Deck 4: Insurance Companies

Question 1

Which of the following terms are associated with insurance companies?

A) Premiums.
B) Risk bearers.
C) Underwriting process.
D) a and b only.
E) All of the above.

Answer 1

All of the above.

Question 2

Which of the following is true regarding the income of an insurance company?

A) The income from premiums paid is an unstable type of revenue.
B) The initial underwriting income is the return generated from the investment of the insurance premiums.
C) An insurance company's profit is the sum of its insurance premiums and investment returns.
D) The investment returns from the investment of the insurance premiums accumulate until the funds are paid out on the policy.
E) c and d only.

Answer 2

The investment returns from the investment of the insurance premiums accumulate until the funds are paid out on the policy.

Question 3

A stock insurance company:

A) Is similar in structure to a corporation.
B) Issues shares that are traded publicly
C) Answers to only one constituency because its policyholders and its owners are the same.
D) a and b only
E) a and c only.

Answer 3

Answers to only one constituency because its policyholders and its owners are the same.

Question 4

"Any occ" disability insurance:

A) Insures against the inability of an employed person to earn an income in his own or any occupation.
B) Is typically written for professionals.
C) Is typically written for blue-collar workers.
D) a and b only.
E) a and c only.

Question 5

Pension plan sponsors often purchase which of the following as a pension investment?

A) Property and casualty insurance.
B) Structured settlements.
C) "Own occ" disability insurance.
D) Guaranteed investment contracts.
E) None of the above.

Question 6

An annuity is often described as:

A) A stock insurance fund in a mutual company wrapper.
B) An insurance premium in an underwriting wrapper.
C) A mutual fund in an insurance wrapper.
D) Term insurance in a cash-value wrapper.
E) An L&H company in a P&C company wrapper.

Question 7

Companies that provide insurance for both life and health and property and casualty are called:

A) Life insurance companies.
B) Property and casualty insurance companies.
C) Multi-line insurance companies.
D) Health insurance companies.
E) None of the above.

Question 8

According to the McCarran Ferguson Act of 1954, the insurance industry is regulated by:

A) The individual states.
B) The federal government.
C) The Securities and Exchange Commission.
D) a and b only.
E) None of the above.

Question 9

Insurance companies have increasingly sold products that have a significant investment component in addition to their insurance component. Major investment oriented products include:

A) Guaranteed investment contracts.
B) Annuities.
C) Insurance wrappers.
D) a and b only.
E) All of the above.

Question 10

The timing and magnitude of the payments for an insurance company is much more uncertain because of:

A) The actuarial problems in estimating the life expectancy of individuals.
B) The fact that payments are contingent on uncertain future events.
C) The long lag between the receipts and payments for an insurance company.
D) The continued viability of the insurance company.
E) None of the above.

Question 11

STAT surplus:

A) Is defined by accountants for their purposes.
B) Is required by monitoring agencies to assure financial stability.
C) Is measured in an identical manner to GAAP, but their purposes are different.
D) a and b only.
E) All of the above.

Question 12

One reason given for the accelerated demutualization of insurance companies is the:

A) Gramm-Leach-Bliley Act.
B) Glass-Steagall Act.
C) McCarran Ferguson Act.
D) GIC Act.
E) SEC Act.

Question 13

Insurance companies are really a composite of several companies, which include:

A) Manufacturer.
B) Investment company.
C) Distribution component.
D) All of the above.
E) None of the above.

Question 14

According to the reinsurance transaction, the "reinsurer" is:

A) The insurer transferring the risk.
B) The insurer accepting the risk.
C) The insurer that wrote the policy.
D) The policy holder whose policy is transferred.
E) None of the above.

Question 15

A form of insurance that has no cash value if the insured party does not die within the set policy period is called:

A) Term insurance.
B) Whole life insurance.
C) Universal life insurance.
D) Variable life insurance.
E) Survivorship insurance.

Question 16

The two fundamentally different types of life insurance are term insurance and:

A) Permanent life insurance.
B) Cash-value life insurance.
C) Investment-type life insurance.
D) Whole life insurance.
E) All of the above.

Question 17

Regarding the taxation of life insurance:

A) The inside buildup of cash value life insurance policies is not taxed as income or capital gains.
B) The beneficiary of the death benefit of life insurance policy is not subject to an income tax.
C) The death benefit of the policy is never subject to estate tax.
D) a and b only.
E) All of the above.

Question 18

An insurance product that is not guaranteed by the insurance company's general account is:

A) Whole life insurance.
B) Universal life insurance.
C) Variable life insurance.
D) Fixed annuity.
E) GIC.

Question 19

An insurance company is defined by the type of risk insured against.

Question 20

Insurance policies are legally binding policies for which the policyholder pays insurance premiums.

Question 21

The process of deciding which type of risk to insure against is referred to as the underwriting process.

Question 22

Investment returns for an insurance company may vary considerably with the performance of the financial markets.

Question 23

Long-term care insurance provides fixed guaranteed periodic payments over a long period of time, typically resulting from a settlement on a disability or other type of policy.

Question 24

While an annuity imposes an expense fee on the fund's performance, mutual funds impose a mortality and expense fee.

Question 25

Effectively, a GIC acts as a zero-coupon bond issued by a life insurance company.

Question 26

Growth in the cash value of investment-type life insurance is known as reserves.

Question 27

The various types of insurance policies differ in the statistical or actuarial accuracy of estimates of when the event insured against will occur and the amount of the payment.

Question 28

Discuss the two major forms of life insurance companies.

Question 29

Explain how the separate functions of insurance companies are now often provided by different companies.

Question 30

Discuss the distinctions between L&H and P&C companies.