Question 1

All of the following statements about the independent agency system are true EXCEPT

Accepted Answer

A)  Agents are often authorized to adjust small claims.
B)  Agents are compensated on the basis of commissions.
C)  The insurer rather than the agent owns the renewal rights to the business.
D)  The agent is an independent business person who represents several insurers. C

Question 2

Which of the following is a characteristic of a typical mass merchandising plan?

Accepted Answer

A)  higher commission scales for agents and higher administrative expenses
B)  payment of premiums through payroll deduction
C)  group rather than individual underwriting
D)  contributions by the employer to the cost of coverage B

Question 3

Neil needs insurance that is unavailable in the state where he lives.To obtain insurance from a nonadmitted insurer,Neil should contact a

Accepted Answer

A)  surplus lines broker.
B)  nonadmitted agent.
C)  general agency broker.
D)  direct writer. A

Question 4

Which of the following statements about stock insurers is true?

Accepted Answer

A)  They issue assessable policies.
B)  They are not permitted to write property and liability insurance.
C)  Stockholders bear any losses and share in any profits.
D)  They are owned by their policyholders.

Question 5

The leaders of a religious group decided to start a life insurance organization to insure members of the religious group.The insurer will operate as a nonprofit organization,thus receiving favorable tax treatment.The insurer formed will be a

Accepted Answer

A)  health maintenance organization.
B)  stock insurer.
C)  fraternal insurer.
D)  reciprocal exchange.

Question 6

Which of the following statements about managing general agents is (are)true?
I.Managing general agents have become more important in insurance distribution over the past 20 years.
II.Managing general agents are vested with underwriting authority from an insurer.

Accepted Answer

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

Question 7

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 8

Jim would like to start a business raising thoroughbred racehorses.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 that 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 9

Which of the following statements is true with regard to career life insurance agents?

Accepted Answer

A)  They represent several different life insurance companies.
B)  They are compensated largely through a salary and not through commissions.
C)  They are paid the same commission rate on new and renewal business.
D)  The insurer provides financing,training,supervision,and office facilities for career agents.

Question 10

A specialized type of "wholesale" producer that unlike "retail" producers,is vested with underwriting authority from an insurer is a(n)

Accepted Answer

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

Question 11

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 12

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 13

Temporary evidence of insurance until a policy is actually issued is provided by a(n)

Accepted Answer

A)  binder.
B)  brokerage agreement.
C)  pre-approval form.
D)  endorsement.

Question 14

Which of the following statements about Blue Cross and Blue Shield plans is (are)true?
I.Blue Cross and Blue Shield plans can be organized on a nonprofit basis or on a for-profit basis.
II.Blue Cross provides coverage for hospital services;Blue Shield provides coverage for physicians' and surgeons' fees.

Accepted Answer

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

Question 15

A property and casualty insurer in which the salesperson is an employee of the insurer,not an independent contractor,is called a

Accepted Answer

A)  fraternal insurance company.
B)  risk retention group.
C)  direct writer.
D)  captive insurance company.

Question 16

Which of the following statements about reciprocal exchanges is (are)true?
I.Reciprocal exchanges usually specialize in health insurance.
II.Reciprocal exchanges are unincorporated mutual insurance companies.

Accepted Answer

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

Question 17

Marcy advises her clients on investments,taxes,wealth management,estate issues,budgeting,and insurance.Marcy is also a licensed life insurance agent.When Marcy sells life insurance to a client,the distribution channel used is a(n)

Accepted Answer

A)  stock broker.
B)  financial planner.
C)  insurance broker.
D)  direct writer.

Question 18

As an alternative to demutualizing,Big Mutual Insurance Company reorganized itself into a corporate form that can directly or indirectly own a stock insurance company.This form of organization is called a(n)

Accepted Answer

A)  holding company.
B)  shell company.
C)  upstream company.
D)  downstream company.

Question 19

Which of the following statements is true regarding independent insurance agents in property and liability insurance?

Accepted Answer

A)  The insurer owns the expiration rights,not the independent agent.
B)  Independent agents are only permitted to represent one insurance company.
C)  Independent agents are paid the same commission rate on new and renewal business.
D)  Independent agents are not permitted to sell life and health insurance.

Question 20

Brian buys and sells investment securities for his clients.Brian also decided to become a licensed life insurance agent to better serve his customers.While Brian's primary focus is buying and selling financial securities for his clients in exchange for commissions,he also earns commissions on his life insurance sales.Brian is a(n)

Accepted Answer

A)  direct writer.
B)  stock broker.
C)  insurance broker.
D)  personal-producing general agent.

Exam 5: Types of Insurers and Marketing Systems

All of the following statements about the independent agency system are true EXCEPT

Which of the following is a characteristic of a typical mass merchandising plan?

Neil needs insurance that is unavailable in the state where he lives.To obtain insurance from a nonadmitted insurer,Neil should contact a

Which of the following statements about stock insurers is true?

The leaders of a religious group decided to start a life insurance organization to insure members of the religious group.The insurer will operate as a nonprofit organization,thus receiving favorable tax treatment.The insurer formed will be a

Which of the following statements about managing general agents is (are) true? I.Managing general agents have become more important in insurance distribution over the past 20 years. II.Managing general agents are vested with underwriting authority from an insurer.

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 is true with regard to career life insurance agents?

A specialized type of "wholesale" producer that unlike "retail" producers,is vested with underwriting authority from an insurer is a(n)

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.

Temporary evidence of insurance until a policy is actually issued is provided by a(n)

A property and casualty insurer in which the salesperson is an employee of the insurer,not an independent contractor,is called a

Which of the following statements about reciprocal exchanges is (are) true? I.Reciprocal exchanges usually specialize in health insurance. II.Reciprocal exchanges are unincorporated mutual insurance companies.

Marcy advises her clients on investments,taxes,wealth management,estate issues,budgeting,and insurance.Marcy is also a licensed life insurance agent.When Marcy sells life insurance to a client,the distribution channel used is a(n)

As an alternative to demutualizing,Big Mutual Insurance Company reorganized itself into a corporate form that can directly or indirectly own a stock insurance company.This form of organization is called a(n)

Which of the following statements is true regarding independent insurance agents in property and liability insurance?