Insurance MCQ

In which of the following situations is it illegal for an insurer to disclose privileged information about an insured? A. A researcher for marketing purposes B. The Department of Insurance to assess legal compliance C. Law enforcement authorities for law-oriented purposes D. An auditor for auditing purposes Answer: A. A researcher for marketing purposes

Which of the following provisions requires that any policy language that is in conflict with the state statutes of the state in which the insured resides is automatically amended to conform with those of the state of residence? A. Insurance with Other Insurers B. Legal actions C. Conformity with State Statutes D. Incontestability Answer: C. Conformity with State Statutes

A policyowner is reading a statement on the first page of his health insurance policy, which says "this is a limited policy." What is the name on this statement? A. Policy Limitation Notice B. Statute of Limitations C. Limited Benefit Statement D. Limited Policy Notice Answer: D. Limited Policy Notice

Most vision expense insurance plans restrict benefits to one exam and one pair of glasses in what time period? A. 6 months B. 12 months C. 18 months D. 24 months Answer: B. 12 months

An insurer wishes to compare the information given in an insurance application with previous insurance applications by the same applicant but for different companies. What organization can help the insurer accomplish this? A. The Medical Information Bureau B. The State Department of Insurance C. Social Security D. The National Association of Insurance Commissioners Answer: A. The Medical Information Bureau

Under a typical health insurance policy, claims that result from injuries while the insured was intoxicated or under the influence of drugs are generally A. Covered, but an extra premium is charged when a claim is filed B. Covered with a 90 days' waiting period C. Excluded D. Covered Answer: C. Excluded

A health insurance policy may cover all of the following risks EXCEPT A. War-related injuries B. Dental expenses C. Loss of income due to disability D. Medical expenses Answer: A. War-related injuries

Which of the following is an example of a peril covered in an accident and health insurance policy? A. Death B. Sickness C. Alcoholism D. Smoking Answer: B. Sickness

Evaluating information that establishes adverse selection risk is the purpose of which stage of insurance? A. Contract negotiation B. Contract review C. Application D. Underwriting Answer: D. Underwriting

A hospital indemnity policy will pay A. A benefit for each day the insured is in a hospital B. Income lost while the insured is in the hospital C. All expenses incurred by the stay in the hospital C. Any expenses incurred by the stay in the hospital, minus do insurance payments and deductibles Answer: A. A benefit for each days the insured is in a hospital

What is franchise insurance? A. It is blanket insurance B. It is health coverage for small groups whose numbers are too small to qualify for true group insurance C. It provides insurance for franchises, such as a restaurant or hotel chain D. It is group insurance Answer: B. It is health coverage for small groups whose numbers are too small to qualify for true group insurance

When is the insurability conditional receipt given? A. After the application has been approved and the premium has been paid B. When the insured individual needs to obtain an insurability receipt for tax purposes C. If the application is approved before the premium is paid D. When the premium is paid at the time of application Answer: D. When the premium is paid at the time of application

Which of the following information regarding an insured is NOT included in an Investigative Consumer Report, which is requested by an underwriter? A. Medical History B. Applicant's character C. Personal habits D. General reputation Answer: A. Medical History

How many pair of glasses in a 12-month period will a vision expense insurance plan cover? A. One B. Two C. Three D. Unlimited Answer: A. One

A policy which covers medical costs related to a specific condition is called a A. Condition-Specific Policy B. Specific Condition Policy C. Limited Coverage Policy D. Dread Disease Policy Answer: D. Dread Disease Policy

Which of the following is true regarding limited health insurance policies? A. They are limited to those enrolled in a group health plan B. They cover ever need of a health insurance policy holder C. They only cover specific accidents or diseases D. They cover all sickness or accidents that are not specifically excluded Answer: C. They only cover specific accidents or diseases

An insurer hires a representative to advertise its company at a local convention. The representative lies about the details of some of the policies, in an attempt to secure more business for the company. Who is responsible for the representative's claims? A. The representative B. The underwriters C. The agent D. The insurer Answer: D. The insurer

The provision in a health insurance policy that ensures that the insurer cannot refer to any document that is not contained in the contract is the A. Time limit on certain defenses clause B. Incontestability clause C. Legal action against us clause D. Entire contract clause Answer: D. Entire contract clause

What phase begins after a new policy is delivered? A. Grace period B. Free-look period C. Insurability period D. Elimination period Answer: B. Free-look period

In a group prescription drug plan, the insured typically pays what amount of the drug cost? A. Copayment B. None C. Full amount until a deductible is met, then nothing for the rest of the year D. Full amount until a deductible is met, then a small copay Answer: A. Copayment

