WFG FINAL EXAM COMPILED QUESTIONS
WITH ACTUAL SOLUTIONS 100% CORRECT!!
John owns an insurance policy that gives him the right to share in the insurer's surplus. What kind of policy is this?
-Non-participating
-Contributory
-Participating
-Surplus Answer - "Participating".
Participating policies give the policyowner the right to
share in the insurer's surplus.
Which of the following is NOT a benefit of insurance?
-Reduces the uncertainty of loss exposures
-Losses due to fraud are eliminated
-Makes a loss whole again
-Source of investment funds Answer - "Losses due to fraud are eliminated"
is NOT a
benefit of insurance.
What is a participating life insurance policy?
-Contract that allows the policyowner to receive a share of surplus in the form of
policy dividends
-Agreement that allows two or more beneficiaries to share in the death benefit
-Agreement that insures two or more lives
-Contract that gives beneficiaries the right to participate in any dividends Answer - "Contract that allows the policyowner to receive a share of surplus in the form of policy dividends"
A participating life insurance policy is defined as a contract that allows the policyowner to receive a
share of surplus in the form of policy dividends.
Which of the following is a type of insurance where an insurer transfers loss exposures from policies written for its insureds?
-Treaty insurance
-Mutual insurance
-Reinsurance
-Captive insurance Answer - "Reinsurance".
Reinsurance is an arrangement by which an insurance company transfers a portion of a risk it has assumed to another insurer.
A participating company is also referred to as which type of insurer?
-Mutual insurer
-Reciprocal insurer
-Domestic insurer
-Re-insurer Answer - "Mutual insurer"
A mutual insurer is also referred to as a participating company.
When a mutual insurer becomes a stock company, the process is called
-Demutualization
-Reinsurance
-Mutualization
-Reorganization Answer - "Demutualization". The process whereby a mutual insurer becomes a stock company is called demutualization.
Which of the following is a contract that involves one party which
indemnifies another when a loss arises from an unknown event?
-Insurance policy
-Indemnification arrangement
-Loss contract
-Warranty arrangement Answer - "Insurance policy". An insurance policy is a contract where one party promises to indemnify another against loss that arises from an unknown event.
Which of the following statements regarding a life insurance policy
dividend is TRUE?
-It represents the build-up of cash value in a permanent insurance policy
-It is a stockholders return on his investment in the company
-It represents a refund of overcharged premium in a non-participating whole life
policy
-It is the distribution of excess of funds accumulated by the insurer on
participating policies Answer - "It is the distribution of excess of funds accumulated by the insurer on participating policies"
Dividends paid to policyowners of participating
contracts represent a refund of excess premiums charged.
Remember, since the premiums were initially paid with after-tax dollars, there is no income tax consequence to the policyowner.
One important function of an insurance company is to identify and sell
to potential customers. Which of these BEST describes this function?
-Underwriting
-Regulation
-Reinsurance
-Marketing Answer - "Marketing". Marketing can be best defined as identifying and selling to potential
customers.
.
Which of the following is an insurer established by a parent company
for the purpose of insuring the parent company's loss exposures?
-Mutual insurer
-Participating insurer
-Fraternal insurer
-Captive insurer Answer - "Captive insurer". An insurer established and owned by a parent firm for the purpose of insuring the parent firm's loss exposures is
known as a captive insurer.
AAA Insurance Company has transferred a portion of its loss exposure to BBB Insurance Company. In this reinsurance transaction, what is AAA Insurance Company called?
-Primary insurer
-Captive insurer
-Tertiary insurer
-Secondary insurer Answer - "Primary insurer". In a reinsurance agreement, the insurance company that
transfers its loss exposure to another insurer is called the
primary insurer.
.
An insurer owned by its policyholders is called a
-multi-line insurer
-stock insurer
-reinsurer -mutual insurer Answer - "mutual insurer". A mutual insurer is owned by its policyholders.
An insurer enters into a contract with a third party to insure itself against losses from insurance policies it issues. What is this agreement called?
-Mutual
-Reserves
-Multi-line
-Reinsurance Answer - "Reinsurance".
Reinsurance is an arrangement by which an insurance company transfers a portion of a risk it has assumed to another insurer.
Which of the following is NOT a characteristic of reinsurance?
-Enables insurer to meet certain objectives
-A specialized branch of the insurance industry
-Increases the unearned premium reserve
-Protects against a very large claim Answer - "increase the unearned
premium reserve." All of these are reinsurance features except "Increase the unaccrued Premium reserve".
Moral hazard is described as the
~ increased chance of loss because of an insured's recklessness
-increased ability to predict loss because of a higher exposure to loss
-increased risk of adverse selection
-increased chance of a loss because of an insured's dishonest tendencies Answer - "increased chance of a
loss because of an insured's dishonest tendencies". Moral hazard can be defined as the increased chance of a loss occurring due to the insured's dishonest tendencies.
Which of these statements correctly describes risk?
-Pure risk is the only insurable risk
-Speculative risk is the only insurable risk
-An example of pure risk would be a legal wager
-Pure and speculative risks are both insurable Answer - "Pure risk is the only insurable risk"
Only pure risks are insurable.
