Insurance Practice Exam
Course Introduction
This course provides a comprehensive overview of the principles and practices of insurance, covering its role in risk management for individuals and organizations. Topics include the history and development of insurance, types of insurance products (life, health, property, casualty, and liability), underwriting and pricing processes, insurance regulation, and claims management. Students will also explore the structure of insurance markets, the functions of insurance companies, and contemporary issues such as reinsurance, ethical considerations, and the impact of technology on the insurance industry. Through case studies and practical examples, learners gain an understanding of how insurance operates within both domestic and global financial systems.
Recommended Textbook
Principles of Risk Management and Insurance 13th Edition by George E. Rejda
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27 Chapters
1397 Verified Questions
1397 Flashcards
Source URL: https://quizplus.com/study-set/239
Page 2
Chapter 1: Risk and Its Treatment
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59 Verified Questions
59 Flashcards
Source URL: https://quizplus.com/quiz/3703
Sample Questions
Q1) All of the following statements about risk retention are true EXCEPT
A) It may be used intentionally if commercial insurance is unavailable.
B) It may be used passively because of ignorance.
C) Its use is most appropriate for low-frequency, high-severity types of risks.
D) Its use results in cost savings if losses are less than the cost of insurance.
Answer: C
Q2) All of the following are examples of personal risks EXCEPT A) poor health.
B) unemployment.
C) premature death.
D) loss of business income.
Answer: D
Q3) Following good health habits can be categorized as A) loss prevention.
B) risk retention.
C) noninsurance transfer.
D) personal insurance.
Answer: A
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3
Chapter 2: Insurance and Risk
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Sample Questions
Q1) According to the law of large numbers, what happens as the number of exposure units increases?
A) Actual results will increasingly differ from probable results.
B) Actual results will more closely approach probable results.
C) Nondiversifiable risk will decrease.
D) Objective risk will increase.
Answer: B
Q2) Ashley opened an all-you-can-eat buffet restaurant. The price per-person was based on what Ashley believed an average restaurant patron would consume. The restaurant began to lose money. Ashley concluded that her patrons had "above average" appetites, and were attracted to her restaurant because they could eat as much as they wanted while being charged an average price. A similar phenomenon exists in insurance markets. This problem is called
A) legal hazard.
B) adverse selection.
C) attitudinal hazard.
D) nondiversifiable risk.
Answer: B
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4
Chapter 3: Introduction to Risk Management
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60 Verified Questions
60 Flashcards
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Sample Questions
Q1) Laura Evans is risk manager of LMN Company. Laura decided to retain certain property loss exposures. Which of the following is a method that Laura can use to fund the retained property losses?
A) current net income
B) private insurance
C) noninsurance transfer
D) high deductibles
Answer: A
Q2) Purchasing health insurance illustrates the use of which personal risk management technique?
A) avoidance
B) risk transfer
C) risk control
D) risk retention
Answer: B
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Page 5
Chapter 4: Enterprise Risk Management and Related Topics
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Sample Questions
Q1) Which of the following statements about the scope of risk management is (are) true?
I.Traditionally, risk management was limited in scope to speculative loss exposures.
II.In the 1990s, some businesses began to expand the scope of risk management to include financial risks.
A) I only
B) II only
C) both I and II
D) neither I nor II
Q2) Insurance Brokerage Company uses a computer-based method of estimating the losses its clients will suffer if a severe storm or earthquake occurs. This method of estimating losses is called
A) capital budgeting.
B) securitization of risk.
C) risk mapping.
D) catastrophe modeling.
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6
Chapter 5: Types of Insurers and Marketing Systems
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Sample Questions
Q1) Scott works in property and liability insurance marketing. He legally represents insurance purchasers, rather than insurance companies. Scott is paid a commission on the insurance placed with insurers. Scott is a(n)
A) exclusive agent.
B) direct writer.
C) branch manager.
D) insurance broker.
Q2) As an alternative to demutualizing, Big Mutual Insurance Company reorganized itself into a corporate form that can directly or indirectly own a stock insurance company. This form of organization is called a(n)
A) holding company.
B) shell company.
C) upstream company.
D) downstream company.
Q3) Which of the following statements about stock insurers is true?
A) They issue assessable policies.
B) They are not permitted to write property and liability insurance.