Which document helps ensure that full and fair disclosure is provided to the recipient of a policy? A. Policy Summary B. Statute of Limitations C. Outline of Coverage D. Benefit Limitations Answer: C. Outline of Coverage

All of the following would be factors in rating a health insurance policy EXCEPT A. The nationality of the applicant B. The occupation of the applicant C. Types of benefits provided in the contract D. The deductible and copayment selected Answer: A. The nationality of the applicant

At what age does an individual qualify for Medicare? A. 60 B. 65 C. 70 D. 72 Answer: B. 65

Which of the following is true regarding a term health policy? A. It is non renewable B. It is conditionally renewable C. It is guaranteed renewable D. It is noncancellable Answer: A. It is non renewable

An insured misstated her age on an application for an individual health insurance policy. The insurance company found the mistake after the contestable period had expired. The insurance company will take which of the following actions regarding any claim that has been issued? A. Pay the full amount of a claim because the contestable period has ended B. Adjust the claim benefit to reflect the insured's true age C. Deny any claims and cancel the policy D. Deny paying a claim based on misrepresentation Answer: B. Adjust the claim benefit to reflect the insured's true age

The provision that states that both the printed contract and a copy of the application form the contract between the policyowner and the insurer is called the A. Master policy B. Entire contract C. Certificate of insurance D. Aleatory contract Answer: B. Entire contract

The First Street Church plans to sponsor a summer camp for the youth of their congregation. They would like to purchase insurance that would pay benefits should one of the youth get insured while participating in the camp activities. The type of policy they would likely need is a/an A. Blanket B. Limited Sickness C. Accidental Death and Dismemberment D. Limited Accident Answer: A. Blanket

Where would Long-term care services be rendered? A. An acute care unit of a hospital B. A doctor's office C. A nursing home or one's own home D. A surgery center Answer: C. A nursing home or one's own home

Which type of hospital policy pays a fixed amount each day that the insured is in a hospital? A. Indemnity B. Surgical C. Blanket D. Medigap Answer: A. Indemnity

An insurance company wants to obtain the insurance history of an applicant. Which source releases coded information to insurers regarding information included on previous insurance applications? A. Integrated Insurer's Support B. Federal Bureau of Investigation C. Medical Information Bureau D. Insurer's Protection Guild Answer: C. Medical Information Bureau

Which of the following groups would most likely be covered under a blanket accident policy? A. Factory workers at the automobile assembly plant B. Independent contractors who work for a general contractor C. Students at a public school D. Office workers for a retail business Answer: C. Students at a public school

Which of the following is NOT required for a producer to tell a prospect? A. An explanation of products that the insurer is selling B. What requirements the producer needed to meet to obtain the insurance license C. From what outside sources the insurer would seek information regarding the insured D. How the insurer would use any outside information regarding the applicant Answer: B. What requirements the producer needed to meet to obtain the insurance license

Which of the following expenses is NOT covered by a health insurance policy? A. Dental B. Funeral C. Hospital D. Disability Answer: B. Funeral

The agent is known as the "Field Underwriter" because of the information he/she gathers for the insurer. This helps the insurer A. Reduce the number of staff underwriters B. Avoid adverse selection C. Comply with State law D. Learn about the underwriting process Answer: B. Avoid adverse selection

When benefits are paid directly to the insured under a health insurance policy, the policy provides benefits on what type of basis? A. Scheduled B. Reimbursement C. Service D. Limited Answer: B. Reimbursement

Which of the following will NOT be covered under an individual health insurance policy? A. The applicant's house help B. The applicant's adopted child C. The applicant D. The applicant's spouse Answer: A. The applicant's house help

In which of the following cases would a credit disability policy be issued? A. A person receiving disability benefits cannot receive a credit disability policy B. If an insured has filed bankruptcy and his premiums are waived, he can be issued a credit disability policy C. If an individual is in debt to a specific creditor, payments will be made for him/her until the return to work D. If a person receives disability benefits, he or she is eligible for credits on their group policies for future disabilities Answer: C. If an individual is in debt to a specific creditor, payments will be made for him/her until the return to work

What is the contract provision that allows the insurer to non renew health coverage if certain events occur? A. Conditionally renewable B. Optionally renewable C. Noncancellable D. Guaranteed renewable Answer: A. Conditionally renewable

To comply with Fair Credit Reporting Act, when must a producer notify an applicant that a credit report may be requested? A. When the applicant's credit is checked B. When the policy is delivered C. At the initial interview D. At the time of application Answer: D. At the time of application

