Question 1

Cathy just started a job with XYZ Manufacturing Company.She attended an orientation and was given a packet providing information about the various employee benefits XYZ offers.One item in the packet was a booklet and application form from an auto insurer.The insurer offers lower premiums to XYZ employees.The insurer's plan for selling individually-underwritten auto insurance to employees of XYZ Manufacturing Company is called

Accepted Answer

A) direct response. 
B) mass merchandising. 
C) personal selling. 
D) multiple marketing.

Question 2

Which of the following statements about mutual insurers is true?

Accepted Answer

A) They are legally organized as partnerships. 
B) They have a board of directors which is selected by state insurance departments. 
C) They are owned by their stockholders. 
D) They may pay dividends to their policyholders.

Question 3

Why are some mutual insurers referred to as "assessment mutuals"?

Accepted Answer

A) They charge low premiums because the loss exposures of their insureds are thoroughly assessed before a policy is written. 
B) They are noted for being very thorough in their assessment of investment opportunities. 
C) They are assessed for state premium taxes only if they make a profit. 
D) They can assess policyholders if premiums are insufficient to pay losses and expenses.

Question 4

ABC Insurance has always used the exclusive agency system to market coverages.ABC,however,cannot afford full-time agents in sparsely-populated areas.To reach customers in these areas,ABC enters into agreements with local independent agents.Using more than one marketing system is called employing a

Accepted Answer

A) direct response system. 
B) general agency system. 
C) multiple distribution system. 
D) branch office system.

Question 5

Which of the following statements about life insurance marketing systems is true?

Accepted Answer

A) Insurance brokers are not permitted to sell live insurance. 
B) Some exclusive agents who market property and liability insurance also sell life insurance. 
C) Independent insurance agents are not permitted to market life insurance. 
D) Financial institutions such as banks are not permitted to market life insurance.

Question 6

Peggy is an independent insurance agent who places substantial amounts of business with XYZ Insurance Company.XYZ pays Peggy a bonus when she meets a sales goal.XYZ also allows Peggy to recruit and train sub-agents.She receives additional commissions based on the sales generated by the sub-agents.Based on this description,we can conclude that Peggy is a

Accepted Answer

A) direct writer. 
B) personal producing general agent. 
C) multiple line exclusive agent. 
D) broker.

Question 7

David is a successful independent insurance agent.Recently,one of the life insurance companies with whom he places business offered him a special financial arrangement. If David meets sales targets,he will receive large bonuses.He will also be able to recruit and train sub-agents and receive an over-riding commission based on the amount of life insurance the sub-agents sell.Based on this description,David is a(n)

Accepted Answer

A) insurance broker. 
B) personal-producing general agent. 
C) direct writer. 
D) multiple life exclusive agent.

Question 8

Sarah owns a property and liability insurance agency.She is authorized to represent several insurance companies and she is compensated by commissions.Sarah's agency owns the expiration rights to the business she sells.Sarah is a(n)

Accepted Answer

A) independent agent. 
B) exclusive agent. 
C) direct writer. 
D) insurance broker.

Question 9

The bar at the local franchise of a national chain continued to serve a drunk customer.The customer left the bar and tried to drive home.The drunk driver hit and killed three people who were riding bicycles.The legal representatives of those who were killed filed a multi-million dollar lawsuit against the national chain.As jury awards in the city where the incident occurred tend to be high,insurers marketing liquor liability insurance refused to issue new coverage until the case was resolved.Because no admitted insurers were willing to offer the coverage,liquor liability in this case is considered a(n)

Accepted Answer

A) residual line. 
B) mandatory coverage. 
C) orphan policy. 
D) surplus line.

Question 10

All of the following are reasons why mutual insurance companies convert to stock insurance companies EXCEPT

Accepted Answer

A) Stock companies can offer stock options to attract and retain key personnel. 
B) Stock companies can raise new capital more easily. 
C) Stock companies are exempt from state insurance regulation. 
D) Stock companies offer greater flexibility to expand through acquisitions.

Question 11

The corporate structure of mutual insurers is changing rapidly.All of the following are current trends EXCEPT

Accepted Answer

A) demutualization of some insurers. 
B) sharp increase in the number of mutual insurance companies. 
C) increase in company mergers. 
D) formation of mutual holding companies.

