FPQP - Module 4
The process of deciding how much and what kind of insurance to buy is called
A) insurance management.
B) financial planning.
C) risk management.
D) life insurance planning. - answerA) insurance management.
Explanation:
The process of deciding what kind of insurance to buy is called insurance management.
Risk management is broader than insurance management because it includes covering
risk in multiple ways. Insurance is one of them. Insurance management can involve all
types of insurance and is not limited to life insurance.
LO 4-1
Liability risk is
A) avoidable with good behavior.
B) only a concern for wealthy individuals.
C) one form of pure risk.
D) one form of speculative risk. - answerC) one form of pure risk.
Explanation:
Liability risk is just one form of pure risk. Speculative risk can result in either a gain or a
loss; liability risk has only downside risk. Good behavior can reduce the possibility of
being sued, but it cannot eliminate it. While liability risk is more of a concern for wealthy
individuals, it is also a concern for almost anyone since anyone can get sued.
LO 4-1
Which of these is NOT a requirement for an insurable risk from the insurance
company's perspective?
A) The loss must be accidental.
B) The law of large numbers must apply.
C) The loss must be catastrophic for the insurance company.
D) The loss must be measurable. - answerC) The loss must be catastrophic for the
insurance company.
Explanation:
The loss cannot be catastrophic for the insurance company for a risk to be considered
an insurable risk. All of the others factors are requirements.
LO 4-2
All of the following statements regarding insurable interest are correct except
, A) the purchaser of a life insurance policy must have an insurable interest in the insured
when the policy is purchased.
B) with property insurance, the insurable interest must exist at the time of claim.
C) the beneficiary of a life insurance policy must have an insurable interest in the
insured when the insured dies.
D) the beneficiary is considered to have an insurable interest in the life of his spouse. -
answerC) the beneficiary of a life insurance policy must have an insurable interest in the
insured when the insured dies.
Explanation
The beneficiary of a life insurance policy must have an insurable interest in the insured
when the policy is purchased. All of the other statements are correct.
LO 4-2
Which of the following is NOT one of the basic, or standard, sections of an insurance
policy?
A) Conditions
B) Declarations
C) Exclusions
D) Riders and endorsements - answerD) Riders and endorsements
Explanation:
Riders and endorsements increase coverage or provide additional coverage to an
existing policy; however, they are not considered to be one of the basic, or standard,
sections of a policy.
LO 4-2
Which of the following is NOT one of the primary factors in determining the cost of
automobile insurance in any given state?
A) Age and gender of driver
B) Gas mileage of vehicle
C) Type of vehicle
D) Use of vehicle - answerB) Gas mileage of vehicle
Explanation:
Age and gender of the driver, use of the vehicle, type of vehicle, and the driver's record
are the primary factors in determining automobile insurance. Gas mileage of the vehicle
is not a factor.
LO 4-5
Which of the following statements regarding umbrella insurance coverage is
CORRECT?
A) An umbrella policy will protect the insured against general liability only.
B) Umbrella insurance covers only specific liability exposures and has many exclusions.
C) Umbrella insurance generally comes in $1 million increments.
The process of deciding how much and what kind of insurance to buy is called
A) insurance management.
B) financial planning.
C) risk management.
D) life insurance planning. - answerA) insurance management.
Explanation:
The process of deciding what kind of insurance to buy is called insurance management.
Risk management is broader than insurance management because it includes covering
risk in multiple ways. Insurance is one of them. Insurance management can involve all
types of insurance and is not limited to life insurance.
LO 4-1
Liability risk is
A) avoidable with good behavior.
B) only a concern for wealthy individuals.
C) one form of pure risk.
D) one form of speculative risk. - answerC) one form of pure risk.
Explanation:
Liability risk is just one form of pure risk. Speculative risk can result in either a gain or a
loss; liability risk has only downside risk. Good behavior can reduce the possibility of
being sued, but it cannot eliminate it. While liability risk is more of a concern for wealthy
individuals, it is also a concern for almost anyone since anyone can get sued.
LO 4-1
Which of these is NOT a requirement for an insurable risk from the insurance
company's perspective?
A) The loss must be accidental.
B) The law of large numbers must apply.
C) The loss must be catastrophic for the insurance company.
D) The loss must be measurable. - answerC) The loss must be catastrophic for the
insurance company.
Explanation:
The loss cannot be catastrophic for the insurance company for a risk to be considered
an insurable risk. All of the others factors are requirements.
LO 4-2
All of the following statements regarding insurable interest are correct except
, A) the purchaser of a life insurance policy must have an insurable interest in the insured
when the policy is purchased.
B) with property insurance, the insurable interest must exist at the time of claim.
C) the beneficiary of a life insurance policy must have an insurable interest in the
insured when the insured dies.
D) the beneficiary is considered to have an insurable interest in the life of his spouse. -
answerC) the beneficiary of a life insurance policy must have an insurable interest in the
insured when the insured dies.
Explanation
The beneficiary of a life insurance policy must have an insurable interest in the insured
when the policy is purchased. All of the other statements are correct.
LO 4-2
Which of the following is NOT one of the basic, or standard, sections of an insurance
policy?
A) Conditions
B) Declarations
C) Exclusions
D) Riders and endorsements - answerD) Riders and endorsements
Explanation:
Riders and endorsements increase coverage or provide additional coverage to an
existing policy; however, they are not considered to be one of the basic, or standard,
sections of a policy.
LO 4-2
Which of the following is NOT one of the primary factors in determining the cost of
automobile insurance in any given state?
A) Age and gender of driver
B) Gas mileage of vehicle
C) Type of vehicle
D) Use of vehicle - answerB) Gas mileage of vehicle
Explanation:
Age and gender of the driver, use of the vehicle, type of vehicle, and the driver's record
are the primary factors in determining automobile insurance. Gas mileage of the vehicle
is not a factor.
LO 4-5
Which of the following statements regarding umbrella insurance coverage is
CORRECT?
A) An umbrella policy will protect the insured against general liability only.
B) Umbrella insurance covers only specific liability exposures and has many exclusions.
C) Umbrella insurance generally comes in $1 million increments.