All of the following statements concerning Accidental Death and Dismemberment coverage are correct EXCEPT A. Dismemberment benefits are paid for certain disabilities that are presumed to be total and permanent B. Accidental death and dismemberment insurance is considered to be limited coverage C. Death benefits are paid only if death occurs within 24 hours of an accident D. Accidental death benefits are paid only if death benefits results from accidental bodily injury as defined in the policy Answer: C. Death benefits are paid only if death occurs within 24 hours of an accident

$____ for bodily injury or death in any one accident. Answer: $30,000

$_____ for bodily injury or death of any one person. Answer: $15,000

The Commissioner will approve or disapprove rates proposals within ____ days of receiving rate filing documentation. Answer: 30 days

Insurance BINDERS may be effective for a maximum of ____ days. Answer: 90 days

____ days in advance for nonrenewal for all other policies. Answer: 30 days

_____ days in advance for nonrenewal for commercial or business policies. Answer: 60 days

_____ days in advance for cancellation for any other reason. Answer: 30 days

_____ days in advance for cancellation due to nonpayment of premium. Answer: 10 days

The NEVADA INSURASNCE GUARANTY ASSOCIATION'S maximum liability per covered claim is as follows: : Workers' compensation claims :$_____ per claim for all other covered claims Answer: Full Amount $300,000

Producers must remit funds to the intended receiver (insurer or client) within ____ days of receiving the funds. Answer: 15 days

Additional penalty for violation a Commissioner's cease and desist order. Answer: $5,000

Maximum per violation penalty for a person, other than a licensed producer. Answer: $5,000

Maximum per violation penalty for a licensed producer. Answer: $500

Insurance fraud is a FELONY and can subject the guild person to imprisonment for up to four years a fine of $_____ or both. Answer: $5,0000

Claim investigation must be completed within ____ working days. Answer: 30 days

Insurers must acknowledge claims within _____ working days. Answer: 20 days

Insurers must respond to Insurance Division inquires within _____ working days. Answer: 10 days

Change of address must be reported to the Commissioner within ____ days. Answer: 30 days

In addition to license suspension or revocation the commissioner may fine a producer up to $_______ for each violation. Answer: $500

Producer insurance transaction records must be maintained for _____ years after the policy expires. Answer: 3 years

Continuing education required for each three-year CE term is how many hours. This includes _____ hours in ethics. Answer: 30 hours 3 hours

Producer licenses renew every ____ years. Answer: 3 years

An insurer that TERMINATES an agent's appointment must notify the Commissioner within _____ days of the date of termination. Answer: 30 days

Insurer must file a notice of appointment within ______ days after the agency contracts is executed or the first insurance application is submitted. Answer: 15 days

The commissioner may issue a TEMPORARY PRODUCER license for a maximum of ______ days to a surviving spouse, business partner, or employee if a producers dies, becomes disable, or is called to active military service. Answer: 180 days

Nonresident producers moving to Nevada have ________ days to establish themselves as resident producer without taking the state exam. Answer: 90 days

Producer license applicant's minimum age Answer: Age 18

Fine for transacting insurance without a producer's license Answer: $1,000

The commissioner must giver at leas _______ days' written notice of a hearing. Answer: 20 days

The period in which the Commissioner must conduct an examination of every authorized insurer. Answer: 5 years

Outdoor Designs Company (ODC) makes cedar patio furniture. ODC's lumber supplier, L&L Wood Products, is the largest and most competitive supplier of lumber in the area. ODC's risk manager is concerned that a disruption in the supply of lumber from L&L due to a large fire loss would adversely affect its production. Which one of the following would best minimize the adverse effect to ODC of a large loss experienced by L&L?  A. Separation B. Duplication C. Loss prevention D. Avoidance Answer: A. Separation would best minimize the adverse effect to ODC of a large loss experience by L&L.

Laws made by formal enactments of legislative bodies are referred to as  A. Statutory law. B. Common law. C. Case law. D. Constitutional law. Answer: A. Laws made by formal enactments of legislative bodies are referred to as statutory law.

Which one of the following statements is true? A. Insurers must be free to create policies that are in their best interest. B. Insurance regulators review policies to determine if they benefit consumers. C. Insurance policies are private contracts, the language of which is largely unregulated. D. Regulators set coverage standards, but allow insurers to determine policy language. Answer: B. Insurance regulators review policies to determine if they benefit consumers, and may specify policy language.