Question 12

Jim would like to start a business raising thoroughbred racehorses.The business would be the first of its kind in the state where he lives.Obtaining insurance on the horses is a key concern,and he was dismayed to learn that none of the insurers authorized to operate in his state offer this specialty insurance.What is the name of the intermediary which Jim can use to place this coverage with an insurer not admitted to his state?

Accepted Answer

A) alien insurer 
B) general agent 
C) surplus lines broker 
D) direct writer

Question 13

Advantages of the direct response system for marketing life insurance include which of the following?
I.Advertising can be specifically directed to selected markets.
II.Complex products can be easily sold.

Accepted Answer

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

Question 14

Which of the following statements is (are)true about savings bank life insurance (SBLI)?
I.Each depositor at the savings bank receives life insurance equal to his or her savings account balance.
II.The goal of SBLI is to provide low-cost life insurance to consumers.

Accepted Answer

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

Question 15

Which of the following statements is true about fraternal insurers?

Accepted Answer

A) They are a form of stock insurer. 
B) They specialize in writing life and health insurance. 
C) They are taxed more heavily than other types of insurers because of discriminatory marketing practices. 
D) They account for the majority of life insurance in force in the United States.

Question 16

Which of the following statements about the sale of property and liability insurance through the direct response system is (are)true?
I.Selling expenses are higher because market segmentation tends to be less precise than with other marketing methods.
II.It is the most appropriate system for selling complex products.

Accepted Answer

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

Question 17

Some investors decided to start an insurance company.Each investor contributed $50,000 to raise the capital required to charter a new company.Each investor received an ownership interest in the company.The company will raise additional capital by selling ownership rights to other investors.Under this type of organization,the customer and owner functions are separate.This type of insurer is called a

Accepted Answer

A) stock company. 
B) reciprocal exchange. 
C) fraternal company. 
D) mutual company.

Question 18

Scott works in property and liability insurance marketing.He legally represents insurance purchasers,rather than insurance companies.Scott is paid a commission on the insurance placed with insurers.Scott is a(n)

Accepted Answer

A) exclusive agent. 
B) direct writer. 
C) branch manager. 
D) insurance broker.

Question 19

In 2008,Liberty Mutual Insurance Company acquired Safeco Insurance Company.This acquisition demonstrates which financial services industry trend?

Accepted Answer

A) convergence 
B) demutualization 
C) mass merchandising 
D) consolidation

Question 20

Which of the following statements about personal producing general agents is (are)true?
I.They often have the option of recruiting and training sub-agents.
II.They are independent agents who produce substantial amounts of life insurance with one insurer.

Accepted Answer

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

Exam 5: Types of Insurers and Marketing Systems

Which of the following statements about mutual insurers is true?

Why are some mutual insurers referred to as "assessment mutuals"?

ABC Insurance has always used the exclusive agency system to market coverages.ABC,however,cannot afford full-time agents in sparsely-populated areas.To reach customers in these areas,ABC enters into agreements with local independent agents.Using more than one marketing system is called employing a

Which of the following statements about life insurance marketing systems is true?

Sarah owns a property and liability insurance agency.She is authorized to represent several insurance companies and she is compensated by commissions.Sarah's agency owns the expiration rights to the business she sells.Sarah is a(n)

All of the following are reasons why mutual insurance companies convert to stock insurance companies EXCEPT

The corporate structure of mutual insurers is changing rapidly.All of the following are current trends EXCEPT

Advantages of the direct response system for marketing life insurance include which of the following? I.Advertising can be specifically directed to selected markets. II.Complex products can be easily sold.

Which of the following statements is (are) true about savings bank life insurance (SBLI) ? I.Each depositor at the savings bank receives life insurance equal to his or her savings account balance. II.The goal of SBLI is to provide low-cost life insurance to consumers.

Which of the following statements is true about fraternal insurers?

Scott works in property and liability insurance marketing.He legally represents insurance purchasers,rather than insurance companies.Scott is paid a commission on the insurance placed with insurers.Scott is a(n)

In 2008,Liberty Mutual Insurance Company acquired Safeco Insurance Company.This acquisition demonstrates which financial services industry trend?

Which of the following statements about personal producing general agents is (are) true? I.They often have the option of recruiting and training sub-agents. II.They are independent agents who produce substantial amounts of life insurance with one insurer.