Question 1

The concept of indemnity means

Accepted Answer

The concept if indemnity means that insurance restores the insured in whole or in part to the condition prior to the loss. Restoration to the insured can be in the form of payment for losses, repairs, or replacement of property that was damaged or destroyed.

Question 2

Risks are not all equally insurable. As such, insurers prepare for losses using specific characteristics making fairly predictable rate of loss estimates. Which of the following is one of these characteristics?

Accepted Answer

The characteristic included in making fairly predictable rate of loss estimates is that the loss must be ascertainable. An ascertainable loss is means to assign a monetary value to an insured's life or their ability to earn income. In order to determine a precise amount payable in the event of loss, both parties must agree on the amount. This means the loss must be measureable.

Question 3

If an insured individual is indemnified for the loss of a leg, this means

Accepted Answer

If an insured individual is indemnified for the loss of a leg, the policy covers medical bills and possibly wages due to the loss. Life insurance proceeds are meant to replace the present and future income to keep the family in its current lifestyle. The indemnity is the person's economic value or value of human life determined by present and future earning potential.

Question 4

Insurance transacted across state lines is deemed interstate commerce. This is based on

Accepted Answer

Insurance transacted across state lines is deemed interstate commerce based on the South-Eastern Underwriters Decision. This decision overturned the original law enacted by Paul versus Virginia stating that insurance across states lines was not interstate commerce. The Paul versus Virginia decision held for 75 years before the South-Eastern Underwriters Decision overturned it and in the process, turned the insurance industry upside down.

Question 5

If a debtor is unable to pay debts due to illness or death, the creditor is protected against financial consequences through

Accepted Answer

If a debtor is unable to pay debts due to illness or death, the creditor is protected against financial consequences through credit insurance. As a limited line of insurance, protecting the insured, credit insurance helps protect the creditor. Limited lines of insurance usually fall into another broader scope of insurance.

Question 6

Limit of liability is more commonly referred to as ______________ in the life and health insurance field.

Accepted Answer

Limit of liability is more commonly referred to as maximum benefit amount in the life and health insurance field. This is the maximum amount the insurer will pay out for contingencies of the specific insured.

Question 7

The McCarran-Ferguson Act of 1974 states:

Accepted Answer

The McCarran-Ferguson Act of 1974 states federal government can regulate the business of insurance only to the extent it is not regulated by state law. This law was implemented mainly to exempt the insurance companies from the majority of the provisions established under the federal antitrust laws.

Question 8

As an insurer, if you choose to carry variable life and/or variable annuity products, you are required to carry:

Accepted Answer

As an insurer, if you choose to carry variable life and/or variable annuity products, you are required to carry a securities license and insurance license. Insured individuals may lose money due to the investment risk of decreasing prices of securities. Because of this, individuals who choose to sell these products are required to carry a Securities license along with an insurance license.

Question 9

Which of the following protects the insured against financial consequences of legal liability?

Accepted Answer

Casualty insurance protects the insured against financial consequences of legal liability. These legal liabilities include death, injury, disability or the damage to real or personal property of the insured.

Question 10

Disclosure authorization must be given to applicants:

Accepted Answer

Disclosure authorization must be given to applicants in advance. These disclosure authorizations inform the applicant of the insurer's practices regarding the collection and use of their personal information. All notices must be given to the applicant promptly and in writing.

Question 11

The majority of insurance regulation takes place at:

Accepted Answer

The majority of insurance regulation takes place at the state level. The Insurance Code is the body of laws at the state level that consists of statutes, rules, and regulations.

Question 12

Disclosure must state the reason and purpose information is collected and how it is used. This means:

Accepted Answer

Disclosure must state the reason and purpose information is collected and how it is used. This means the reason is for the application process, the purpose is for underwriting the policy. Disclosure forms must be written in plain language laws of the state and indicate the types of persons authorized to disclose private and personal information.

Question 13

Insurance companies are governed by regulations intended to assure investments are

Accepted Answer

Insurance companies are governed by regulations intended to assure investments are only in high quality assets. This is to prevent insolvency. Funds can be invested in concerns that are fairly stable in value including municipal bonds, corporate bonds, real estate mortgages, and policy loans.

Question 14

Companies selling life insurance are taxed on both the income from investments and profits from underwriting. The underwriting profit is taxed:

Accepted Answer

The underwriting profit is taxed 50% during the year earned; 50% when paid out to stockholders. Shareholder surplus comes from the 50% of underwriting income that is taxed. The other 50% that is not taxed becomes the policyholders' surplus.

Question 15

Disability insurance has an elimination period or waiting period similar to deductibles. This period is

Accepted Answer

This period is the number of days the insured must be disabled before insurance benefits become payable. Simply put, the elimination period is a waiting time. If the policy states an elimination period of 14 days and the insured is disabled for 30 days, the policy would pay the insured benefits for the 16 days following the initial 14 day waiting period.

Question 16

Insurers use the law of large numbers to predict how many future losses will occur for a group. The basic principle of this law is:

Accepted Answer

The basic principle of this law is the larger the number of people in the group, the more predictable the loss. The law of large numbers uses statistics to evaluate and accurately predict the outcomes of certain events. These predictions are then used to provide the insurer a means of understanding how much and how often losses might occur.

Question 17

Studies have indicated that people who drive red colored cars are more likely to receive traffic tickets. Bob refuses to drive red cars. Bob is managing the risk of traffic tickets through.

Accepted Answer

Bob is managing his risk of traffic tickets through reduction. Although traffic tickets are directly related to obeying the laws and the presence of law enforcement officers, Bob believes he is reducing, or controlling, his chances of receiving a ticket.

Question 18

The purpose of insurance to the insured individual is:

Accepted Answer

The purpose of insurance to the insured individual is to make them whole and restore them to their original financial position. Insurance protects and provides for individuals in the occurrence of pure risk where there is the possibility of loss only. When individuals purchase insurance policies, they do so with the intention of using the insurance proceeds to restore things back to the way they were, not to create or provide financial gain or profit.

Question 19

The cause of potential loss is referred to as a peril. Conditions that increase the seriousness or likelihood are referred to as hazards. Which of the following are the four types of recognized hazards that can contribute to losses?

Accepted Answer

The four types of recognized hazards are physical, moral, morale, and legal hazards. Physical hazards are the material, structural or operational elements of a risk. The moral hazards are people's habits and values, while morale hazards stem from carelessness or irresponsibility. Legal hazards are court actions that can increase the likelihood or size of the loss.

Question 20

In order for individuals to benefit from insurance they must have an insurable interest. Insurable interest is:

Accepted Answer

Insurable interest is the legitimate interest in preserving the life or property of the insured. It is presumed individuals have an insurable interest in their own lives, but they are also considered to have an insurable interest in the life of a close relative or spouse. Insurable interest can be based on the love for the family member and a real interest in protecting that family member's life.

Quiz 1: Health: Health and Life Insurance