Insurance MCQ

Which of these is NOT subject to income taxation under a Modified Endowment Contract (MEC)?  a) Loan against the cash value b) Policy withdrawal c) Policy dividend d) Death benefit Answer: d) Death benefit

Which of the following would be considered an underwriting duty of an agent?  a) Requesting medical information from the Medical Information Bureau (MIB) b) Completing all applications and collecting initial premiums c) Accepting or declining an application d) Assigning a risk classification Answer: b) Completing all applications and collecting initial premiums

What happens to the coverage under a children's term rider when that child reaches a certain specified age?  a) Coverage decreases automatically b) Coverage increases automatically c) Coverage remains as long as proof of insurability is provided d) Coverage is eliminated Answer: d) Coverage is eliminated

What would happen if a life insurance applicant is given a conditional receipt from an insurance agent and then dies the next day?  a) Claim will be denied by insurer b) Claim will be paid if money was received by the insurance company c) Claim will be paid if underwriter has received the application d) Claim will be paid if application is approved Answer: d) Claim will be paid if application is approved

Which policy feature makes a universal life policy different from a whole life policy?  a) A fixed cash value b) A flexible premium schedule c) A fixed death benefit d) The ability to take out a policy loan Answer: b) A flexible premium schedule

Which of the following does a life insurance policy summary normally include?  a) The policy's cash value b) Agent's report c) Policyowner's MIB report d) Stated beneficiary Answer: a) The policy's cash value

When does a life insurance policy typically become effective?  a) When the policy is issued b) When initial premium is collected and policy is issued c) When the application is completed and signed d) When the completed application is signed and initial premium is collected Answer: b) When initial premium is collected and policy is issued

Which of these is considered to be a document that describes the critical segments of a life insurance policy?  a) Buyer's guide b) Policy summary c) Consumer report d) Buyer's summary Answer: b) Policy summary

A spouse and child can be added to the primary insured's coverage as what kind of rider? a) Dependent term b) Guaranteed insurability c) Primary term d) Family term Answer: d) Family term

The type of policy which pays on the death of the last person is called  a) joint life b) survivorship life c) dual life d) shared life Answer: b) survivorship life

An insurer has a right to screen applicants for HIV in which of the following ways?  a) Blood test for HIV b) Inquiring about risky sexual behavior c) Inquiring about sexual orientation d) Automatically declining an application due to sexual orientation Answer: a) Blood test for HIV

All of these are typically sources of underwriting information for life or health insurance EXCEPT  a) Consumer reports b) Medical Information Bureau (MIB) reports c) Disclosure authorization response d) Attending physician's statement (APS) Answer: c) Disclosure authorization response

A field underwriter's main task is  a) assign a risk classification to the insured b) report medical information to the Medical Information Bureau (MIB) c) to ensure an applicant's medical information is accurate and complete d) to approve or decline an applicant Answer: c) to ensure an applicant's medical information is accurate and complete

All of these are valid options for an Adjustable Life Policy EXCEPT  a) The policy's premium can be increased or decreased b) The policy's death benefit can be increased or decreased c) A nonforfeiture option can be used to increase the death benefit d) The policy's protection period can be modified Answer: c) A nonforfeiture option can be used to increase the death benefit

All of these are considered key factors in underwriting life insurance EXCEPT  a) Tobacco use b) Health history c) Age d) Marital Status Answer: d) Marital status

Which type of policy combines the flexibility of a universal life policy with investment choices? a) Adjustable universal life policy b) Flexible universal life policy c) Variable universal life policy d) Modified universal life policy Answer: c) Variable universal life policy

A whole life insurance policy accumulates cash value that becomes  a) the policy loan value which the insured may borrow against b) the death benefit c) the source of funding for administration fees d) a source of funding a term rider to the policy Answer: a) the policy loan value which the insured may borrow against

Statements made by an insurance applicant on an application are considered to be  a) irrevocable b) warranties c) representations d) guarantees Answer: c) representations

