ALABAMA LIFE & HEALTH
INSURANCE EXAM QUESTIONS &
VERIFIED CORRECT ANSWERS
PASSED ALREADY GRADED A+
Which of the following would be considered a speculative risk? - CORRECT ANSWER
The possibility the painting you bought might be a long-lost masterpiece
A speculative risk is one in which there is a chance for either loss or gain. Example:
Gambling, Casino's, Lottery, etc. All of the other choices describe pure risk, where there
is no chance of gain, only a chance of loss exists.
Which is the proper term for a company owned by its policy owners? - CORRECT
ANSWER A mutual insurance company
A producer who is acting as an agent is representing: - CORRECT ANSWER Always
the insurer
All of the following are elements of a contract, except: - CORRECT ANSWER Authority
All enforceable contracts must include these characteristics: offer and acceptance
(agreement), considerations, competent parties, and legal purpose. Authority is not
considered one of the elements of a legal contract.
Each of the following would be an element in the definition of fraud, except: -
CORRECT ANSWER An individual warrants a fact stated on the application
A warranted fact is one guaranteed to be true. Although no statement on an application
is regarded as warranty, no fraud is involved if a statement is guaranteed to be true.
Examples of Fraud - CORRECT ANSWER Intentional material misrepresentation with
the intent of causing injury to another party
Withholding of known material facts
A false statement on the application that is material to the acceptance of the risk
A company that is licensed to sell insurance in a particular state is: - CORRECT
ANSWER An authorized Company
,In order to be valid, a contract must be between individuals considered legally able to
enter into an agreement. This principle is known as: - CORRECT ANSWER Competent
parties
An insurance contract is an aleatory contract. This means: - CORRECT ANSWER
Equal value is not given by both parties to the contract
Aleatory: contract of unequal values exchanged
The ____________ market is a private source of coverage of last resort for individuals
or businesses that have been rejected by voluntary market insurers. - CORRECT
ANSWER Residual
To address adverse selection what can an insurer legally do? - CORRECT ANSWER
Establish and enforce sound underwriting practices
Underwriting helps to protect the insurer against adverse selection and accepting risks
that are more likely than average to suffer losses.
A contract that is drafted by an insurer and receives no input or alteration from the
insured, is considered a(n): - CORRECT ANSWER Contract of Adhesion
_________ refers to the jurisdiction where an insurer was formed or incorporated. -
CORRECT ANSWER Domicile: Domicile refers to the jurisdiction either state or country
where an insurer was formed or incorporated.
_____________ insurance allows for insurance coverage to be obtained when not
available from admitted carriers. - CORRECT ANSWER Surplus Lines
Insurance can be obtained through surplus lines brokers (producers) from non-admitted
insurers.
To make insurance more affordable and protect the insurance company from paying out
too much in claims, insurers will: - CORRECT ANSWER Reinsure the risk
Reinsurance is what makes insurance affordable. Reinsurance companies are
insurance companies that accept all or a portion of the financial risk of loss from the
insurance company.
The field underwriter is the _________ and is not a determiner of insurability. -
CORRECT ANSWER Producer
The producer is in the field soliciting applications for insurance and in effect is another
pair of eyes and ears for the insurer in helping to issue policies to insurable prospects.
, Third-party ownership refers to: - CORRECT ANSWER A situation where the
policyowner is someone other than the insured
Which statement best describes the term reserve? - CORRECT ANSWER That amount
that, when increased by future premiums on outstanding policies, and interest on those
premiums will enable the company to meet future death claims
The applicant, if other than the proposed insured, must have: - CORRECT ANSWER
An insurable interest in the life of the insured
Controlled business may be defined as insurance sold: - CORRECT ANSWER To the
producer, the producer's family and friends, and the producer's business associates
With regard to life insurance policies, loading refers to: - CORRECT ANSWER
Assignment of the appropriate share of the company's operating expenses to each
policy
Which of the following statements about the average number of people who die each
year is true? - CORRECT ANSWER It is called the mortality rate
Mortality Rate: which is the statistical probability of death in a large population of
insureds.
Which of the following is NOT a characteristic of life insurance as property? -
CORRECT ANSWER It requires a fund portfolio manager
Characteristics:
It creates an immediate estate
It requires no physical maintenance
It may be paid for in installments
The most effective way to ensure that the applicant will accept the policy when it is
issued is: - CORRECT ANSWER To have the applicant pay the initial premium at the
time of application
Allen purchases an estate builder (jumping juvenile) policy for his 5-year old son,
Donald. Suppose that when Donald reaches age 21 his father presents him with the
policy as a gift. Which of the following statements is NOT correct? - CORRECT
ANSWER Donald must change the beneficiaries immediately
CORRECT:
The premium will continue to be based on his original age of 5
INSURANCE EXAM QUESTIONS &
VERIFIED CORRECT ANSWERS
PASSED ALREADY GRADED A+
Which of the following would be considered a speculative risk? - CORRECT ANSWER
The possibility the painting you bought might be a long-lost masterpiece
A speculative risk is one in which there is a chance for either loss or gain. Example:
Gambling, Casino's, Lottery, etc. All of the other choices describe pure risk, where there
is no chance of gain, only a chance of loss exists.
