrate the ability to pay liability claims up to a specified dollar amount is called a(n)

Accepted Answer

A)  financial responsibility law. 
B)  compulsory insurance law. 
C)  unsatisfied judgment fund law. 
D)  "no pay, no play" law. 
A)  financial responsibility law. 
B)  compulsory insurance law. 
C)  unsatisfied judgment fund law. 
D)  "no pay, no play" law.

Question 6

Alan has been involved in three accidents and has been ticketed for a number of driving violations. He tried to purchase auto insurance, but three insurers refused to sell him coverage. The generic name for state plans designed to insure drivers like Alan is the

Accepted Answer

A)  exchange market. 
B)  residual market. 
C)  voluntary market. 
D)  excess market. 
A)  exchange market. 
B)  residual market. 
C)  voluntary market. 
D)  excess market.

Question 7

Some insurance companies intentionally seek to insure motorists with poor driving records. These insurers commonly insure drivers who have been turned-down or canceled by other insurers. What name is given to insurers who provide coverage to these higher-than-average risks drivers?

Accepted Answer

A)  alien insurers 
B)  guaranty fund insurers 
C)  specialty insurers 
D)  surplus lines insurers 
A)  alien insurers 
B)  guaranty fund insurers 
C)  specialty insurers 
D)  surplus lines insurers

Question 8

Which of the following statements about shopping for auto insurance is true?

Accepted Answer

A)  Adequate physical damage insurance on your auto is the most important consideration. 
B)  Consideration should be given to dropping liability coverage if you drive an older car with a low market value. 
C)  To obtain the lowest premium, an applicant should review his or her eligibility for all discounts offered. 
D)  Price comparisons are of little value since auto insurers tend to charge the same premiums. 
A)  Adequate physical damage insurance on your auto is the most important consideration. 
B)  Consideration should be given to dropping liability coverage if you drive an older car with a low market value. 
C)  To obtain the lowest premium, an applicant should review his or her eligibility for all discounts offered. 
D)  Price comparisons are of little value since auto insurers tend to charge the same premiums.

Question 9

Which of the following statements about the factors affecting automobile insurance rates is true?

Accepted Answer

A)  The cost of collision coverage increases as a car gets older. 
B)  Because of high speeds in rural areas, rural drivers tend to pay more for auto insurance than city drivers pay for auto insurance. 
C)  Young unmarried male drivers tend to have fewer accidents than young married male drivers in the same age category. 
D)  People who drive a car to and from work tend to be charged higher rates than those who use a car for pleasure purposes. 
A)  The cost of collision coverage increases as a car gets older. 
B)  Because of high speeds in rural areas, rural drivers tend to pay more for auto insurance than city drivers pay for auto insurance. 
C)  Young unmarried male drivers tend to have fewer accidents than young married male drivers in the same age category. 
D)  People who drive a car to and from work tend to be charged higher rates than those who use a car for pleasure purposes.

Question 10

Scott had trouble obtaining auto insurance. After three companies refused to insure him, he called the state insurance department. A representative suggested he obtain coverage through Last Chance Insurance Company because "that's all they insure-high-risk drivers." Scott contacted Last Chance. He was not refused coverage; however, the premium Scott was required to pay was three times greater than the average premium in the market. Last Chance Insurance Company is a(n)

Accepted Answer

A)  reinsurance facility. 
B)  automobile insurance plan. 
C)  specialty auto insurer. 
D)  joint underwriting association. 
A)  reinsurance facility. 
B)  automobile insurance plan. 
C)  specialty auto insurer. 
D)  joint underwriting association.

Question 11

A credit-based score that insurers claim is highly predictive of future claims costs is an individual's

Accepted Answer

A)  combined ratio. 
B)  loss ratio. 
C)  insurance score. 
D)  underwriting score. 
A)  combined ratio. 
B)  loss ratio. 
C)  insurance score. 
D)  underwriting score.

