Insurance Practice Exam Questions And
Answers 100% Verified
Which of the following refers to the process of evaluating and classifying the risk level of
applicants for insurance?
A)
Actuarial science
B)
Adverse selection
C)
Underwriting
D)
Utilization review - answer C. Underwriting is the process of evaluating and classifying
the risk level of applicants for insurance. Underwriting may also help insurers control
adverse selection.
Choose the method of risk management that is implemented by a homeowner who
installs storm shutters.
A)
Transfer
B)
Avoidance
C)
Retention
D)
Reduction - answer D. The answer is reduction. Installing storm shutters reduces the
risk of damage to the homeowner's property.
You have a meeting with Oscar, age 26, and his wife Judith, age 25, this afternoon to
review their risk management plan. They have two children, two cars, a home, and a
boat. Oscar works at the local bank, and Judith works at an engineering firm. Identify
,the CORRECT statement(s) regarding their risk management plan.
They have a limited amount of liability exposure.
They have a higher probability of becoming disabled versus experiencing premature
death.
Having collision insurance on their cars is more important than liability coverage.
Long-term care insurance should not be a current priority within their risk management
plan. - answer II & IV Oscar and Judith have unlimited liability exposure. A car accident
could lead to an unlimited amount of liability depending on the circumstances, as well as
the possibility of negligence occurring on their property. There is a higher probability of
becoming disabled than of experiencing premature death at their ages, and it is much
more important to have liability insurance on a vehicle than collision coverage. Liability
claims may be much higher than any type of collision damage to a vehicle. Both Oscar
and Judith are too young to consider long-term care insurance at this time.
Preston called Joanna, an insurance broker, to obtain coverage on his 30-foot sailboat.
Joanna told him to send in a binder premium of $75. She told him that by doing so, he
would be covered and that he should go ahead and enjoy the boat. Joanna submitted an
application for insurance to Boater's Insurance Corp. for issuance of the policy.
Boater's declined the coverage. The day Joanna learned this, Preston called and told
her a sudden wind caused him to lose control of his boat. He then smashed into another
sailboat, causing substantial damage to both boats.
Who will be responsible for the damages?
A)
Boater's Insurance Corp. will have to pay the damages since it did not notify Preston
that he was not covered.
B)
Boater's will have to pay since Joanna collected a premium from Preston.
C)
Preston will have to pay because no insurance policy is in force until the insurance
company accepts the risk.
D)
Joanna is respons - answer D)
Joanna is responsible because, as a broker, she personally bound coverage for Preston
but was unable to place the coverage before the accident. Joanna will have to pay
because, as a broker, she personally bound coverage for Preston but was unable to
place the coverage before the accident. Boater's Insurance Corp. was never a party to
,an insurance contract with Preston. Since Joanna is a broker, her actions only speak for
herself. There is no insurance coverage in force. Preston will need to make a claim
against Joanna, which will likely be reviewed by her Errors and Omissions carrier. If
Preston sues and wins, Joanna also could be held personally liable.
Which of the following are duties of the courts in regulating insurers?
To render decisions on the meaning of policy terms
To enact laws that govern the conduct of insurers
To rule on the constitutionality of insurance laws
To determine requirements an insurer must meet to obtain a license
A)
I and III
B)
I and IV
C)
II and IV
D)
III and IV - answer A)
I and III
The answer is I and III. The courts render decisions on the meaning of policy terms and
rule on the constitutionality of insurance laws. The state legislature completes the
remaining two duties: enacts laws and may establish requirements that an insurer must
meet to obtain a license to do business in that state.
The insurance industry is regulated primarily by
A)
the National Association of Insurance Commissioners (NAIC).
B)
the Supreme Court.
C)
the individual states.
, D)
the federal government. - answer C)
the individual states.
The answer is the individual states. Under the McCarran-Ferguson Act of 1945,
insurance is regulated primarily at the state level. The NAIC issues model insurance
legislation that the individual states are free to adopt if they choose, but the NAIC has no
legislative authority in any state.
Which one of the following is the correct definition of a term related to risk
management?
A)
Risk: something that causes a loss
B)
Hazard: something that increases the likelihood of a loss occurring
C)
Moral hazard: something that increases the likelihood of risk due to indifference
D)
Peril: the possibility of loss occurring - answer B)
Hazard: something that increases the likelihood of a loss occurring
The answer is hazard: something that increases the likelihood of a loss occurring. Risk
is the possibility of loss and perils are the causes of losses. Moral hazard is a result of
the client being unethical or misrepresenting himself in order to obtain insurance or to
induce the payment of a claim.
Carmen and David received eight place settings of their sterling silver flatware pattern
as wedding presents. Because the silverware cost nearly $500 per place setting, they
wanted to make sure it was adequately insured. The couple called Jerry, an agent with
Forest Insurance Co., and asked him what needed to be done to ensure that they had
adequate insurance coverage. Jerry assured them that because they had less than 10
place settings, they were adequately insured.
If the silverware is stolen, which one of the following legal remedies will most likely be
used to assure the loss is covered?