C) Stockholders bear any losses and share in any profits.
D) They are owned by their policyholders.
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Chapter 6: Insurance Company Operations
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Sample Questions
Q1) Sue double-majored in mathematics and statistics in college. She also enrolled in a number of finance courses. After graduation, she was hired by Econodeath Insurance Company. Her job is to calculate premium rates for life insurance coverages. Sue is a(n)
A) actuary.
B) underwriter.
C) claims adjustor.
D) producer.
Q2) One method through which reinsurance is provided is through an organization of insurers that underwrites insurance on a joint basis. Through the organization, financial capacity is available for large commercial risks. This reinsurance arrangement is a(n) A) quota-share treaty.
B) surplus-share treaty.
C) excess-of-loss treaty.
D) reinsurance pool.
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Chapter 7: Financial Operations of Insurers
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Sample Questions
Q1) JKL Insurance Company reported the following information on its accounting statements last year:
Premiums Written $90,000,000
Loss Adjustment Expenses $5,000,000
Underwriting Expenses $30,000,000
Premiums Earned $100,000,000
Incurred Losses $70,000,000
What was JKL's combined ratio last year?
A) 100.0 B) 103.3 C) 105.0
Q2) One liability on a property and liability insurance company's balance sheet is for the costs associated with settling and paying reserved claims. This liability is the A) pre-paid expense reserve.
B) loss reserve.
C) unearned premium reserve. D) loss adjustment expense reserve.
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Page 9
Chapter 8: Government Regulation of Insurance
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Sample Questions
Q1) One provision of the Dodd-Frank Act was creation of the Financial Stability Oversight Council. This council is charged with identifying nonbank financial companies that could increase the risk of collapse of the entire financial system. This risk is called
A) market risk.
B) systemic risk.
C) diversifiable risk.
D) enterprise risk.
Q2) All of the following statements about the methods of regulating insurance are true EXCEPT
A) All states have insurance laws that regulate the operations of insurers.
B) Insurers are totally exempt from regulation by federal agencies and laws.
C) The courts regulate insurance in many ways, including the interpretation of policy clauses and provisions.
D) State insurance commissioners, through administrative rulings, have considerable power over insurers doing business in their states.
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10
Chapter 9: Fundamental Legal Principles
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Sample Questions
Q1) Charles Blake told Wendy that he was an agent for Easy Pay Life Insurance Company. He presented no credentials. He asked Wendy some questions about her health and activities, and recorded the answers on scrap paper. He collected a $250 cash premium from Wendy. When Wendy did not receive a policy from Easy Pay, she contacted the company. Easy Pay said they do not have an agent named Charles Blake. Easy Pay is not responsible for Wendy's loss of $250 because
A) the principal is never responsible for the acts of its agents.
B) there is no presumption of an agency relationship.
C) limitations can be placed on the powers of agents.
D) knowledge of the agent is assumed to be knowledge of the principal.
Q2) Melody's car was damaged when another driver ran a stop sign and hit her car. Melody decided to collect from her own insurer and to let her insurer recoup the loss payment from the negligent driver who hit her. What fundamental legal principle is illustrated in this scenario?
A) the principle of utmost good faith
B) the principle of insurable interest
C) the principle of subrogation
D) the principle of reasonable expectations
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Chapter 10: Analysis of Insurance Contracts
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Sample Questions
Q1) Helen and John both own automobiles on which they carry liability insurance. If Helen is negligent and has an accident while driving John's car with his permission, how will each insurer respond to any liability judgment against Helen?
A) The insurers will pay the judgment on a pro rata basis.
B) John's insurer will pay on an excess basis if Helen's insurance is insufficient to cover the judgment.
C) Helen's insurance will pay on an excess basis if John's insurance is insufficient to cover the judgment.
D) The policies will pay the judgment on the basis of contribution by equal shares.
Q2) The policy provision requiring the filing of proof of loss with the insurer is an example of a(n)
A) declaration.
B) condition.
C) insuring agreement.
D) miscellaneous provision.
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Chapter 11: Life Insurance
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60 Verified Questions
60 Flashcards
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Sample Questions
Q1) Under the needs approach, when is the dependency period of a surviving spouse assumed to end?
