LOMA 280 PRINCIPLES OF INSURANCE
EXAM QUESTIONS WITH COMPLETE
SOLUTIONS GRADED A+
Financial design - Answer-Set of values for numerous elements of the product
Payments from policy owners
Benefit payments
Investment earnings
Company operating expenses
Actuary - Answer-Expert in financial risk management and modeling of
insurance,annuities, and financial instruments
Financial stability - Answer-Requires revenues to be greater than expenses
Financial model - Answer-Computer based model that approximates the operation of
real world financial processes
Actuarial assumptions - Answer-Assumed future values
Legal reserve system - Answer-System insurers use to set financial values
Policy reserves - Answer-Liabilities that represent the amount the insurer estimates it
needs to pay future benefits
3 premises of legal reserve system - Answer-Amt of benefits payable should be
specified in advance of an insured event
Companies should collect money needed to fund a policy in advance
Amount a customer pays for a policy should be related to the amt of risk
3 primary elements of the financial design of life insurance - Answer-Cost of benefits
Insurers investment earnings
Insurers operating expenses
Cost of benefits - Answer-Value of all benefits under a product
Cost of benefits = potential obligations • probability benefits will be payable
Block of policies - Answer-Financial design calculations are based on them - a group of
policies issued to insureds who are the same age sex and risk class
Tabular mortality rates - Answer-Starting point to calculate mortality rates to project cost
of benefits for a block of policies
, Mortality experience table - Answer-Compiled from a company's records reflecting it's
insureds actual mortality
Investment earnings - Answer-Money insurer receives from investing the funds it
receives from customers
Interest - Answer-Payment for the use of money
Principal - Answer-Sum of money originally invested
Simple interest - Answer-Interest on original principal only
Compound interest - Answer-Interest on principal and accrued interest
Operating expenses - Answer-Expenses that arise in normal course of operations
Lapse rate - Answer-Percentage of a specified group of policies in force at the
beginning of a period that are terminated by the end for reason other than death
Conservative values for life insurance product elements - Answer-Mortality rates higher
than expected
Investment earnings lower than expected
Operating expenses higher than expected
Premium rates - Answer-Charge per unit of insurance coverage (coverage unit = $1000
of coverage)
Actuaries seek to make sure premium rates and other policies are... - Answer-
Adequate:high enough so insurer can pay policies
Equitable:premium must reflect risk
Not excessive: affordable and competitive
Level premium system - Answer-Allows policy owner to pay the same premium amount
each year the certificate is in force
Common personal needs for purchasing life insurance - Answer-Dependents support,
estate planning, paying debts, and final expenses
Dependents (beneficiaries) support - Answer-Beneficiaries do not have to pay income
tax on death benefits
Estate - Answer-Accumulated assets an individual owns at time of death (cash, bank
and investment accounts, real estate, personal possessions, ownership interest in a
business)
EXAM QUESTIONS WITH COMPLETE
SOLUTIONS GRADED A+
Financial design - Answer-Set of values for numerous elements of the product
Payments from policy owners
Benefit payments
Investment earnings
Company operating expenses
Actuary - Answer-Expert in financial risk management and modeling of
insurance,annuities, and financial instruments
Financial stability - Answer-Requires revenues to be greater than expenses
Financial model - Answer-Computer based model that approximates the operation of
real world financial processes
Actuarial assumptions - Answer-Assumed future values
Legal reserve system - Answer-System insurers use to set financial values
Policy reserves - Answer-Liabilities that represent the amount the insurer estimates it
needs to pay future benefits
3 premises of legal reserve system - Answer-Amt of benefits payable should be
specified in advance of an insured event
Companies should collect money needed to fund a policy in advance
Amount a customer pays for a policy should be related to the amt of risk
3 primary elements of the financial design of life insurance - Answer-Cost of benefits
Insurers investment earnings
Insurers operating expenses
Cost of benefits - Answer-Value of all benefits under a product
Cost of benefits = potential obligations • probability benefits will be payable
Block of policies - Answer-Financial design calculations are based on them - a group of
policies issued to insureds who are the same age sex and risk class
Tabular mortality rates - Answer-Starting point to calculate mortality rates to project cost
of benefits for a block of policies
, Mortality experience table - Answer-Compiled from a company's records reflecting it's
insureds actual mortality
Investment earnings - Answer-Money insurer receives from investing the funds it
receives from customers
Interest - Answer-Payment for the use of money
Principal - Answer-Sum of money originally invested
Simple interest - Answer-Interest on original principal only
Compound interest - Answer-Interest on principal and accrued interest
Operating expenses - Answer-Expenses that arise in normal course of operations
Lapse rate - Answer-Percentage of a specified group of policies in force at the
beginning of a period that are terminated by the end for reason other than death
Conservative values for life insurance product elements - Answer-Mortality rates higher
than expected
Investment earnings lower than expected
Operating expenses higher than expected
Premium rates - Answer-Charge per unit of insurance coverage (coverage unit = $1000
of coverage)
Actuaries seek to make sure premium rates and other policies are... - Answer-
Adequate:high enough so insurer can pay policies
Equitable:premium must reflect risk
Not excessive: affordable and competitive
Level premium system - Answer-Allows policy owner to pay the same premium amount
each year the certificate is in force
Common personal needs for purchasing life insurance - Answer-Dependents support,
estate planning, paying debts, and final expenses
Dependents (beneficiaries) support - Answer-Beneficiaries do not have to pay income
tax on death benefits
Estate - Answer-Accumulated assets an individual owns at time of death (cash, bank
and investment accounts, real estate, personal possessions, ownership interest in a
business)