Which of these would be the best example of a limited pay life insurance policy?  a) Whole life policy that pays out its cash value over a 20 year period b) Whole life policy with premiums paid up after 20 years c) Term life policy that returns cash value after 20 years d) Term life policy with premiums paid up after 20 years Answer: b) Whole life policy with premiums paid up after 20 years

Dorian exercised a nonforfeiture option by using his life policy's cash value to purchase an extended term insurance option. When the term insurance expires ? a) he has the option of resuming the original policy and paying the same premium b) the coverage can be extended with a lump sum payment c) all remaining cash values are paid to the policyowner d) the protection ends Answer: d) The protection ends

What is the purpose of the Medical Information Bureau (MIB)?  a) To accept or decline insurance applicants b) To set the premium rates for insurers c) To help underwriters evaluate risk d) To perform physical examinations on applicants Answer: c) To help underwriters evaluate risk

An error was made on Mary's life insurance application. Which of the following areas are errors commonly made on applications for which the incontestable clause does NOT apply?  a) Marital status b) Age c) Address d) Income Answer: b) Age

Which of the following signatures is not required on an individual insurance application?  a) Producer b) Applicant c) Insured d) Insurer Answer: d) Insurer

All of these are considered sources of information that can assist an underwriter in determining whether or not to accept a risk EXCEPT  a) Agent's report b) Medical Information Bureau (MIB) c) Inspection reports d) National Association of Insurance Underwriters Answer: d) National Association of Insurance Underwriters

Which of the following pertains to the analysis of an applicant's personal information and determining whether insurance should be issued or declined?  a) Adverse calculation b) Underwriting c) Risk classification d) Actuarial determination Answer: b) Underwriting

What does the word "level" in Level Term describe?  a) The period of coverage b) The face amount c) The premium payments d) The cash value Answer: b) The face amount

Which of the following would be a valid reason why a policy premium would be higher than the standard premium?  a) The insurer is not a member of the MIB b) The agent quoted the wrong price c) The insured does not have the necessary financial reserves d) The insured does not meet established underwriting requirements Answer: d) The insured does not meet established underwriting requirements

Which of these is NOT a characteristic of the Accelerated Death Benefit option?  a) The face amount and policy premium are not affected by the payment b) Before payment of the benefit is made, specific conditions must exist, such as suffering from a terminal illness c) There may be a dollar limit on the maximum benefit d) The benefit can be offered as a rider at a specific extra cost or may be at no cost Answer: d) The benefit can be offered as a rider at a specific extra cost or may be at no cost

Upon policy delivery, which of the following must a producer have an applicant sign if no initial premium was collected with the life insurance application?  a) A waiver of premium b) A replacement form c) A good health statement d) An exclusion Answer: c) A good health statement

Preferred risk policies with reduced premiums are issued by insurance companies because the insured has  a) a higher face amount than average b) a better ability to pay premiums over a long period of time c) worse than average mortality or morbidity experience d) better than average mortality or morbidity experience Answer: d) better than average mortality or morbidity experience

Which of the following describes a person who is NOT acceptable by an insurer at standard rates because of health history, occupation, or hobbies?  a) Standard risk b) Preferred risk c) Unacceptable risk d) Substandard risk Answer: d) Substandard risk

The free-look provision gives the policyowner  a) the right to return the policy for a partial refund within a specified number of days b) the right to contest the terms of the policy c) the right to change a policy provision d) the right to return the policy for a full refund within a specified number of days Answer: d) the right to return the policy for a full refund within a specified number of days

How are survivorship life insurance policies helpful in estate planning?  a) Provide funds to help fund retirement b) Provide funds to help pay taxes c) Provide funds for funeral expenses d) Provide tax deductions for premium payments Answer: b) Provide funds to help pay taxes

Which of these is NOT considered to be a risk factor in life insurance underwriting?  a) Number of children b) Health history c) Hobbies d) Occupation Answer: a) Number of children