Question 12

Some insurers are experimenting with the use of an electronic device that can be installed in a vehicle to track driving behavior. The insurers then use the information to help determine the appropriate auto insurance premium to charge. Such devices are called

Accepted Answer

A)  data recorders. 
B)  radar detectors. 
C)  original equipment manufacturer parts. 
D)  thresholds 
A)  data recorders. 
B)  radar detectors. 
C)  original equipment manufacturer parts. 
D)  thresholds

Question 13

Which of the following statements about unsatisfied judgment funds is (are) true?
I.An accident victim must obtain a judgment against the motorist who caused an accident and must show the judgment cannot be collected.
II.The major disadvantage is that the negligent uninsured motorist is relieved of legal liability.

Accepted Answer

A)  I only 
B)  II only 
C)  both I and II 
D)  neither I nor II 
A)  I only 
B)  II only 
C)  both I and II 
D)  neither I nor II

Question 14

Defects of financial responsibility laws include which of the following?
I.Accident victims may not be fully compensated for their injuries.
II.They apply only to property damage losses, not to bodily injury claims.

Accepted Answer

A)  I only 
B)  II only 
C)  both I and II 
D)  neither I nor II 
A)  I only 
B)  II only 
C)  both I and II 
D)  neither I nor II

Question 15

One benefit payable under a typical no-fault plan is "essential services expenses." Which of the following would be covered under this benefit?

Accepted Answer

A)  funeral expenses 
B)  housekeeping expenses 
C)  hospital bills 
D)  loss of income 
A)  funeral expenses 
B)  housekeeping expenses 
C)  hospital bills 
D)  loss of income

Question 16

Disadvantages of automobile insurance plans include which of the following?
I.High premiums may cause many high-risk drivers to go uninsured.
II.Large underwriting profits have resulted in high-risk drivers subsidizing the cost of insurance for good drivers in the voluntary markets.

Accepted Answer

A)  I only 
B)  II only 
C)  both I and II 
D)  neither I nor II 
A)  I only 
B)  II only 
C)  both I and II 
D)  neither I nor II

Question 17

All of the following are arguments for no-fault automobile insurance laws EXCEPT

Accepted Answer

A)  No-fault is unnecessary as it's easy to determine which driver was negligent when a multiple-vehicle accident occurs. 
B)  A large portion of each premium dollar is used for purposes other than compensating accident victims for their losses. 
C)  There are delays in compensating accident victims under the tort system. 
D)  Seriously injured accident victims tend to be overcompensated, while those with small economic losses are inadequately indemnified. 
A)  No-fault is unnecessary as it's easy to determine which driver was negligent when a multiple-vehicle accident occurs. 
B)  A large portion of each premium dollar is used for purposes other than compensating accident victims for their losses. 
C)  There are delays in compensating accident victims under the tort system. 
D)  Seriously injured accident victims tend to be overcompensated, while those with small economic losses are inadequately indemnified.

Question 18

Some states do not require an individual to demonstrate the ability to pay an automobile liability claim until after the individual has been involved in an accident or has been convicted for certain offenses, such as driving under the influence of alcohol. This approach to dealing with compensating innocent auto accident victims is called a(n)

Accepted Answer

A)  unsatisfied judgement fund. 
B)  financial responsibility law. 
C)  uninsured motorist law. 
D)  compulsory insurance law. 
A)  unsatisfied judgement fund. 
B)  financial responsibility law. 
C)  uninsured motorist law. 
D)  compulsory insurance law.

Question 19

Sharon lives in a state that has a no-fault automobile insurance law. Under the law, an injured person has the right to sue the negligent driver only if the bodily injury claim exceeds a dollar or verbal threshold. The no-fault law in Sharon's state is a(n)

Accepted Answer

A)  pure no-fault plan. 
B)  modified no-fault plan. 
C)  add-on plan. 
D)  choice no-fault plan. 
A)  pure no-fault plan. 
B)  modified no-fault plan. 
C)  add-on plan. 
D)  choice no-fault plan.