A) 1 or 2 years after the breadwinner's death
B) when the youngest child reaches age 18
C) when the surviving spouse reaches age 65
D) when the surviving spouse dies
Q2) A whole life insurance policy in which premiums are reduced for an initial period (e.g. 3 years) and are higher thereafter is an example of a
A) level-term policy.
B) modified life policy.
C) limited-payment whole life policy.
D) variable life policy.
Q3) Which of the following $100,000 whole life insurance policies, issued by the same company to a man age 32, would require the highest first-year premium?
A) continuous premium (ordinary) life
B) whole life paid-up at 65
C) 10-payment whole life
D) 20-payment whole life
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Chapter 12: Life Insurance Contractual Provisions
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Sample Questions
Q1) Which of the following statements about the guaranteed purchase option is true?
A) An insured usually has 24 months to exercise an option.
B) The option cannot be exercised until the insured reaches age 40.
C) The amount of life insurance that can be purchased at each option is limited to 10 percent of the face amount of the basic policy.
D) The additional coverage can be purchased without demonstrating insurability.
Q2) Which of the following statements is (are) true regarding exclusions in life insurance contracts?
I.Life insurance policies are remarkably restrictive, including numerous exclusions.
II.A life insurer may exclude death attributable to certain activities or hobbies disclosed on the application.
A) I only
B) II only
C) both I and II
D) neither I nor II
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Chapter 13: Buying Life Insurance
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Sample Questions
Q1) Consumer experts typically recommend which of the following rules when purchasing life insurance?
I.Avoid policies which pay dividends.
II.Purchase life insurance equal to ten times your annual salary.
A) I only
B) II only
C) both I and II
D) neither I nor II
Q2) Brad owns a cash value life insurance policy. Last year, the cash value increased by $300. Brad received $100 in policyowner dividends on the policy last year. Brad was the beneficiary named in his grandmother's $50,000 life insurance policy. When she died this past year, Brad received $50,000. How much taxable income relating to life insurance must Brad report for federal income tax purposes?
A) $0
B) $100
C) $400
D) $50,400
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Page 15
Chapter 14: Annuities and Individual Retirement Accounts
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Sample Questions
Q1) Which of the following statements is (are) true with respect to annuities?
I.Annuities are the opposite of life insurance.
II.The fundamental purpose of annuities is to replace lost income in case of premature death.
A) I only
B) II only
C) both I and II
D) neither I nor II
Q2) Which of the following statements about converting a traditional IRA to a Roth IRA is (are) true?
I.Such conversions can be done with no income tax consequences.
II.Qualified distributions from a Roth IRA after a conversion are received tax-free.
A) I only
B) II only
C) both I and II
D) neither I nor II
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Chapter 15: Health-Care Reform; Individual Health Insurance Coverages
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47 Verified Questions
47 Flashcards
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Sample Questions
Q1) Some managed care plans use physicians, hospitals, and health care organizations that agree to make medical services available to insureds at discounted fees. Insureds are not required to use these entities, but if they do, health care costs are less than if these entities are not used. Such health care entities are called
A) Preferred Provider Organizations (PPOs).
B) Health Maintenance Organizations (HMOs).
C) Blue Cross/Blue Shield Plans.
D) Health savings accounts (HSAs).
Q2) All of the following are historical reasons for the increase in health care expenditures in the U.S. EXCEPT
A) cost insulation because of third-party payers.
B) employer-sponsored health insurance.
C) universal health insurance coverage.
D) technological advances in health care.
Q3) All of the following are methods used to fund the Affordable Care Act EXCEPT
A) an excise tax on the sale of medical devices.
B) reduced payments to Medicare Advantage plans.
C) tort reform measures that reduce medical malpractice claims.
D) savings in the Medicare and Medicaid programs from reduced fraud and abuse.
Page 17
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Chapter 16: Employee Benefits: Group Life and Health Insurance
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53 Verified Questions
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Sample Questions
Q1) The Affordable Care Act requires employers with 100 or more employees to provide health insurance on the employees or pay a penalty if at least one employee receives a tax credit and coverage through the Health Insurance Marketplace. This requirement-providing insurance or paying a fine-is known as the
A) single-payer solution.
B) employer shared responsibility.
C) essential benefit requirement.
D) portability requirement.
Q2) Which of the following statements about group insurance underwriting principles is (are) true?