An insurer will accept a premium from the insured and continue the coverage in full force as though it was NOT late during which time period?  a) Incontestable period b) Probation period c) Reinstatement period d) Grace period Answer: d) Grace Period

All of these are standard exclusions found in a life insurance policy EXCEPT  a) hazardous occupations b) aviation c) disability d) war Answer: c) disability

Shawn, Mike, and Dave are brothers who have a $100,000 "first to die" joint life policy covering all three of their lives. If Mike dies first, the policy proceeds  a) will no longer provide insurance protection b) will go to Mike's estates c) will be provided by probate d) will not be paid until the last brother dies Answer: a) will no longer provide insurance protection

The two major actions required for a policyholder to comply with the Reinstatement Clause are  a) provide evidence of insurability, agree to a new incontestable period b) provide evidence of insurability, pay past due premiums c) pay past due premiums, agree to a new incontestable period d) pay past due premiums, agree to a reduction in coverage Answer: b) provide evidence of insurability, pay past due premiums

What is an insurer required to do when faced with an error made under the Misstatement of Age provision?  a) Cancel the policy b) Pay age-corrected benefits c) Pay full benefits as stated in the policy d) Bill the policyowner for back premiums Answer: b) Pay age-corrected benefits

A rider that assures premiums will be paid on a juvenile policy until the child reaches a specific age is called a(n)  a) waiver of premium rider b) payor rider c) automatic premium loan rider d) juvenile waiver rider Answer: b) payor rider

A provision that allows a policyowner to temporarily give up ownership rights to secure a loan is called a(n)  a) automatic premium loan b) nonforfeiture option c) collateral assignment d) irrevocable assignment Answer: c) collateral assignment

A life insurance policyowner does NOT have the right to  a) change of beneficiary b) select a beneficiary c) take out a policy loan d) revoke an absolute assignment Answer: d) revoke an absolute assignment

All of these are common exclusions to a life insurance policy EXCEPT  a) accidental death b) military service c) aviation d) hazardous occupations Answer: a) accidental death

If an insured dies during the grace period with no premiums paid  a) the policy would be payable, minus the premium amount b) the policy would be payable only after the beneficiary makes past due premium payment c) all past premiums will be refunded with interest d) the claim would be denied Answer: a) the policy would be payable, minus the premium amount

If an insured's age on a life insurance policy has been misstated, what is the insurer's liability if the insured dies?  a) No death benefit is owed because of the misstatement of age b) The full original death benefit listed on the policy c) A prorated death benefit based on the amount of insurance the insured's premiums would have been if purchased at the correct age d) The original death benefit listed on the policy minus any outstanding loans and interest Answer: c) A prorated death benefit based on the amount of insurance the insured's premiums would have been if purchased at the correct age

Life insurance policies will normally pay for losses arising from  a) commercial aviation b) war c) suicide d) hazardous jobs Answer: a) commercial aviation

All of the following are considered to be nonforfeiture options available to a policyowner EXCEPT  a) Extended Term Insurance b) Cash Surrender c) Reducation of Premium d) Reduced Paid-Up Insurance Answer: c) Reduction of Premium

Which of these is NOT considered to be a nonforfeiture option in a whole life insurance policy?  a) Interest only b) Reduced paid-up insurance c) Extended term insurance d) Cash surrender Answer: a) Interest only

Which type of rider will waive the premium on a child's life insurance policy if the parent paying the premium dies?  a) Waiver of Premium b) Juvenile Waiver c) Guaranteed Insurability d) Payor benefit Answer: d) Payor benefit

James is the insured on a life insurance policy where his age was misstated on the application. Which of the following is CORRECT regarding the death benefit amount?  a) The original face amount will be paid to the beneficiary b) The policy will be voided with no death benefits paid c) The death benefit paid will be what the premium would have purchased at the correct age d) The amount of premiums paid will be returned with interest Answer: c) The death benefit paid will be what the premium would have purchased at the correct age