Answers 100% Verified
Which of the following refers to the process of evaluating and classifying the risk level of
applicants for insurance?
A)
Actuarial science
B)
Adverse selection
C)
Underwriting
D)
Utilization review - answer C. Underwriting is the process of evaluating and classifying
the risk level of applicants for insurance. Underwriting may also help insurers control
adverse selection.
Choose the method of risk management that is implemented by a homeowner who
installs storm shutters.
A)
Transfer
B)
Avoidance
C)
Retention
D)
Reduction - answer D. The answer is reduction. Installing storm shutters reduces the
risk of damage to the homeowner's property.
You have a meeting with Oscar, age 26, and his wife Judith, age 25, this afternoon to
review their risk management plan. They have two children, two cars, a home, and a
boat. Oscar works at the local bank, and Judith works at an engineering firm. Identify
,the CORRECT statement(s) regarding their risk management plan.
They have a limited amount of liability exposure.
They have a higher probability of becoming disabled versus experiencing premature
death.
Having collision insurance on their cars is more important than liability coverage.
Long-term care insurance should not be a current priority within their risk management
plan. - answer II & IV Oscar and Judith have unlimited liability exposure. A car accident
could lead to an unlimited amount of liability depending on the circumstances, as well as
the possibility of negligence occurring on their property. There is a higher probability of
becoming disabled than of experiencing premature death at their ages, and it is much
more important to have liability insurance on a vehicle than collision coverage. Liability
claims may be much higher than any type of collision damage to a vehicle. Both Oscar
and Judith are too young to consider long-term care insurance at this time.
Preston called Joanna, an insurance broker, to obtain coverage on his 30-foot sailboat.
Joanna told him to send in a binder premium of $75. She told him that by doing so, he
would be covered and that he should go ahead and enjoy the boat. Joanna submitted an
application for insurance to Boater's Insurance Corp. for issuance of the policy.
Boater's declined the coverage. The day Joanna learned this, Preston called and told
her a sudden wind caused him to lose control of his boat. He then smashed into another
sailboat, causing substantial damage to both boats.
Who will be responsible for the damages?
A)
Boater's Insurance Corp. will have to pay the damages since it did not notify Preston
that he was not covered.
B)
Boater's will have to pay since Joanna collected a premium from Preston.
C)
Preston will have to pay because no insurance policy is in force until the insurance
company accepts the risk.
D)
Joanna is respons - answer D)
Joanna is responsible because, as a broker, she personally bound coverage for Preston
but was unable to place the coverage before the accident. Joanna will have to pay
because, as a broker, she personally bound coverage for Preston but was unable to
place the coverage before the accident. Boater's Insurance Corp. was never a party to
,an insurance contract with Preston. Since Joanna is a broker, her actions only speak for
herself. There is no insurance coverage in force. Preston will need to make a claim
against Joanna, which will likely be reviewed by her Errors and Omissions carrier. If
Preston sues and wins, Joanna also could be held personally liable.
Which of the following are duties of the courts in regulating insurers?
To render decisions on the meaning of policy terms
To enact laws that govern the conduct of insurers
To rule on the constitutionality of insurance laws
To determine requirements an insurer must meet to obtain a license
A)
I and III
B)
I and IV
C)
II and IV
D)
III and IV - answer A)
I and III
The answer is I and III. The courts render decisions on the meaning of policy terms and
rule on the constitutionality of insurance laws. The state legislature completes the
remaining two duties: enacts laws and may establish requirements that an insurer must
meet to obtain a license to do business in that state.
The insurance industry is regulated primarily by
A)
the National Association of Insurance Commissioners (NAIC).
B)
the Supreme Court.
C)
the individual states.
, D)
the federal government. - answer C)
the individual states.
The answer is the individual states. Under the McCarran-Ferguson Act of 1945,
insurance is regulated primarily at the state level. The NAIC issues model insurance
legislation that the individual states are free to adopt if they choose, but the NAIC has no
legislative authority in any state.
Which one of the following is the correct definition of a term related to risk
management?
A)
Risk: something that causes a loss
B)
Hazard: something that increases the likelihood of a loss occurring
C)
Moral hazard: something that increases the likelihood of risk due to indifference
D)
Peril: the possibility of loss occurring - answer B)
Hazard: something that increases the likelihood of a loss occurring
The answer is hazard: something that increases the likelihood of a loss occurring. Risk
is the possibility of loss and perils are the causes of losses. Moral hazard is a result of
the client being unethical or misrepresenting himself in order to obtain insurance or to
induce the payment of a claim.
Carmen and David received eight place settings of their sterling silver flatware pattern
as wedding presents. Because the silverware cost nearly $500 per place setting, they
wanted to make sure it was adequately insured. The couple called Jerry, an agent with
Forest Insurance Co., and asked him what needed to be done to ensure that they had
adequate insurance coverage. Jerry assured them that because they had less than 10
place settings, they were adequately insured.
If the silverware is stolen, which one of the following legal remedies will most likely be
used to assure the loss is covered?
