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| 1 | |
With the ___________________, premiums are invested in stock, bond, or money market funds, and the value of the policy changes in accordance with investment performance. |
| | A) | group life insurance |
| | B) | credit life insurance |
| | C) | variable life insurance |
| | D) | commercial multiple peril insurance |
| | E) | term life insurance |
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| 2 | |
The McCarran-Ferguson Act: |
| | A) | initiated "variable" life insurance products. |
| | B) | designated the SEC as the primary Federal regulator of insurance companies. |
| | C) | instituted capital regulations for insurance companies. |
| | D) | designated the Federal Reserve as the primary Federal regulator of insurance companies. |
| | E) | has served to keep the regulation of insurance companies at the state level. |
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| 3 | |
The largest item on the liability side of the balance sheet for life insurance companies is: |
| | A) | policy loans |
| | B) | unearned premium |
| | C) | surrender value |
| | D) | endowment |
| | E) | policy reserves |
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| 4 | |
The __________________ combines pure life insurance with a savings element. If the insured lives to some specified time, he/she receives the policy's face value. |
| | A) | industrial life policy |
| | B) | P&C policy |
| | C) | credit life policy |
| | D) | endowment life policy |
| | E) | group life policy |
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| 5 | |
In property/casualty insurance, the actual losses incurred on an insurance line, divided by the premiums earned, is called the: |
| | A) | long-tail loss |
| | B) | loss ratio |
| | C) | combined ratio |
| | D) | operating ratio |
| | E) | underwriting ratio |
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| 6 | |
A/an _________________ will pay a beneficiary a fixed amount, periodically, over some specified period of time. |
| | A) | annuity |
| | B) | credit life policy |
| | C) | policy loan |
| | D) | industrial life policy |
| | E) | policy reserve |
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| 7 | |
Loans made by a life insurance company to its own policy holders are called: |
| | A) | endowments |
| | B) | surrender value loans |
| | C) | policy loans |
| | D) | ordinary life loans |
| | E) | separate accounts |
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| 8 | |
Consider Justin PC Insurance Company's data: Loss ratio | 75% | Expense ratio | 31% | Dividend ratio | 1% | Net investment income/premiums earned | 8% |
Compute Justin's "combined ratio after dividends." |
| | A) | 115 |
| | B) | 99 |
| | C) | 32 |
| | D) | 107 |
| | E) | 106 |
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| 9 | |
Consider Justin PC Insurance Company's data: Loss ratio | 75% | Expense ratio | 31% | Dividend ratio | 1% | Net investment income/premiums earned | 8% |
Compute Justin's "operating ratio." |
| | A) | 115 |
| | B) | 99 |
| | C) | 32 |
| | D) | 107 |
| | E) | 106 |
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| 10 | |
Debbie has accumulated savings of $228,000. She wants to buy an annuity contract that will pay her a fixed amount at the end of each of the next 35 years. What amount will she receive each year, if the insurance company uses an annual interest rate of 5%? (nearest dollar) |
| | A) | $ 2,524 |
| | B) | $24,368 |
| | C) | $ 6,840 |
| | D) | $ 1,258 |
| | E) | $13,924 |
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| 11 | |
Mort wants to purchase an annuity from Baxter Insurance Company. Mort wants to receive $12,000 per year for life, with the first payment occurring exactly 5 years from now. Based on an estimate of Mort's life expectancy, Baxter Insurance estimates that it will be making a total of 20 payments. Its annual return on investments is estimated to be 7% annually. What is the least amount that Baxter can possibly charge Mort (right now) for this annuity contract? (To the nearest dollar) |
| | A) | $ 84,711 |
| | B) | $ 90,641 |
| | C) | $139,843 |
| | D) | $127,128 |
| | E) | $ 96,985 |
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| 12 | |
The customers most eager to apply for an insurance contract will be those most likely to have a claim against the insurance company. This is the essence of the _______________ problem in insurance. |
| | A) | capital adequacy |
| | B) | mis-matched maturity |
| | C) | liquidity |
| | D) | adverse selection |
| | E) | default risk |
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| 13 | |
________________ is a problem that can arise in the insurance business. The source of the problem is the customer's behavior after an insurance contract is in place. |
| | A) | Risk arbitrage |
| | B) | Moral hazard |
| | C) | Mis-matched security maturities |
| | D) | Adverse selection |
| | E) | Pure arbitrage |
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| 14 | |
______________________ is basically "pure" life insurance. |
| | A) | Variable life |
| | B) | Universal life |
| | C) | Endowment life |
| | D) | Whole life |
| | E) | Term life |
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| 15 | |
Life insurance companies show a tendency to have: |
| | A) | short-term assets and short-term liabilities |
| | B) | short-term assets and long-term liabilities |
| | C) | long-term assets and long-term liabilities |
| | D) | long-term assets and short-term liabilities |
| | E) | short-term assets and almost no liabilities (short or long term) |
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| 16 | |
Major lines of property-casualty insurance would include all of the following except: |
| | A) | Homeowners multiple peril |
| | B) | Automobile liability |
| | C) | Fire insurance |
| | D) | Universal variable life |
| | E) | Commercial multiple peril |
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| 17 | |
_________________ is the term referring to a phenomenon in the property-casualty insurance business—when a claim may occur many years after the relevant insured event. |
| | A) | Mis-matched claim |
| | B) | Social inflation |
| | C) | Underwriting cycle |
| | D) | Adverse selection |
| | E) | Long-tail loss |
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| 18 | |
_______________ is essentially insurance acquired by insurance companies. |
| | A) | A long-tail loss |
| | B) | Investments in stock and bonds |
| | C) | Reinsurance |
| | D) | The McCarran Ferguson Act |
| | E) | Unearned premiums |
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