The term "net income losses" is usually associated with A. Loss of goodwill. B. Liability losses. C. Property losses. D. Missed opportunities. Answer: C. The term "net income losses" is usually associated with property losses.

A completed operations liability loss exposure differs from a products liability loss exposure in that the completed operations liability loss exposure A. Is based solely on strict liability rather than negligence or strict liability. B. Arises out of the entity's completed work, including defective parts or materials furnished with the work. C. Is based solely on negligence and breach of warranty rather than strict liability. D. Arises out of the entity's defective product, whether or not it has been installed as part of the finished work. Answer: B. A completed operations liability loss exposure differs from a products liability loss exposure in that the completed operations liability loss exposure arises out of the entity's completed work, including defective parts or materials furnished with the work.

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.

Martha's home includes a separate apartment on the second floor that she rents to others. An accidental grease fire in the tenant's kitchen causes significant damage to the apartment and the rest of the house. Martha and her tenant have to move out until the house can be restored. Which one of the following is correct with respect to how Martha's homeowners policy would respond?  A. The fire damage would be covered, but the lost rental income would not be covered because it is an indirect loss. B. Martha's extra expense coverage would pay for temporary accommodation for her and her tenant during the repairs. C. The "fair rental value" coverage in Martha's homeowners policy would cover her loss of rental income. D. Martha's insurer would deny coverage because the fire originated in the portion of the house rented to others. Answer: C. The "fair rental value" coverage in Martha's homeowners policy would cover her loss of rental i

When a firm is selecting a distribution channel, which one of the following is an important consideration with regard to its operations? A. How quickly can inquiries and transactions be processed in the channel? B. Are customers willing to pay a premium for personalized products and services through the channel? C. What are customers' expectations regarding accessibility to the channel? D. Does the selected channel capitalize on its core capabilities? Answer: D. When a firm is selecting a distribution channel, an important consideration with regard to its operations is whether the selected channel capitalizes on its core capabilities.

Which one of the following is correct with respect to the potential financial consequences of a property loss? A. When property is used to secure a loan, only the lender suffers financial consequences if that property is destroyed. B. Consumers or resellers of property do not suffer a financial loss unless they actually own property when it is damaged. C. When a mortgaged property is destroyed, the mortgagor's loss is limited to the outstanding balance of the loan. D. Bailees need to consider not only their owned property loss exposures, but also the exposures of property held for others. Answer: D. Bailees property loss exposures include not only their owned property, but also the property held for others is correct with respect to the potential financial consequences of a property loss.

If a claim is complex or if settlement negotiations are not progressing with the insurer, the insured may hire  A. An independent adjuster. B. A public adjuster. C. A senior claim representative. D. A public defender. Answer: B. A public adjuster, who is an organization or person hired by an insured to represent the insured in a claim, may be necessary if a claim is complex or if settlement negotiations are not progressing.

A reservation of rights letter A. Lists all of the rights that an insurer has under an insurance policy. B. Advises the insurer that the insured has made a claim, but retains the right to withdraw the claim later. C. Lists all of the rights that an insured has under an insurance policy. D. Advises the insured that the insurer is investigating the claim but retains the right to deny coverage later. Answer: D. A reservation of rights letter advises the insured that the insurer is investigating the claim, but retains the right to deny coverage later.

The insured's washing machine was damaged by a covered loss. At the time of the loss, the actual cash value (ACV) of the machine was $300. Repairs would cost $250. The scrap metal dealer would pay $100 for what remains of it. Which one of the following calculations correctly determines whether or not the washing machine was a constructive total loss?  A. $300 ACV - $100 salvage value = $200. This loss was a constructive total loss. B. $300 ACV - $100 salvage value = $200. This loss was not a constructive total loss. C. $300 ACV - $250 repairs = $50. This loss was a constructive total loss. D. $300 ACV - $250 repairs = $50. This loss was not a constructive total loss. Answer: A. $300 ACV - $100 salvage value = $200. This loss was a constructive total loss because it would cost more for the insurer to pay the repair cost of $250 than to pay the ACV and then sell for salvage (net of $200).

One of the benefits to a business of retaining a loss exposure instead of insuring it is A. A reduction in expenses. B. A greater peace of mind. C. Access to the insurer's loss control services. D. Increase in expenses. Answer: A. Retaining losses rather than insuring them creates a reduction in expenses.