I.If a plan is contributory, 100 percent of the eligible employees must be covered. II.Ideally, there should be a flow of older people into the group and younger people out of the group.
A) I only
B) II only
C) both I and II
D) neither I nor II
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Page 18
Chapter 17: Employee Benefits: Retirement Plans
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Sample Questions
Q1) ACME Company is considering starting a retirement plan for its employees. One option ACME is considering is a profit-sharing plan. All of the following are advantages of this type of retirement plan EXCEPT
A) The employer's cost is not affected by the age and the number of employees.
B) Profit sharing plans provide an incentive for employees to work harder and more efficiently.
C) The 10 percent penalty tax does not apply to distributions prior to age 59.5.
D) ACME enjoys greater flexibility in employer contributions.
Q2) Early distributions from qualified retirement plans are assessed a 10 percent penalty. However, there are some exceptions to this rule. All of the following distributions are exempt from the penalty tax EXCEPT
A) lump-sum distributions made after age 59.5.
B) lump-sum distributions made directly to the employee at any age when he or she changes employers.
C) lump-sum distributions made after the death or permanent disability of the employee.
D) distributions that are part of a series of substantially equal payments over the worker's life expectancy.
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Chapter 18: Social Insurance
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Sample Questions
Q1) Which of the following statements about the problems and issues of unemployment insurance programs is (are) true?
I.Many state programs are inadequately financed.
II.Only a small portion of the total unemployed receive benefits at any time.
A) I only
B) II only
C) both I and II
D) neither I nor II
Q2) Which of the following statements about the Social Security cost-of-living adjustment is (are) true?
I.The amount of the adjustment is limited to a maximum of 2.5 percent annually.
II.Increases are based on changes in the consumer price index.
A) I only
B) II only
C) both I and II
D) neither I nor II
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Chapter 19: The Liability Risk
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Sample Questions
Q1) Compensatory damages include
A) general damages and special damages.
B) special damages and punitive damages.
C) punitive damages and general damages.
D) general damages, special damages, and punitive damages.
Q2) James was injured in an auto accident caused by another motorist's negligence. To reimburse him for his hospital bills and lost earnings, items which can be specifically itemized, James will receive
A) punitive damages.
B) special damages.
C) imputed damages.
D) general damages.
Q3) Under a dram shop law, a business may be held liable for damages resulting from A) the sale of alcohol.
B) the creation of an unsafe work place.
C) the sale of prescription drugs.
D) the creation of a hostile work environment.
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Chapter 20: Auto Insurance
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Sample Questions
Q1) Which of the following situations would be covered by the liability section of an unendorsed PAP if the insured is legally liable?
A) The insured injures a pedestrian while operating a friend's new motorcycle.
B) The insured backs into and damages the garage door of his rented house.
C) The insured intentionally runs into another motorist's car after the driver cut in front of him.
D) The insured damages a parked car while driving a dump truck for his employer.
Q2) The appraisal provision in the Personal Auto Policy is used to determine the A) value of a loss payable under property damage liability.
B) amount paid for a physical damage loss to the insured's auto if the insured and insurer disagree.
C) amount of auto insurance that should be purchased for an older/antique car.
D) value of the loss payable under the medical payments coverage.
Q3) A vehicle is considered a constructive total loss when
A) it cannot be repaired.
B) the repair cost exceeds the actual cash value.
C) it can be repaired, but the insured prefers a cash settlement.
D) it can be repaired, but the insurer prefers a cash settlement.
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Page 22
Chapter 21: Auto Insurance (continued)
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Sample Questions
Q1) Which of the following statements about modified no-fault laws is (are) true?
I.Claims less than a certain dollar threshold must be assumed by the injured accident victim, but the injured person has the right to sue a negligent driver.
II.Claims above a certain dollar threshold are paid in full by an injured accident victim's insurer, and the right to sue a negligent driver is eliminated.
A) I only
B) II only
C) both I and II
D) neither I nor II
Q2) One benefit payable under a typical no-fault plan is "essential services expenses." Which of the following would be covered under this benefit?
A) funeral expenses
B) housekeeping expenses
C) hospital bills
D) loss of income
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Chapter 22: Homeowners Insurance, Section I
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Sample Questions
Q1) The Homeowners 3 policy limits the amount of coverage provided on certain personal property (e.g. coin collections and silverware). This personal property can be adequately insured by
A) lowering the deductible which applies to personal property losses.
