Insurance MCQ

If you were a life insurance underwriter, which of the following underwriting criteria would you MOST prefer to use because of its reliability? A) The applicant's response to the question Have you ever tested positive for HIV? B) The applicant's response to the question Have you smoked any tobacco products within the last year? C) The opinion of the patient's family doctor as to the overall health of the patient D) The results of blood and urine tests taken by your company's own physicians Answer: D

If you were an underwriter of personal auto insurance, which of the following underwriting criteria would you most prefer to use because of its incentive value? A) Gender B) Age C) Driving record D) Health Answer: c

Which of the following reasons for canceling a wedding would likely not be covered by a typical wedding insurance policy? A) Bride gets food poisoning B) Church suffers a fire loss the day before the wedding C) Groom decides he doesn't want to get married D) Caterer is unable to provide food for the reception Answer: c

Private insurance can be classified according to coverage. Distinct types mentioned in the text include all the following except: A) Property B) Commercial Lines C) Auto D) Submarine Answer: d

The expense ratio equals: A) total underwriting expenses divided by insured losses B) net income divided by total expenses C) total expenses divided by net income D) total expenses divided by premiums written Answer: d

From the insurance company's perspective, what is the difference between written premium and earned premium? A) There is no difference; they are effectively the same thing. B) Written premiums are those that belong to the insurer; earned premiums do not belong to the insurer. C) Written premiums are the total premiums collected by the insurer; earned premiums are those that belong to the insurer. D) Written premiums reflect the total amount of coverage provided to insureds; earned premiums reflect the net profit of the insurer. Answer: c

All of the following are federally-sponsored insurance activities in the U.S. except: A) Social Security B) Unemployment Trust Fund C) Federal Deposit Insurance Corporation D) Universal Health for Children Organization Answer: d

Midlands Insurance has 100 policyholders. It expects that this year's losses for all of its policyholders will total $111,000. The predicted expenses of operating the insurance pool are $46,000, expected investment earnings are $20,000, and the actuary determines that there is no need to charge for a risk reserve this year. What should the premium for each of Midland's 100 policyholders be? A) $1,110 B) $1,370 C) $1,570 D) $1,770 Answer: B

The combined ratio is: A) the loss ratio plus the expense ratio B) a measure of underwriting losses C) the loss ratio divided by the expense ratio D) a measure of capital gains and dividend returns Answer: A

A burglar enters Marcia's home and steals $10,000 worth of appliances. Marcia tells the insurance company that the appliances were worth $20,000. This overstatement of the loss is an example of: A) a morale hazard B) a peril C) insurance fraud D) carelessness Answer: c

Drinking a lot of alcohol before swimming could cause a person to drown. In this context, which of the following is the hazard? A) Drinking too much B) Knowing how to swim C) Drowning D) Death Answer: A

Billy is driving to the beach for spring break. Before leaving on his trip, he takes some cold medicine that makes him sleepy. He falls asleep at the wheel and collides with another car on the highway and breaks his leg. In this context, which of the following is the hazard? A) Spring break B) Knowing how to drive C) Taking the medicine D) Broken leg Answer: C

Warren is the president of The Huge Insurance Company. His Vice-President in charge of Finance comes to him one day and says "Warren, our combined ratio for the year is 105%." Warren replies, "Let's party!" Why isn't Warren upset about the high combined ratio? A) The company probably made enough money on its investments to make up for the underwriting losses. B) The company has actually made a 5% profit on its insurance business. C) The combined ratio really isn't that important... it only measures the combined productivity of all regional offices the company owns. D) The combined ratio is not an important indicator of underwriting results. Answer: A

Rusty is the president of The Huge Insurance Company. His Vice-President in charge of Finance comes to him one day and says "Rusty, our combined ratio for the year is 95%." Rusty replies, "Wooo hooo, profit sharing bonuses for everyone!" Why isn't Rusty upset about this combined ratio? A) The company probably made enough money on its investments to make up for the underwriting losses. B) The company has actually made a profit on its insurance business. C) Rusty is not very bright and doesn't understand what the combined ratio really means. D) The combined ratio is not an important indicator of underwriting results. Answer: B

Bodacious D, a famous singer, is performing at a concert. He does not have his body guards and security team present for the concert. A crazed fan runs up on stage, declares her love for Bodacious D, and throws herself at him. Bodacious D lands on the floor, and breaks his back. Which of these is the HAZARD(S), and which is the PERIL? A) The peril is not having a body guard present; the hazard is the crazed fan. B) The peril is being attacked by the fan, and the hazard is not having a body guard present. C) The peril is not having a body guard present, and the hazard is being pushed to the floor. D) The peril is both the crazed fan and the lack of security; there is no hazard in this case. Answer: B

Under an open perils insurance policy: A) covered perils are spelled out, usually using a numbered list B) any piece of property not excluded is covered C) absolutely all risks of losses are covered, those having an illegal purpose D) all perils not excluded are covered Answer: D

If insurance did not exist in the United States, which of the following might reasonably be expected to happen? A) Banks would lower their interest rates on home mortgages and auto loans. B) Moral hazards would decrease. C) The occurrence of perils would decrease. D) In general, only large businesses would be able to survive Answer: D

If insurance did not exist in the United States, which of the following might reasonably be expected to happen? A) Banks would lower their interest rates on car loans. B) Moral hazards would increase. C) The occurrence of perils would decrease. D) In general, only small businesses would be able to survive. Answer: B

Which of the following factors is not considered when an insurance rate or premium is calculated? A) The cost of the actual losses B) The cost of the insurance salesman and other company expenses C) Investment earnings on prepaid premiums D) The decision by the U.S. Supreme Court in 1943 Answer: D

A difference between a contract issued on a "named peril" basis versus an "open peril" or "all-risk" basis is: A) the "named peril" contract usually covers more perils B) the "named peril" contract is usually more expensive than the "open peril" contract C) in the "named peril" contract the insured must prove the peril is covered where in the "open peril" contract the burden of proof is on the insurer to show no coverage D) in the "open peril" or "all risk" contract there are no exclusions to loss Answer: C