In setting goals, insurers carefully evaluate the interaction between premiums and loss ratio and how changes in each affect profit. Which one of the following statements concerning the relationship between premium and loss ratio is true?  A. If premiums increase by a greater percentage than incurred losses increase, the loss ratio will decrease. B. If incurred losses increase at a faster rate than premiums, the loss ratio will improve. C. If premiums decrease at a faster rate than losses increase, the loss ratio will decrease. D. If losses decrease at a faster rate than premiums decrease, the loss ratio will increase. Answer: A. If premiums increase by a greater percentage than incurred losses increase, the loss ratio will decrease.

When deciding to approve or disapprove an insurer's request for a rate, a state insurance commissioner must determine if the rates are adequate. This means that the rates should be A. Similar to the rates charged by other insurers operating in the state. B. Similar for insureds with similar loss exposures. C. Sufficient to pay all claims and the expenses related to those claims. D. Able to generate a fair return for the insurer but no to excessive or unrealistic profit. Answer: C. Sufficient to pay all claims and the expenses related to those claims.

An insurer's loss reserve is a(n) A. Asset designated for paying claims for losses that have already occurred. B. Liability designated for paying claims for losses that have already occurred. C. Asset designated for paying claims for losses that might happen in the future. D. Liability designated for paying claims for losses that might happen in the future. Answer: B. A loss reserve is a liability that represents the amount estimated and set aside by an insurer to pay claims for losses that have already occurred but are not yet settled.

Which one of the following types of agent is usually paid the same commission rate for new business and renewals? A. Exclusive agent B. Direct writer sales agent C. Managing agent D. Independent agent Answer: D. An independent agent is given a flat percent commission on all new and renewal business.

Sound risk management benefits society in each of the following ways, EXCEPT:  A. Causing fewer disruptions in the economic and social environment B. Increasing opportunity costs C. Reducing the number of people dependent on society for support D. Stimulating economic growth Answer: B. Sound risk management benefits society in each of the following ways, EXCEPT: Increasing opportunity costs.

Risk control is intended to prevent or reduce losses. When practicing sound risk control, an organization A. Will not be required to expend economic resources to insure those loss exposures. B. Is likely to use insurance to treat those loss exposures. C. Will often be able to eliminate losses from those loss exposures. D. Is likely to see the same economic benefit as compared to insurance. Answer: B. When practicing sound risk control, an organization is likely to use insurance to treat large loss exposures.

For a one-year policy covering losses that take several years to develop, all of the following ratios are likely to be revised for several years following the policy period, EXCEPT: A. Expense ratio B. Combined ratio C. Loss ratio D. Overall operating ratio Answer: A. The loss ratio, combined ratio, and overall operating ratio all would change as the losses develop for several years after the policy period.

Work on a new claim begins for the claim representative upon receipt of the notice of loss. The representative obtains initial information and verifies coverage. Next, the representative should A. Set a loss reserve. B. Make an offer to settle the claim. C. Retain causation experts. D. Assign the claim to defense counsel. Answer: A. After the claim representative receives notice of a loss, obtains initial information, and verifies coverage, a loss reserve for that claim should be established.

Under a liability policy, the maximum an insurer will pay for injury to any one person is known as the A. Per individual limit. B. Single limit. C. Each occurrence limit. D. Each person limit. Answer: D. Under a liability policy, the maximum an insurer will pay for injury to any one person is known as the each person limit.

Earned premiums are the portion of written premiums that A. Apply to the part of the policy period that has already occurred. A. Are available to generate investment income. C. Are billed at the beginning of the policy period. D. Apply to the part of the policy period that follows a loss. Answer: A. Earned premiums are the portion of written premiums that apply to the part of the policy period that has already occurred.

A contractual provision that obligates one party to assume the financial consequences of legal liability for another party is A. A statute. B. A hold-harmless agreement. C. An example of strict liability. D. A warranty. Answer: B. A contractual provision that obligates one party to assume the financial consequences of legal liability for another party is a hold-harmless agreement.

Insurance is primarily designed for definite and accidental losses. Because of this, most policies will exclude coverage for what is known as A. Named perils. B. Maintenance perils. C. Broad perils. D. Specified perils. Answer: B. Because of this, most policies will exclude coverage for what is known as maintenance perils.

An agency bill process in which the producer is usually not required to pay the insurer until the premium is collected from the policyholder is known as A.The statement basis. B.The account current basis. C.The item basis. D.The direct bill basis. Answer: C. An agency bill process in which the producer is usually not required to pay the insurer until the premium is collected from the policyholder is known as the item basis.

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.

Which one of the following is a typical adjuster activity during the claim handling process? A. Controlling the loss. B. Contacting the insured. C. Determining policy terms and conditions D. Notify underwriters of larger loss exposures than were originally contemplated. Answer: B. Contacting the insured is a typical adjuster activity during the claim handling process.