B) storing the property away from the home at another location.
C) adding a schedule to the policy listing the property with specific amounts of insurance.
D) adding an appraisal clause to the policy.
Q2) The concurrent causation exclusion in the Homeowners 3 policy specifies that:
A) if two or more perils jointly cause a loss, there is no coverage if one of the perils is excluded.
B) if the insured has two or more policies in force at the time of the loss, the loss is not covered.
C) if the insured has two or more policies in force at the time of the loss, the loss is pro-rated between the insurers.
D) if two or more perils jointly cause a loss, there is coverage as long as one of the perils is covered.
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Page 24
Chapter 23: Homeowners Insurance, Section II
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Sample Questions
Q1) For which of the following situations would there be personal liability coverage under the homeowners policy?
I.The named insured accidentally injures her husband with a hammer.
II.The named insured breaks his wife's valuable vase while practicing his golf swing.
A) I only
B) II only
C) both I and II
D) neither I nor II
Q2) Which of the following statements regarding watercraft liability under Section II of an unendorsed HO-3 policy is (are) true?
I.No coverage is available for watercraft liability.
II.Liability arising out of the use of watercraft that are under certain length and horsepower limits is covered.
A) I only
B) II only
C) both I and II
D) neither I nor II
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Chapter 24: Other Property and Liability Insurance Coverages
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Sample Questions
Q1) The personal umbrella policy covers some personal injuries. Which of the following is considered a personal injury?
A) bodily injury
B) property damage
C) defamation of character
D) liability arising from professional services
Q2) All of the following are characteristics of inland marine floater policies EXCEPT A) Coverage can be specifically tailored to the specific type of personal property insured.
B) Coverage applies only when the property is at a specified location, such as the insured's home.
C) The amount of insurance can be selected by the purchaser.
D) Broader coverage can be obtained through an inland marine floater policy.
Q3) Which of the following perils is covered under the Dwelling Property 2 (broad form) policy?
A) weight of ice, snow, or sleet
B) flood
C) theft
D) earthquake
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Chapter 25: Commercial Property Insurance
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Sample Questions
Q1) All of the following are considered to be instrumentalities of transportation and communication for purposes of inland marine insurance EXCEPT
A) trains.
B) tunnels.
C) transmission lines.
D) television towers.
Q2) Which of the following statements about the extra expense coverage form is (are) true?
I.It provides coverage for the increased cost that must be paid to continue operations during a period of restoration.
II.It provides coverage for lost business income if a key customer or key supplier experiences a loss.
A) I only
B) II only
C) both I and II
D) neither I nor II
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Chapter 26: Commercial Liability Insurance
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Sample Questions
Q1) A customer was injured when a furnace exploded following its faulty installation by a heating and cooling business. For the heating and cooling business, this is an example of A) contingent liability.
B) completed operations liability.
C) products liability.
D) contractual liability.
Q2) A-1 Electrical Service is an electrical contractor that employs 14 electricians. A-1 faces many loss exposures. One general liability exposure arises out of faulty work that A-1 electricians may perform for customers at their homes or businesses. This liability exposure is known as A) premises and operations liability.
B) products liability.
C) completed operations liability.
D) contingent liability.
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Chapter 27: Crime Insurance and Surety Bonds
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Sample Questions
Q1) State X hired Build-Right Construction to build a bridge. State X required that construction be completed within 2 years after the contract was signed. Les Johnson is the president of Build-Right. State X required that Build-Right's promise to perform be guaranteed by a third party. Build-Right purchased a performance bond from Rock Solid Indemnity. The bond requires Rock Solid to be responsible if Build-Right does not have the project completed on time. In this scenario, which party is the obligee?
A) State X
B) Build-Right Construction
C) Les Johnson
D) Rock Solid Indemnity
Q2) A burglar took some blank checks during a break-in at XYZ Company. He was careful to make sure that the theft would be difficult to discover. Three months later, he wrote himself a check for $20,000 and signed the company treasurer's name on the check. After the check was cashed, the loss was discovered. Which commercial crime coverage form would cover this loss?
A) Inside the Premises-Theft of Money and Securities
B) Money Orders and Counterfeit Currency
C) Forgery or Alteration
D) Outside the Premises
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