Question 1

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.

Accepted Answer

The described form of organization is that of a holding company, which can own subsidiaries that operate as stock insurance companies while still being owned by the overall holding company.

Question 2

Which of the following statements is true regarding independent insurance agents in property and liability insurance?
A) The insurer owns the expiration rights, not the independent agent.
B) Independent agents are only permitted to represent one insurance company.
C) Independent agents are paid the same commission rate on new and renewal business.
D) Independent agents are not permitted to sell life and health insurance.

Accepted Answer

The answer of Which of the following statements is true...

Question 3

Sarah owns a property and liability insurance agency. She is authorized to represent several insurance companies and she is compensated by commissions. Sarah's agency owns the expiration rights to the business she sells. Sarah is a(n)
A) independent agent.
B) exclusive agent.
C) direct writer.
D) insurance broker.

Accepted Answer

Independent agents represent multiple insurance companies and own the expiration rights to the business they sell, distinguishing them from exclusive agents, direct writers, and brokers.

Question 4

R.I.P. Company manufactures herbicide and pesticide. The company had difficulty finding affordable liability insurance. R.I.P. established its own insurance company based in Bermuda for the purpose of insuring R.I.P.'s loss exposures. The company that R.I.P. formed is called a
A) captive insurer.
B) reciprocal insurer.
C) fraternal insurer.
D) holding company.

Accepted Answer

R.I.P. formed its own insurance company in Bermuda to insure its own loss exposures. This type of insurance company is known as a captive insurer, which is owned and controlled by its policyholders (in this case, R.I.P.). Captive insurers are commonly formed by corporations or groups of companies to provide insurance coverage that may not be available or affordable in the traditional insurance market.

Question 5

Some investors decided to start an insurance company. Each investor contributed $50,000 to raise the capital required to charter a new company. Each investor received an ownership interest in the company. The company will raise additional capital by selling ownership rights to other investors. Under this type of organization, the customer and owner functions are separate. This type of insurer is called a
A) stock company.
B) reciprocal exchange.
C) fraternal company.
D) mutual company.

Accepted Answer

A stock company is a type of insurance company where investors contribute capital and receive ownership interests in the company. The company can sell ownership rights to other investors, and the customer and owner functions are separate. This differs from other types of insurance companies, such as mutual companies or reciprocal exchanges.

Question 6

ABC Term Life Insurance Company uses an interesting marketing system-it has no agents. Instead, the company markets its coverages through television and radio ads, newspaper inserts, and the Internet. The type of marketing system that ABC Term Life Insurance Company uses is called the
A) mass merchandising system.
B) mixed marketing system.
C) direct response system.
D) worksite marketing system.

Accepted Answer

ABC Term Life Insurance Company uses the direct response system, where the company markets its coverages directly to the consumers using various mediums, such as television and radio ads, newspaper inserts, and the Internet, without involving any agents.

Question 7

Which of the following statements about Blue Cross and Blue Shield plans is (are) true?
I.Blue Cross and Blue Shield plans can be organized on a nonprofit basis or on a for-profit basis.
II.Blue Cross provides coverage for hospital services; Blue Shield provides coverage for physicians' and surgeons' fees.
A) I only
B) II only
C) both I and II
D) neither I nor II

Accepted Answer

Statement I is true because Blue Cross and Blue Shield plans can be organized either on a nonprofit or for-profit basis. Statement II is also true because traditionally, Blue Cross provides coverage for hospital services, and Blue Shield provides coverage for physicians' and surgeons' fees. However, in some states, this distinction is less clear as Blue Cross and Blue Shield plans may offer merged benefits.

Question 8

The leaders of a religious group decided to start a life insurance organization to insure members of the religious group. The insurer will operate as a nonprofit organization, thus receiving favorable tax treatment. The insurer formed will be a
A) health maintenance organization.
B) stock insurer.
C) fraternal insurer.
D) reciprocal exchange.