Joanne has a $100,000 whole life policy with an accumulated $25,000 of cash value. She would like to borrow $15,000 against the cash value. Which of the following statements is TRUE?  a) Net death benefit will be reduced if the loan is not repaid b) No interest will be charged on loan balance c) Term life policies are the only type of insurance that allows policy loans d) A loan can be taken out for up to the face amount of the policy Answer: a) Net death benefit will be reduced if the loan is not repaid

All of the following riders can increase the death benefit amount EXCEPT  a) Cost of living b) Waiver of Premium c) Accidental Death Rider d) Guaranteed Insurability Answer: b) Waiver of Premium

Which of these is NOT considered to be a common life insurance nonforfeiture option?  a) Cash surrender b) Extended term insurance c) Reduced paid-up insurance d) Life income annuity Answer: d) Life income annuity

The cost that a company recognizes on its books for property or equipment after adjusting for discounts, incentives, closing costs and other necessary expenditures but before sales tax. An acquisition cost can describe the costs accrued by a business in relation to the efforts involved in acquiring a new customer.

Which type of financial statement shows the financial position of an insurance company at any particular point in time? Answer: Balance Sheet

Include assets that are liquid and whose value can be assessed or receivables that can reasonably be expected to be paid. They are included by insurance companies on financial statements because it is required by law.

The balance sheet shows an insurer's financial position at ____. Answer: a particular point in time.

Coverage for money, securities, and other property from various causes of loss such as burglary, robbery, theft, and employee dishonesty typically is provided by A. Professional liability insurance. B. Ocean marine insurance. C. Commercial crime insurance. D. Inland marine insurance. Answer: C. Coverage for money, securities, and other property from various causes of loss such as burglary, robbery, theft, and employee dishonesty typically is provided by commercial crime insurance.

Which one of the following statements is correct with respect to characteristics of insurable loss exposures?  A. If the insured has control over whether or when a loss will occur, the risk is attractive to insure. B. If losses are not fortuitous, premiums could increase for all policyholders. C. If a loss is fortuitous, the chance of loss could increase as soon as a policy is issued. D. Private insurance is suitable for risks where the probability and timing of loss is known. Answer: B. If losses are not fortuitous, premiums could increase for all policyholders.

Retention is often used in combination with insurance as a way of treating loss exposures. One of the major downsides of individuals using retention alone is  A. The unavailability of insurer loss control services. B. The potential for financial ruin. C. The record keeping associated with retained losses. D. Availability of insurer loss settlement services. Answer: B. Correct. One of the major downsides of individuals using retention alone is the potential for financial ruin.

Which one of the following is an example of a fortuitous loss?  A. Insureds intentionally set a fire and burn their house down. B. An insured demolishes a deck that has been allowed to rot. C. An unknown vandal spray-paints graffiti on the insured's garage. D. The value of an insured's home decreases due to a lack of maintenance. Answer: C. An example of a fortuitous loss is when an unknown vandal spray-paints graffiti on the insured's garage.

Bill has a custom-built vehicle looks like a sausage sandwich on wheels. He plans to drive it to special events at schools around the country where it will serve as a mobile billboard to promote his product. Bill is surprised to learn that insurers are reluctant to insure his vehicle because it fails to meet one of the ideal characteristics of an insurable risk. Which characteristic is Bill's vehicle least likely to meet?  A. Definite and measurable B. Independent and not catastrophic C. Large number of similar exposure units D. Pure risk Answer: C. Since Bill's vehicle is custom-made and used for an unusual purpose, there are not a large number of similar exposure units.

Which one of the following statements is correct?  A. Contractors must usually provide evidence of liability insurance before a construction contract is granted. B. Insurers generally do not provide incentives to organizations to implement risk control measures. C. Insurance policies typically cannot be used to provide evidence of financial resources. D. One disadvantage of insurance is that it promotes inefficient use of policyholders' funds. Answer: A. Contractors must usually provide evidence of liability insurance before a construction contract is granted.

