Question 1

To prevent the moral hazard problem, health and life insurance companies may write policies

Accepted Answer

A) for which premiums increase dramatically once the policyholder is discovered to have contracted an illness. 
B) containing provisions which either reduce or eliminate benefits to persons who contract prespecified illnesses. 
C) limiting the amount the companies will pay in the event that claims are submitted by policyholders. 
D) with all of the above provisions. 
E) with only A and B of the above provisions. 
A) for which premiums increase dramatically once the policyholder is discovered to have contracted an illness. 
B) containing provisions which either reduce or eliminate benefits to persons who contract prespecified illnesses. 
C) limiting the amount the companies will pay in the event that claims are submitted by policyholders. 
D) with all of the above provisions. 
E) with only A and B of the above provisions.

Question 2

When those most likely to produce the outcome insured against are the ones who purchase insurance, insurance companies are said to face the problem of ________.

Accepted Answer

A) fraudulent claims 
B) moral hazard 
C) adverse selection 
D) pecuniary purchases 
A) fraudulent claims 
B) moral hazard 
C) adverse selection 
D) pecuniary purchases

Question 3

Distinguish between different types of life insurance.

Accepted Answer

There are several different types of lif

Question 4

Relative to life insurance companies, property and casualty insurance companies hold

Accepted Answer

A) more liquid assets. 
B) more long-term government bonds. 
C) more commercial mortgages. 
D) fewer municipal bonds. 
A) more liquid assets. 
B) more long-term government bonds. 
C) more commercial mortgages. 
D) fewer municipal bonds.

Question 5

Clauses in life insurance policies that eliminate death benefits if the insured person commits suicide are an example of a ________.

Accepted Answer

A) restrictive provision 
B) restrictive covenant 
C) anti-fraud exclusion 
D) risk-based deductible 
A) restrictive provision 
B) restrictive covenant 
C) anti-fraud exclusion 
D) risk-based deductible

Question 6

Privatization of Social Security

Accepted Answer

A) would transform the program from an unfunded pay-as-you-go system to a fully funded pension plan. 
B) would mean that workers' current contributions to Social Security would no longer be available to pay benefits to current retirees. 
C) receives less public support when the stock market declines. 
D) all of the above 
E) none of the above 
A) would transform the program from an unfunded pay-as-you-go system to a fully funded pension plan. 
B) would mean that workers' current contributions to Social Security would no longer be available to pay benefits to current retirees. 
C) receives less public support when the stock market declines. 
D) all of the above 
E) none of the above

Question 7

Insurance companies' attempts to minimize adverse selection and moral hazard explain which of the following insurance practices?

Accepted Answer

A) collection of information and screening of potential policyholders 
B) risk-based premiums 
C) deductibles and coinsurance 
D) all of the above 
E) only A and B of the above 
A) collection of information and screening of potential policyholders 
B) risk-based premiums 
C) deductibles and coinsurance 
D) all of the above 
E) only A and B of the above

Question 8

________ is an insurance product that will help if you live longer than you expect. For an initial fixed sum or stream of payments, the insurance company agrees to pay you a fixed amount for as long as you live.

Accepted Answer

A) Life insurance proper 
B) Disability insurance 
C) An annuity 
D) Health insurance 
A) Life insurance proper 
B) Disability insurance 
C) An annuity 
D) Health insurance

Question 9

Vesting refers to the length of time that a person must be enrolled in a pension plan before being entitled to receive benefits.

Accepted Answer

A) True 
 B)False

Question 10

The broad categories of life insurance products including which of the following?

Accepted Answer

A) term 
B) whole life 
C) universal life 
D) all of the above 
A) term 
B) whole life 
C) universal life 
D) all of the above

Question 11

A monoline insurance company is an insurance company which specialize in credit insurance alone.

Accepted Answer

A) True 
 B)False

Question 12

All insurance is subject to several basic principles, including all of the following except that

Accepted Answer

A) the insured must provide full and accurate information to the insurance company. 
B) the insured is to profit as a result of insurance coverage. 
C) the loss must be quantifiable. 
D) there must be a relationship between the insured and the beneficiary. 
A) the insured must provide full and accurate information to the insurance company. 
B) the insured is to profit as a result of insurance coverage. 
C) the loss must be quantifiable. 
D) there must be a relationship between the insured and the beneficiary.