Omicron Manufacturing has approached Delta Insurance Brokerage to develop and implement a voluntary insurance program for life, health, and disability insurance for Omicron's employees. Delta puts together a program in which employees receive the coverage at discounted rates, and premiums are deducted from the employees' paychecks. Omicron and Delta are using which one of the following types of group marketing to offer this program? A. Direct response marketing B. Affinity marketing C. Mass marketing D. Website marketing Answer: D. Omicron and Delta are using website marketing.

Analyzing loss exposures requires A. Understanding how a household or organization operates. B. Estimating how large the losses may be and how often they may occur. C. A physical inspection of all locations, operations, and maintenance routines. D. Interviews and the analysis of a flowchart. Answer: B. Analyzing loss exposures requires estimating how large the losses may be and how often they may occur.

An analyst in the financial department for an insurer has calculated the loss ratio to be 1.03. This result indicates that the insurer is A.Collecting approximately $1.03 in premium for every $1.00 it pays in claim-related expenses. B.Collecting approximately $1.03 in premium for every $1.00 it pays in claim-related and underwriting expenses. C.Paying out approximately $1.03 in claim-related and underwriting expenses for every $1.00 it collects in premium. D.Paying out approximately $1.03 in claim-related expenses for every $1.00 it collects in premium. Answer: D. Paying out approximately $1.03 in claim-related expenses for every $1.00 it collects in premium.

All of the following correctly describe reasons for the use of independent adjusters, EXCEPT: A. Insurers may use independent adjusters when special skills and expertise are needed, for example to investigate aircraft accidents. B.In the case of a catastrophic loss such as a hurricane, an insurer may not have sufficient staff to manage the large number of claims, and may use independent adjusters. C. In some areas it is not economically feasible to set up claim offices, and insurers may contract with independent adjusters to handle claims in these remote areas. D. The insured may retain an independent adjuster if settlement negotiations with the insurer are not progressing satisfactorily. Answer: D.The insured would not retain an independent adjuster if settlement negotiations with the insurer were not progressing satisfactorily. (Independent adjusters handle claims for insurers for a fee, not for insureds.)

Jim's Computer Repair will often take customers' computers into the shop for repairs and service. While Jim has a customer's computer in his possession, he is in the role of A. A bailee. B. A bailor. C. A secured lender. D. An agent. Answer: A. A bailee is a person who holds property entrusted to them by others.

At the start of the second quarter of its fiscal year, the management of Pretty View Insurance Company (PVIC) noticed that it has experienced an increase in its YTD actual loss ratio compared with its target. The following chart shows its YTD loss ratio results as compared to its goals by LOB. % Results as of March 31 -> %Annual Goal -> Variance-> % of Earned Premium Com. Auto 71 70 1 32 Pers. Auto 85 75 10 32 Homeowners 58 68 -10 32 Pers Umbrella 87 77 10 4 Which one of the following lines is likely to be the largest contributor to PVIC's higher loss ratio? A.Commercial Auto B.Personal Auto C.Homeowners D.Personal Umbrella Answer: B. Personal Auto: the variance above goal is 10 percent and the total share of earned premiums is 32 percent.

Underwriting income (or loss) is calculated by subtracting losses and expenses from A. Paid premium. B. Written premium. C. Earned premium. D. Unearned premium. Answer: C. Underwriting income (or loss) is calculated by subtracting losses and expenses from earned premium.

In terms of the elements of a contract, an insurance application is A. An offer. B. An acceptance. C. A consideration. D. An agreement. Answer: A. In terms of the elements of a contract, an insurance application is an offer.

Which one of the following identifies the two broad categories of risk management techniques? A.Risk control and risk financing B.Loss prevention and loss reduction C.Separation and duplication D. Insurance and noninsurance Answer: A.The two broad categories of risk management techniques are risk control and risk financing.

A goal of the claim function is to support the profit goal of the A. Insured. B. Claimant. C. Insurer. D.Policyholder. Answer: C.A goal of the claim function is to support the profit goal

Earned premiums $4,000,000 Written premiums $5,000,000 Net investment income $1,000,000 Incurred losses $3,000,000 Incurred underwriting expense $2,000,000 What is Hometown Insurer's investment income ratio? A. 10% B. 20% C. 25% D. 50% Answer: C. 25%

Watercraft liability and aircraft liability are excluded under commercial general liability (CGL) policies primarily to A.Eliminate duplicate coverage. B.Avoid covering uninsurable losses. C.Keep premiums reasonable. D.Avoid insuring losses that could be prevented. Answer: A. Eliminate duplicate coverage.