If a customer slips and falls in an insured's store, which one of the following would provide protection in the event of a lawsuit? A. Commercial property insurance B. Workers compensation insurance C. Commercial crime insurance D. Commercial general liability (CGL) insurance Answer: D. liability loss exposures faced by an organization, including its premises, operations, and products.

As a single mother on a very tight budget, Ciara is tempted to skimp on her insurance. However, her friend Mehmet tells her not to skimp on insurance, because it will help manage her cash flows. Which one of the following examples best illustrates Mehmet's point?  A. Ciara finds it difficult to come up with a $787 auto insurance premium every six months. B. Ciara needs her car to get to her job, and she needs her job to make car payments and pay for her car insurance. C. When her car's transmission goes out a month after the warranty expires, Ciara is faced with an $1,100 repair bill. D. When her car's windshield breaks, Ciara has to pay only $100 of the $600 cost of replacing it. Answer: D. Since the windshield loss is covered, the financial effect on Ciara's cash flow is reduced to the amount of her deductible.

Insurance deals primarily with loss exposures that are fortuitous. Which one of the following statements best characterizes fortuitous losses?  A. Fortuitous losses are beyond the insured's control. B. Fortuitous loss exposures are expected. C. Fortuitous loss exposures are generally predictable. D. Fortuitous losses are intentional. Answer: A. Fortuitous losses are beyond the insured's control.

Which one of the following is true regarding a homeowners policy? A. It only provides property coverage. B. It only provides liability coverage. C. Most include coverage for theft of contents within the home. D. It excludes losses caused by wind and lightning. Answer: C. A homeowners policy provides both property and liability coverage. This includes coverage for theft of personal property as well as perils such as wind and lightning.

Which one of the following is an operating cost of insurers? A. An insured's funds that could be invested elsewhere if purchasing insurance were not necessary B. Producers' commissions C. Increased property losses because people have insurance D. Increased liability loss payments because people have insurance Answer: B. Producers' commissions are among the operating costs of insurers.

All of the following are types of property insurance, EXCEPT: A. Fire and allied lines B. Crime C. Business income D. Directors and officers Answer: D. Only directors and officers insurance is not a property insurance coverage.

Which one of the following statements is correct regarding characteristics of ideally insurable loss exposures? A. Ideally, loss exposures should be spread across a large number of similar exposure units within the same period. B. Intertemporal risk transfer, the spreading of risk through time, requires a large number of similar exposure units. C. One requirement of the law of large numbers is that past events occur under different circumstances in the future. D. Loss exposures such as homes and automobiles generally will not meet the ideally insurable requirement that the exposure be of a large number of similar exposure units. Answer: A. Ideally, loss exposures should be spread across a large number of similar exposure units within the same period.

Claim buildup is considered to be among which one of the following costs of insurance? A. Premiums paid B. Operating costs C. Opportunity costs D. Increased losses Answer: D. Claim buildup is considered to be among the increased losses costs of insurance.

Term life insurance A. Provides lifetime protection. B. Accrues a cash value. C. Provides protection for a specified period with no cash value. D. Allows the policyholder to borrow against policy savings. Answer: C. Term life insurance provides protection for a specified period with no cash value.

Which one of the following statements is correct? A. Insurers are prohibited from investing in social projects. B. Insurance provides a source of investment funds for insurers but not for policyholders. C. Insurers cannot invest premium income because it must be available to pay claims. D. Insurers' investment income helps keep premiums at a reasonable level. Answer: D. Insurers' investment income helps keep premiums at a reasonable level.

Life insurance that provides coverage for a specified period with no cash value is called A. Universal life. B. Term life insurance. C. Whole life. D. Long-term care insurance. Answer: B. Life insurance that provides coverage for a specified period with no cash value is called term insurance.

The primary role of insurance is to A. Make a profit for the insurance company's shareholders. B. Educate individuals and organizations about loss prevention. C. Indemnify individuals and organizations for covered losses. D. Sell insurance policies to individuals and organizations. Answer: C. The primary role of insurance is to indemnify individuals and organizations for covered losses.