Question 13

The federal regulatory agency responsible for regulating the activities of life insurance companies is

Accepted Answer

A) the Federal Deposit Insurance Corporation. 
B) the Federal Reserve. 
C) the Federal Life Insurance Board. 
D) none of the above; there is no such federal regulatory agency. 
A) the Federal Deposit Insurance Corporation. 
B) the Federal Reserve. 
C) the Federal Life Insurance Board. 
D) none of the above; there is no such federal regulatory agency.

Question 14

Which is not a management practice for reducing the problems of adverse selection and moral hazard in insurance?

Accepted Answer

A) deductibles 
B) restrictive provisions 
C) coinsurance 
D) reinsurance 
A) deductibles 
B) restrictive provisions 
C) coinsurance 
D) reinsurance

Question 15

The Social Security system is an example of a pension plan that is fully funded.

Accepted Answer

A) True 
 B)False

Question 16

Demographic trends and changes in retirement patterns suggest that Social Security funding problems will ease over the next few decades.

Accepted Answer

A) True 
 B)False

Question 17

Most private pension plans are insured by the Penny Benny, which pays benefits when a plan's sponsor goes bankrupt.

Accepted Answer

A) True 
 B)False

Question 18

Private pension plan assets are invested mainly in ________.

Accepted Answer

A) government securities 
B) corporate bonds 
C) stock 
D) certificates of deposit 
A) government securities 
B) corporate bonds 
C) stock 
D) certificates of deposit

Question 19

Insurance management tools that give policyholders incentives to avoid accidents insured against include ________.

Accepted Answer

A) deductibles 
B) risk-based premiums 
C) coinsurance 
D) all of the above 
A) deductibles 
B) risk-based premiums 
C) coinsurance 
D) all of the above

Exam 21: Insurance Companies and Pension Funds

To prevent the moral hazard problem, health and life insurance companies may write policies

When those most likely to produce the outcome insured against are the ones who purchase insurance, insurance companies are said to face the problem of ________.

Distinguish between different types of life insurance.

Relative to life insurance companies, property and casualty insurance companies hold

Clauses in life insurance policies that eliminate death benefits if the insured person commits suicide are an example of a ________.

Privatization of Social Security

Insurance companies' attempts to minimize adverse selection and moral hazard explain which of the following insurance practices?

________ is an insurance product that will help if you live longer than you expect. For an initial fixed sum or stream of payments, the insurance company agrees to pay you a fixed amount for as long as you live.

Vesting refers to the length of time that a person must be enrolled in a pension plan before being entitled to receive benefits.

The broad categories of life insurance products including which of the following?

A monoline insurance company is an insurance company which specialize in credit insurance alone.

All insurance is subject to several basic principles, including all of the following except that

The federal regulatory agency responsible for regulating the activities of life insurance companies is

Which is not a management practice for reducing the problems of adverse selection and moral hazard in insurance?

The Social Security system is an example of a pension plan that is fully funded.

Demographic trends and changes in retirement patterns suggest that Social Security funding problems will ease over the next few decades.

Most private pension plans are insured by the Penny Benny, which pays benefits when a plan's sponsor goes bankrupt.

Private pension plan assets are invested mainly in ________.

Insurance management tools that give policyholders incentives to avoid accidents insured against include ________.

Why Study Financial Markets and Institutions

Overview of the Financial System

What Do Interest Rates Mean and What Is Their Role in Valuation

Why Do Interest Rates Change

How Do Risk and Term Structure Affect Interest Rates

Are Financial Markets Efficient

Why Do Financial Institutions Exist

Why Do Financial Crises Occur and Why Are They so Damaging to the Economy

Central Banks and the Federal Reserve System

Conduct of Monetary Policy: Tools, Goals, Strategy, and Tactics

The Money Markets

The Bond Market

The Stock Market

The Mortgage Markets

The Foreign Exchange Market

The International Financial System

Banking and the Management of Financial Institutions

Financial Regulation

Banking Industry: Structure and Competition

The Mutual Fund Industry

Investment Banks, Security Brokers and Dealers, and Venture Capital Firms

Risk Management in Financial Institutions

Hedging With Financial Derivatives

Savings Associations and Credit Unions

Finance Companies

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