Question 20

"No pay, no play" laws have which of the following characteristics?

Accepted Answer

A)  Uninsured motorists are prevented from suing for noneconomic damages. 
B)  Recovery by accident victims is limited to the amount of liability coverage that they have purchased. 
C)  Driving privileges are automatically terminated if the vehicle operator is stopped by the police and does not have liability insurance. 
D)  They require auto insurance purchasers to subsidize state unsatisfied judgment funds. 
A)  Uninsured motorists are prevented from suing for noneconomic damages. 
B)  Recovery by accident victims is limited to the amount of liability coverage that they have purchased. 
C)  Driving privileges are automatically terminated if the vehicle operator is stopped by the police and does not have liability insurance. 
D)  They require auto insurance purchasers to subsidize state unsatisfied judgment funds.

Exam 21: Auto Insurance (continued)

In Maryland, drivers who are unable to obtain auto insurance in the voluntary market are insured through a(n)

In the state where Susan lives, drivers whom private insurance companies do not want to insure are placed in a common pool, and each insurer pays its pro rata share of pool losses and expenses. A common policy is used for all high-risk drivers. Susan's state handles high-risk drivers through a(n)

The term used to describe plans in which automobile insurers participate to make insurance available to drivers unable to obtain coverage in the standard market is the

Which of the following statements about the characteristics of current no-fault laws is true?

A state law that requires individuals who have been involved in an auto accident or who have been convicted for certain vehicle-related offenses to demonstrate the ability to pay liability claims up to a specified dollar amount is called a(n)

Alan has been involved in three accidents and has been ticketed for a number of driving violations. He tried to purchase auto insurance, but three insurers refused to sell him coverage. The generic name for state plans designed to insure drivers like Alan is the

Some insurance companies intentionally seek to insure motorists with poor driving records. These insurers commonly insure drivers who have been turned-down or canceled by other insurers. What name is given to insurers who provide coverage to these higher-than-average risks drivers?

Which of the following statements about shopping for auto insurance is true?

Which of the following statements about the factors affecting automobile insurance rates is true?

A credit-based score that insurers claim is highly predictive of future claims costs is an individual's

Some insurers are experimenting with the use of an electronic device that can be installed in a vehicle to track driving behavior. The insurers then use the information to help determine the appropriate auto insurance premium to charge. Such devices are called

Defects of financial responsibility laws include which of the following? I.Accident victims may not be fully compensated for their injuries. II.They apply only to property damage losses, not to bodily injury claims.

One benefit payable under a typical no-fault plan is "essential services expenses." Which of the following would be covered under this benefit?

Disadvantages of automobile insurance plans include which of the following? I.High premiums may cause many high-risk drivers to go uninsured. II.Large underwriting profits have resulted in high-risk drivers subsidizing the cost of insurance for good drivers in the voluntary markets.

All of the following are arguments for no-fault automobile insurance laws EXCEPT

Sharon lives in a state that has a no-fault automobile insurance law. Under the law, an injured person has the right to sue the negligent driver only if the bodily injury claim exceeds a dollar or verbal threshold. The no-fault law in Sharon's state is a(n)

"No pay, no play" laws have which of the following characteristics?

Risk and Its Treatment

Insurance and Risk

Introduction to Risk Management

Enterprise Risk Management and Related Topics

Types of Insurers and Marketing Systems

Insurance Company Operations

Financial Operations of Insurers

Government Regulation of Insurance

Fundamental Legal Principles

Analysis of Insurance Contracts

Life Insurance

Life Insurance Contractual Provisions

Buying Life Insurance

Annuities and Individual Retirement Accounts

Health-Care Reform; Individual Health Insurance Coverages

Employee Benefits: Group Life and Health Insurance

Employee Benefits: Retirement Plans

Social Insurance

The Liability Risk

Auto Insurance

Homeowners Insurance, Section I

Homeowners Insurance, Section II

Other Property and Liability Insurance Coverages

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