Commercial general liability insurance policies written on an occurrence basis apply to bodily injury and property damage that occurs during the policy period. This provision supports the principle that insurable loss exposures must ideally be A. Definite. B. Fortuitous. C. Independent. D. Pure risks. Answer: A. Losses that occur during the policy period are definite in time.

Another name for liability insurance is A. First-party insurance. B. Second-party insurance. C. Third-party insurance. D. Multiple-party insurance. Answer: C. Liability insurance involves a third party, the claimant.

A loss exposure is A. The same thing as a peril. B. Any condition that presents the possibility of a loss. C. The same thing as a hazard. D. Any condition that precludes the chance of loss. Answer: B. A loss exposure is any condition or situation that presents the possibility of a loss.

For a loss exposure to be ideally insurable it must be definite in A. Time, cause, and location. B. Value, extent, and consequences. C. Duration, damage, and cost. D. Scope, origin, and coverage. Answer: A. For a loss exposure to be ideally insurable it must be definite in time, cause, and location.

Liability coverage for loss exposures arising from a business organization's premises and operations, its products, or its completed work is typically provided by A. Professional liability insurance. B. Commercial general liability insurance. C. Auto liability insurance. D. Personal liability insurance. Answer: B. Liability coverage for loss exposures arising from a business organization's premises and operations, its products, or its completed work is typically provided by commercial general liability insurance.

The primary role of insurance is to A. Make a profit for the insurance company's shareholders. B. Indemnify individuals and organizations for covered losses. C. Eliminate risk for insureds and society. D. Meet an insured's risk management requirements. Answer: B. Indemnify individuals and organizations for covered losses.

Coverage for miscellaneous types of property such as movable property, goods in domestic transit, and property used in transportation and communication, typically is provided by A. Auto physical damage insurance. B. Inland marine insurance. C. Crime insurance. D. Business income insurance. Answer: B. Coverage for miscellaneous types of property, such movable property, goods in domestic transit, and property used in transportation and communication, typically is provided by inland marine insurance.

Some life insurance policies provide benefits not found in other life insurance policies. Which of the following life insurance policies would contain a cash value accumulation? A. Whole life insurance B. Permanent life insurance C. Universal life insurance D. All of the above Answer: D. All listed are life insurance policies that contain a cash value accumulation.

A recent college graduate who lives in the suburbs and drives to work daily in the city. Recognizes that owning a car creates both property damage and liability exposures for her and at the same time she has the burden of student loAnswer: For someone with their circumstances the most practical risk management technique for dealing with her auto-related loss exposures is A.Retention. B. Avoidance. C. Loss control. D. Risk tarnsfer. Answer: D. For someone in Sally's situation, risk transfer is the most practical technique.

A policy that combines property, crime, and liability coverages into one policy is referred to as a(n) A. Commercial package policy (CPP). B. Commercial umbrella policy. C. Workers compensation policy. D. Employee dishonesty policy. Answer: A. A policy that combines property, crime, and liability coverages into one policy is referred to as a commercial package policy (CPP).

Some loss exposures are not easy to retain, avoid, or control. What risk management technique is frequently used to treat such exposures? A. Reinsurance B. Transfer C. Prevention D. Reunderwriting Answer: B. The risk management technique of transfer is often used to treat loss exposures that are not easily treated by retention, avoidance, or control.

From a risk management viewpoint, insurance is used to A. Isolate the cost of losses. B. Prevent the cost of losses. C. Reduce the cost of losses. D. Transfer the cost of losses. Answer: D. Insurance is used to transfer the cost of losses from the insured to the insurer.

Adhering to the characteristics of an ideally insurable loss exposure in selling insurance help assure that A. The insurer is able to charge a premium that the insured can afford to pay. B. The losses associated with it typically involve small amounts. C. The insurer can charge a high premium for the coverage. D. The insurer is able to predict the amount and timing of each future loss. Answer: A. Adhering to the characteristics of an ideally insurable loss exposure in selling insurance help assure that the insurer is able to charge a premium that the insured can afford to pay.