Which of the following is NOT considered a definition of risk?
WITH ACTUAL SOLUTIONS 100% CORRECT!!
John owns an insurance policy that gives him the right to share in the insurer's surplus. What kind of policy is this?
-Non-participating
-Contributory
-Participating
-Surplus Answer - "Participating".
Participating policies give the policyowner the right to
share in the insurer's surplus.
Which of the following is NOT a benefit of insurance?
-Reduces the uncertainty of loss exposures
-Losses due to fraud are eliminated
-Makes a loss whole again
-Source of investment funds Answer - "Losses due to fraud are eliminated"
is NOT a
benefit of insurance.
What is a participating life insurance policy?
-Contract that allows the policyowner to receive a share of surplus in the form of
policy dividends
-Agreement that allows two or more beneficiaries to share in the death benefit
-Agreement that insures two or more lives
-Contract that gives beneficiaries the right to participate in any dividends Answer - "Contract that allows the policyowner to receive a share of surplus in the form of policy dividends"
A participating life insurance policy is defined as a contract that allows the policyowner to receive a
share of surplus in the form of policy dividends.
Which of the following is a type of insurance where an insurer transfers loss exposures from policies written for its insureds?
-Treaty insurance
-Mutual insurance
-Reinsurance
-Captive insurance Answer - "Reinsurance".
Reinsurance is an arrangement by which an insurance company transfers a portion of a risk it has assumed to another insurer.
A participating company is also referred to as which type of insurer?
-Mutual insurer
-Reciprocal insurer
-Domestic insurer
-Re-insurer Answer - "Mutual insurer"
A mutual insurer is also referred to as a participating company.
When a mutual insurer becomes a stock company, the process is called
-Demutualization
-Reinsurance
-Mutualization
-Reorganization Answer - "Demutualization". The process whereby a mutual insurer becomes a stock company is called demutualization.
Which of the following is a contract that involves one party which
indemnifies another when a loss arises from an unknown event?
-Insurance policy
-Indemnification arrangement
-Loss contract
-Warranty arrangement Answer - "Insurance policy". An insurance policy is a contract where one party promises to indemnify another against loss that arises from an unknown event.
Which of the following statements regarding a life insurance policy
dividend is TRUE?
-It represents the build-up of cash value in a permanent insurance policy
-It is a stockholders return on his investment in the company
-It represents a refund of overcharged premium in a non-participating whole life
policy
-It is the distribution of excess of funds accumulated by the insurer on
participating policies Answer - "It is the distribution of excess of funds accumulated by the insurer on participating policies"
Dividends paid to policyowners of participating
contracts represent a refund of excess premiums charged.
Remember, since the premiums were initially paid with after-tax dollars, there is no income tax consequence to the policyowner.
One important function of an insurance company is to identify and sell
to potential customers. Which of these BEST describes this function?
-Underwriting
-Regulation
-Reinsurance
-Marketing Answer - "Marketing". Marketing can be best defined as identifying and selling to potential
customers.
.
Which of the following is an insurer established by a parent company
for the purpose of insuring the parent company's loss exposures?
-Mutual insurer
-Participating insurer
-Fraternal insurer
-Captive insurer Answer - "Captive insurer". An insurer established and owned by a parent firm for the purpose of insuring the parent firm's loss exposures is
known as a captive insurer.
AAA Insurance Company has transferred a portion of its loss exposure to BBB Insurance Company. In this reinsurance transaction, what is AAA Insurance Company called?
-Primary insurer
-Captive insurer
-Tertiary insurer
-Secondary insurer Answer - "Primary insurer". In a reinsurance agreement, the insurance company that
transfers its loss exposure to another insurer is called the
primary insurer.
.
An insurer owned by its policyholders is called a
-multi-line insurer
-stock insurer
-reinsurer -mutual insurer Answer - "mutual insurer". A mutual insurer is owned by its policyholders.
An insurer enters into a contract with a third party to insure itself against losses from insurance policies it issues. What is this agreement called?
-Mutual
-Reserves
-Multi-line
-Reinsurance Answer - "Reinsurance".
Reinsurance is an arrangement by which an insurance company transfers a portion of a risk it has assumed to another insurer.
Which of the following is NOT a characteristic of reinsurance?
-Enables insurer to meet certain objectives
-A specialized branch of the insurance industry
-Increases the unearned premium reserve
-Protects against a very large claim Answer - "increase the unearned
premium reserve." All of these are reinsurance features except "Increase the unaccrued Premium reserve".
Moral hazard is described as the
~ increased chance of loss because of an insured's recklessness
-increased ability to predict loss because of a higher exposure to loss
-increased risk of adverse selection
-increased chance of a loss because of an insured's dishonest tendencies Answer - "increased chance of a
loss because of an insured's dishonest tendencies". Moral hazard can be defined as the increased chance of a loss occurring due to the insured's dishonest tendencies.
Which of these statements correctly describes risk?
-Pure risk is the only insurable risk
-Speculative risk is the only insurable risk
-An example of pure risk would be a legal wager
-Pure and speculative risks are both insurable Answer - "Pure risk is the only insurable risk"
Only pure risks are insurable.
Which of the following is NOT considered a definition of risk?