Claims-made coverage typically is used to insure businesses that face certain types of liability exposures, such as A.Bailee liability. B.Medical malpractice. C.Homeowners personal liability. D.Garagekeepers liability. Answer: B. Claims-made coverage typically is used to insure businesses that face certain types of liability exposures, such as medical malpractice.

A reinsurance company A. Is formed to write all or part of the insurance for a parent company. B.Provides primary insurance for loss exposures that private insurers are unwilling to provide. C.Transfers losses to a primary insurer. D.Assumes loss exposures from a primary insurer. Answer: D.The reinsurer assumes some or all of the potential costs of insured loss exposures of the primary insurer.

Households and organizations should review their current insurance programs with their agent or broker each year. This is done as part of which one of the following steps in the risk management process? A. Identifying loss exposures B. Analyzing loss exposures C.Monitoring results and revising the risk management program D. Selecting the appropriate risk management techniques Answer: C. Reviewing current insurance programs with an agent or broker each year is performed during Step 6:—Monitoring results and revising the risk management program.

How does a flex rating law work? A. Insurers may adjust rates within a range without prior approval. B.Insurers may change rates without prior approval, but they are subject to regulatory review. C. Insurers may adjust rates within a range with prior approval. D.Insurers may adjust rates at will, but are required to file a rate schedule. Answer: A. Flex rating laws permit insurers to adjust rates within a range without prior approval.

Which one of the following is a federal insurance plan in which the government acts as a partner with a private insurer that sells insurance and pays the claims, and then reimburses the insurer for the portion of losses that exceeds premiums and investment income? A.Beach and Windstorm Plan B.National Flood Insurance Program (NFIP) C.Terrorism Risk Insurance Program (TRIP) D. Residual Auto Plan Answer: B. In the National Flood Insurance Program (NFIP), the government acts as a partner with a private insurer that sells insurance and pays the claims, and then reimburses the insurer for the portion of losses that exceeds premiums and investment income.

All of the following are shown on an insurer's income statement, EXCEPT A. Net underwriting gain (loss) B. Net investment income C. Unearned premium reserve D. Net income Answer: C.The unearned premium reserve is shown on an insurer's balance sheet. Net underwriting gain (loss), net investment income, and net income are shown on an insurer's income statement

Sho Ching is risk manager for Market Sales Company. Market Sales owns a large fleet of autos used by the sales employees. The fleet is insured with $1,000 physical damage deductibles. Sho Ching is concerned about an increasing frequency of auto accidents in recent years. Which one of the following is the best risk management option for addressing the increased frequency of accidents from the fleet of autos? A. Decrease the deductible to $500 B. Increase the deductible to $2,000 C. Implement loss reduction programs D. Implement loss prevention programs Answer: D. The best management option for addressing the increased frequency of accidents is to implement a loss prevention program.

A policy exclusion can serve all of the following purposes, EXCEPT: A. State the coverages exclusively provided by the policy. B. Eliminate coverage for uninsurable loss exposures. C. Help manage morale hazards. D. Eliminate coverages requiring special treatments. Answer: A. Stating the coverages exclusively provided by the policy is not a purpose of exclusions.

Which one of the following is true concerning the direct response distribution channel to market insurance? A. It relies heavily on advertising. B. It relies heavily on producer interaction. C. Commision costs are generally increased. D. There is less contact between the insurer and the customer with its use. Answer: A. It relies heavily on advertising.

Expenses associated with an insurer's underwriting activity include all of the following, EXCEPT: A. Investment expenses B. Payment for losses C. Loss adjustment expenses D. Premium taxes, licenses, and fees Answer: A. Investment expenses are separate from the expenses associated with underwriting activities.

Which one of the following best identifies types of organizations that should be concerned with personnel loss exposures from a manager leaving for another organization?  A. Sole proprietorships, but not corporations with separation of ownership and control B. Close corporations, but not sole proprietorships C. Sole proprietorships and close corporations, but not corporations with separation of ownership and control D. Sole proprietorships, close corporations, and corporations with separation of ownership and control Answer: D. Sole proprietorships, close corporations, and corporations with separation of ownership and control should be concerned with personnel loss exposures from a manager leaving for another organization.

When selecting a distribution channel, which one of the following is an important consideration with regard to customers' needs and characteristics? A. The target market B. The compatibility of the channel with established channels C. The expertise of current staff D. The ease of accessibility within the channel Answer: D. When selecting an alternative distribution channel, insurers or producers should consider the ease of accessibility within the channel.