Which one of the following statements is correct? A. Contractors must usually provide evidence of liability insurance before a construction contract is granted. B. Insurers generally do not provide incentives to organizations to implement risk control measures. C. Insurance policies typically cannot be used to provide evidence of financial resources. D. One disadvantage of insurance is that it promotes inefficient use of policyholders' funds. Answer: A. Contractors must usually provide evidence of liability insurance before a construction contract is granted.

One of the costs of insurance is said to be opportunity costs. This means that if capital and labor were not being used in the insurance business, they could be used elsewhere and making other productive contributions to A. Society. B. The insurance industry. C. The agency system. D. Government. Answer: A. If capital and labor were not being used in the insurance business, they could be used elsewhere and making other productive contributions to society.

For insurers to utilize pooling most effectively and present catastrophic losses, the insured exposure units need to be A. Correlated. B. Independent. C. Adjacent. D. Different. Answer: B. For insurers to utilize pooling most effectively and present catastrophic losses, the insured exposure units need to be independent.

Private insurers are reluctant to provide windstorm insurance on coastal properties. This is because the loss exposures fail to meet the criterion that ideally insurable exposures must be A. A large number of similar exposure units. B. Definite and measurable. C. Fortuitous. D. Independent and not catastrophic. Answer: D. Because many properties can be damaged in the same hurricane or tropical storm, coastal properties are not independent, and potential losses are catastrophic.

Insurance is not the only risk management transfer technique. When circumstances are appropriate, transfer can be accomplished through A. Loss prevention. B. Avoidance. C. Retention. D. Noninsurance transfer techniques. Answer: D. A transfer technique that does not involve the use of insurance is a noninsurance transfer.

Which one of the following is an opportunity cost of insurance? A. The payment of commissions to agents B. An insurer's loss on invested premiums C. An insured's funds that could be invested elsewhere if purchasing insurance were not necessary D. The cost of claims payments that would not have been necessary if insureds' carelessness had not caused losses Answer: C. An insured's funds that could be invested elsewhere if purchasing insurance were not necessary is an example of an opportunity cost of insurance.

Though premiums are an obvious cost of insurance, many insureds believe they are too high because A. Benefits are intangible until a loss occurs. B. Premiums are not a regular cost of living. C. Insurers only use eighty cents from every premium dollar to pay losses. D. Insureds do not deliberately cause losses. Answer: A. Many insureds believe premiums are too high because benefits are intangible until a loss occurs.

Sometimes the existence of insurance encourages losses. The result of this phenomenon is that it A. Increases competition in the industry. B. Reduces agents' commissions. C. Increases the total cost of insurance. D. Reduces the term of many policies. Answer: C. Sometimes the existence of insurance encourages losses.The result of this phenomenon is that it increases the total cost of insurance.

Which one of the following statements is correct regarding the benefits provided by insurance? A. The reduction in losses paid by insurers due to risk control measures benefits individual insureds, but not society as a whole. B. Insurance helps reduce the financial burden to society by compensating accident victims. C. The primary role of insurance is to meet mandatory insurance requirements. D. Insurance reduces the financial consequences of loss exposures, but not the related uncertainty. Answer: B. Insurance helps reduce the financial burden to society by compensating accident victims.

A construction pays less than its competitors for workers' compensation insurance because the company has had substantially fewer employee injuries than other firms in its class. This illustrates which one of the following benefits of insurance? A. Comply with legal requirements B. Efficient use of insured's resources C. Promote loss control activity D. Reduce social burden Answer: C. Premium savings provide an incentive for an insured to control losses.

Which one of the following is an operating cost of insurers? A.An insured's funds that could be invested elsewhere if purchasing insurance were not necessary B. Producers' commissions C. Increased property losses because people have insurance D. Increased liability loss payments because people have insurance Answer: B. Producers' commissions are among the operating costs of insurers.