Accepted Answer

A fraternal insurer is a nonprofit organization formed to provide insurance benefits to its members who share a common religious, ethnic, or vocational bond. This option is consistent with the scenario provided, as the religious group is seeking to insure its members through a nonprofit organization. The other options (HMO, stock insurer, and reciprocal exchange) are not consistent with the scenario, as they do not involve nonprofit organizations formed by a religious group.

Question 9

All of the following are reasons why mutual insurance companies convert to stock insurance companies EXCEPT
A) Stock companies can offer stock options to attract and retain key personnel.
B) Stock companies can raise new capital more easily.
C) Stock companies are exempt from state insurance regulation.
D) Stock companies offer greater flexibility to expand through acquisitions.

Accepted Answer

Stock companies are not exempt from state insurance regulation. In fact, they are subject to the same regulatory oversight as mutual insurance companies. A, B, and D are all valid reasons why a mutual insurance company may choose to convert to a stock insurance company.

Question 10

Cathy just started a job with XYZ Manufacturing Company. She attended an orientation and was given a packet providing information about the various employee benefits XYZ offers. One item in the packet was a booklet and application form from an auto insurer. The insurer offers lower premiums to XYZ employees. The insurer's plan for selling individually-underwritten auto insurance to employees of XYZ Manufacturing Company is called
A) direct response.
B) mass merchandising.
C) financial institution distribution.
D) multiple marketing.

Accepted Answer

The insurer's plan is called mass merchandising. This approach involves offering insurance products, like auto insurance, at lower premiums to employees of a specific company or members of a specific organization, leveraging the group's size to negotiate better rates.

Question 11

Big Mutual Insurance Company would like to take advantage of financial services deregulation by acquiring a bank and a stock brokerage firm. Big Mutual, however, would have trouble raising the funds needed to make these acquisitions under the mutual form of organization. Big Mutual is planning to switch from the mutual form of organization to the stock form, and to issue shares of common stock to raise capital. This change in organizational structure is called
A) mutualization.
B) retrocession.
C) reinsurance.
D) demutualization.

Accepted Answer

Demutualization is the process through which a mutual insurance company changes its organizational structure to a stock company and issues shares of stock to raise capital. This allows the company to access the financial markets and raise funds for expansion, acquisitions, or other purposes.

Question 12

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.

Accepted Answer

Scott's job duties and responsibilities align with those of an insurance broker. As a broker, he legally represents the insurance purchasers and can offer them policies from multiple insurers, for which he is paid a commission. Exclusive agents represent only one insurance company, direct writers are employees of an insurance company, and branch managers oversee operations at a specific location or branch.

Question 13

Marcy advises her clients on investments, taxes, wealth management, estate issues, budgeting, and insurance. Marcy is also a licensed life insurance agent. When Marcy sells life insurance to a client, the distribution channel used is a(n)
A) stock broker.
B) financial planner.
C) insurance broker.
D) direct writer.

Accepted Answer

Marcy, acting as a financial planner, advises her clients on a broad range of financial matters including investments, taxes, wealth management, estate issues, budgeting, and insurance. When she sells life insurance, she does so in the capacity of a financial planner, integrating it into her broader advisory services.

Question 14

RST Insurance Company does not have any agents. Instead, the company sells insurance through radio ads, telemarketers, and newspaper and magazine inserts. This distribution method is called
A) reciprocal exchange.
B) direct response system.
C) mass merchandising.
D) multiple distribution system.

Accepted Answer

RST Insurance Company sells insurance directly to customers through various marketing channels without the involvement of any agents. This type of distribution method is known as a direct response system. Customers can directly call the company or visit their website to get a quote and buy insurance.

Question 15

Jim would like to start a business raising thoroughbred racehorses. Obtaining insurance on the horses is a key concern, and he was dismayed to learn that none of the insurers authorized to operate in his state offer this specialty insurance. What is the name of the intermediary that Jim can use to place this coverage with an insurer not admitted to his state?
A) alien insurer
B) general agent
C) surplus lines broker
D) direct writer

Accepted Answer

A surplus lines broker is an intermediary who is licensed to place coverage with insurers who are not admitted to the state. This is the only option in the given choices that fits the scenario described.