The insurer's rights to recover and sell or otherwise dispose of insured property on which the insurer has paid a total loss are called  A. Fiduciary rights. B. Salvage rights. C. Constructive rights. D. Catastrophe rights. Answer: B. Salvage rights allow the insurer to recover and sell or otherwise dispose of insured property on which the insurer has paid a total loss.

Losses arising from maintenance perils are generally excluded from property insurance policies because A. Covering them would result in a moral hazard. B. They are either certain to occur over time or are avoidable. C. Maintenance agreements generally cover them. D. They are unexpected and therefore difficult to insure. Answer: B. Losses arising from maintenance perils are generally excluded from property insurance policies because they are either certain to occur over time or are avoidable.

Sally went downhill skiing on vacation. On the back of her lift ticket was printed an agreement that the skier would not hold the ski resort responsible for any injury incurred. From the ski resort's perspective, this is an example of  A. Insurance. B. Noninsurance transfer. C. Retention. D. Loss reduction. Answer: B. This is an example of noninsurance transfer.

Law Firm asked Insurance Company to provide both a commercial liability policy and a professional liability policy to meet its coverage needs. Insurance Company believes that there could be some types of losses that would be covered under both policies, a situation it wishes to avoid. What type of policy provisions could Insurance Company use to address this problem?  A. Coverage sections B. Exclusions C. Additions D. Extensions Answer: B. Coverage exclusions can serve to reduce the likelihood of coverage duplications.

Which one of the following statements about policy parts is true?  A. An insuring agreement establishes procedures for implementing the policy. B. Exclusions define terms to clarify ambiguity. C. A condition clarifies an insurer's promise or an insured's duty. D. Declarations state what an insurer will not cover. Answer: C. A condition clarifies an insurer's promise or an insured's duty.

Which one of the following is the correct formula for an insurer's overall operating ratio? A. Loss ratio + Expense ratio B. Combined ratio - Dividend ratio C. Loss ratio + Dividend ratio D. Combined ratio - Investment income ratio Answer: D. An insurer's overall operating ratio equals its combined ratio minus its investment income ratio.

People who handle claims may be staff claim representatives, independent adjusters, employees of third-party administrators, or  A. Private claims representatives. B. Self-insurer claim representatives. C. Producers who sell policies to insureds. D. Special claims representatives. Answer: C. Producers who sell policies to insureds sometimes have authority to handle small claims.

Which one of the following statements about good faith negotiations is correct? A. Settlement negotiations should begin before the claim is evaluated. B. Claim representatives can use arbitration clauses to resolve disputes over the settlement amount. C. Claim representatives are expected to make unrealistic offers when confronted with outrageous demands. D. Claim representatives should always wait for a demand before presenting an offer to settle. Answer: B. Claim representatives can use arbitration clauses to resolve disputes over the settlement amount.

The process of restoring an individual or organization to a pre-loss financial condition is the process of  A. Subrogation. B. Premium rebating. C. Indemnification. D. Loss mitigation. Answer: C. The process of restoring an individual or organization to a pre-loss financial condition is the process of indemnification.

Which one of the following identifies the two broad categories of risk management techniques?  A. Risk control and risk financing B. Loss prevention and loss reduction C. Separation and duplication D. Insurance and noninsurance Answer: A. The two broad categories of risk management techniques are risk control and risk financing.

Agencies, such as the Federal Trade Commission, state public utility commissions, and local zoning boards, derive their authority from A. Criminal law. B. Constitutional law. C. Common law. D. Statutory law. Answer: D. Agencies, such as the Federal Trade Commission, state public utility commissions, and local zoning boards, derive their authority from statutory law.

Damages for disfigurement are a form of  A. Out-of-pocket damages. B. Punitive damages. C. Special damages. D. General damages. Answer: D. Damages for disfigurement are a form of general damages.

Buildings, investments, patents, and human resources are all examples of A. Causes of loss, or perils. B. Financial consequences of loss. C. Assets exposed to loss. D. Tangible and intangible hazards. Answer: C. Buildings, investments, patents, and human resources are all examples of assets exposed to loss.

Laws made by formal enactments of legislative bodies are referred to as  A. Statutory law. B. Common law. C. Case law. D. Constitutional law. Answer: A. Laws made by formal enactments of legislative bodies are referred to as statutory law.

If an insured wants to receive "new for old" in the event of a property loss, he or she would purchase A. Actual cash value (ACV). B. Replacement cost. C. Agreed value. D. Market value. Answer: C. He or she would purchase replacement cost.