Which is the proper term for a company owned by its policy owners? - CORRECT
ANSWER A mutual insurance company
A producer who is acting as an agent is representing: - CORRECT ANSWER Always
the insurer
All of the following are elements of a contract, except: - CORRECT ANSWER Authority
All enforceable contracts must include these characteristics: offer and acceptance
(agreement), considerations, competent parties, and legal purpose. Authority is not
considered one of the elements of a legal contract.
Each of the following would be an element in the definition of fraud, except: -
CORRECT ANSWER An individual warrants a fact stated on the application
A warranted fact is one guaranteed to be true. Although no statement on an application
is regarded as warranty, no fraud is involved if a statement is guaranteed to be true.
Examples of Fraud - CORRECT ANSWER Intentional material misrepresentation with
the intent of causing injury to another party
Withholding of known material facts
A false statement on the application that is material to the acceptance of the risk
A company that is licensed to sell insurance in a particular state is: - CORRECT
ANSWER An authorized Company
,In order to be valid, a contract must be between individuals considered legally able to
enter into an agreement. This principle is known as: - CORRECT ANSWER Competent
parties
An insurance contract is an aleatory contract. This means: - CORRECT ANSWER
Equal value is not given by both parties to the contract
Aleatory: contract of unequal values exchanged
The ____________ market is a private source of coverage of last resort for individuals
or businesses that have been rejected by voluntary market insurers. - CORRECT
ANSWER Residual
To address adverse selection what can an insurer legally do? - CORRECT ANSWER
Establish and enforce sound underwriting practices
Underwriting helps to protect the insurer against adverse selection and accepting risks
that are more likely than average to suffer losses.
A contract that is drafted by an insurer and receives no input or alteration from the
insured, is considered a(n): - CORRECT ANSWER Contract of Adhesion
_________ refers to the jurisdiction where an insurer was formed or incorporated. -
CORRECT ANSWER Domicile: Domicile refers to the jurisdiction either state or country
where an insurer was formed or incorporated.
_____________ insurance allows for insurance coverage to be obtained when not
available from admitted carriers. - CORRECT ANSWER Surplus Lines
Insurance can be obtained through surplus lines brokers (producers) from non-admitted
insurers.
To make insurance more affordable and protect the insurance company from paying out
too much in claims, insurers will: - CORRECT ANSWER Reinsure the risk
Reinsurance is what makes insurance affordable. Reinsurance companies are
insurance companies that accept all or a portion of the financial risk of loss from the
insurance company.
The field underwriter is the _________ and is not a determiner of insurability. -
CORRECT ANSWER Producer
The producer is in the field soliciting applications for insurance and in effect is another
pair of eyes and ears for the insurer in helping to issue policies to insurable prospects.
, Third-party ownership refers to: - CORRECT ANSWER A situation where the
policyowner is someone other than the insured
Which statement best describes the term reserve? - CORRECT ANSWER That amount
that, when increased by future premiums on outstanding policies, and interest on those
premiums will enable the company to meet future death claims
The applicant, if other than the proposed insured, must have: - CORRECT ANSWER
An insurable interest in the life of the insured
Controlled business may be defined as insurance sold: - CORRECT ANSWER To the
producer, the producer's family and friends, and the producer's business associates
With regard to life insurance policies, loading refers to: - CORRECT ANSWER
Assignment of the appropriate share of the company's operating expenses to each
policy
Which of the following statements about the average number of people who die each
year is true? - CORRECT ANSWER It is called the mortality rate
Mortality Rate: which is the statistical probability of death in a large population of
insureds.
Which of the following is NOT a characteristic of life insurance as property? -
CORRECT ANSWER It requires a fund portfolio manager
Characteristics:
It creates an immediate estate
It requires no physical maintenance
It may be paid for in installments
The most effective way to ensure that the applicant will accept the policy when it is
issued is: - CORRECT ANSWER To have the applicant pay the initial premium at the
time of application
Allen purchases an estate builder (jumping juvenile) policy for his 5-year old son,
Donald. Suppose that when Donald reaches age 21 his father presents him with the
policy as a gift. Which of the following statements is NOT correct? - CORRECT
ANSWER Donald must change the beneficiaries immediately
CORRECT:
The premium will continue to be based on his original age of 5