Question 16

Brian buys and sells investment securities for his clients. Brian also decided to become a licensed life insurance agent to better serve his customers. While Brian's primary focus is buying and selling financial securities for his clients in exchange for commissions, he also earns commissions on his life insurance sales. Brian is a(n)
A) direct writer.
B) stock broker.
C) insurance broker.
D) personal-producing general agent.

Accepted Answer

Brian is primarily involved in buying and selling financial securities for his clients, which is the role of a stock broker. The additional activity of selling life insurance does not change his primary classification.

Question 17

Which of the following statements is (are) true about savings bank life insurance (SBLI)?
I.Each depositor at the savings bank receives life insurance equal to his or her savings account balance.
II.The goal of SBLI is to provide low-cost life insurance to consumers.
A) I only
B) II only
C) both I and II
D) neither I nor II

Accepted Answer

Only statement II is true. SBLI provides low-cost life insurance to consumers, but each depositor at the savings bank does not receive life insurance equal to their savings account balance.

Question 18

Which of the following statements about Lloyds of London (are) true?
I.The majority of the business underwritten by Lloyds of Londo? Is for unusual risks, such as valuable race horses and professional athletes.
II.Lloyds of Londo? Is a group of underwriters who underwrit? Insurance, not a? Insurance company.
A) I only
B) II only
C) both I and II
D) neither I nor II

Accepted Answer

Lloyd's of London is not an insurance company but a marketplace where underwriters come together to underwrite insurance, including unusual risks, but not exclusively.

Question 19

Which of the following statements is true with regard to career life insurance agents?
A) They represent several different life insurance companies.
B) They are compensated largely through a salary and not through commissions.
C) They are paid the same commission rate on new and renewal business.
D) The insurer provides financing, training, supervision, and office facilities for career agents.

Accepted Answer

Career life insurance agents are often supported by the insurer with financing, training, supervision, and office facilities. This support system is part of the career agency system, distinguishing it from other types of insurance agent arrangements.

Question 20

ABC Insurance has always used the exclusive agency system to market coverages. ABC, however, cannot afford full-time agents in sparsely-populated areas. To reach customers in these areas, ABC enters into agreements with local independent agents. Using more than one marketing system is called employing a
A) direct response system.
B) general agency system.
C) multiple distribution system.
D) branch office system.

Accepted Answer

Using more than one marketing system is called employing a multiple distribution system. In this case, ABC Insurance is using both the exclusive agency system and independent agents to reach customers in different areas.

Quiz 5: Types of Insurers and Marketing Systems

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)

Which of the following statements is true regarding independent insurance agents in property and liability insurance?

Sarah owns a property and liability insurance agency. She is authorized to represent several insurance companies and she is compensated by commissions. Sarah's agency owns the expiration rights to the business she sells. Sarah is a(n)

R.I.P. Company manufactures herbicide and pesticide. The company had difficulty finding affordable liability insurance. R.I.P. established its own insurance company based in Bermuda for the purpose of insuring R.I.P.'s loss exposures. The company that R.I.P. formed is called a

ABC Term Life Insurance Company uses an interesting marketing system-it has no agents. Instead, the company markets its coverages through television and radio ads, newspaper inserts, and the Internet. The type of marketing system that ABC Term Life Insurance Company uses is called the

The leaders of a religious group decided to start a life insurance organization to insure members of the religious group. The insurer will operate as a nonprofit organization, thus receiving favorable tax treatment. The insurer formed will be a

All of the following are reasons why mutual insurance companies convert to stock insurance companies EXCEPT

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)

Marcy advises her clients on investments, taxes, wealth management, estate issues, budgeting, and insurance. Marcy is also a licensed life insurance agent. When Marcy sells life insurance to a client, the distribution channel used is a(n)

RST Insurance Company does not have any agents. Instead, the company sells insurance through radio ads, telemarketers, and newspaper and magazine inserts. This distribution method is called

Which of the following statements is (are) true about savings bank life insurance (SBLI) ? I.Each depositor at the savings bank receives life insurance equal to his or her savings account balance. II.The goal of SBLI is to provide low-cost life insurance to consumers.

Which of the following statements is true with regard to career life insurance agents?