Xcel Chapter 1 - Basic Principles of Life, Health and Annuity Exam with complete solutions

Determine financial strength of an insurance company - ANSWER What is the primary purpose of a rating service company such as A.M Best? Provide death benefits - ANSWER What is considered to be the primary reason for buying life insurance? liquidity - ANSWER An insurer's ability to make unpredictable payouts to policyowners is called A rating from a rating service company, such as A.M. Best - ANSWER Which of the following is NOT considered advertising? A self-funded plan - ANSWER A plan in which an employer pays insurance benefits from a fund derived from the employer's current revenues is called not pay dividends - ANSWER A nonparticipating policy will participating life insurance policy - ANSWER What kind of life insurance policy issued by a mutual insurer provides a return of divisible surplus? Because dividends are considered to be a return of premium - ANSWER Why are dividends from a mutual insurer not subject to taxation? reinsurer - ANSWER A life insurance company has transferred some of its risk to another insurer. The insurer assuming the risk is called the stock insurer - ANSWER A nonparticipating company is sometimes called a(n) Role of insurance - ANSWER To transfer the risk of financial loss from an individual or business to an insurance company Role of annuities - ANSWER Provide a stream of income by making a series of payments over a certain period of time Private companies are also known as - ANSWER Commercial insurance companies: funded through premiums and sell insurance for a profit Government programs - ANSWER funded through taxes and serve national and state social purposes Stock Companies (Nonparticipating) - ANSWER Organized and incorporated under state law; owned by stockholders who get paid a share of profit through dividends; policyholders are not paid dividends Mutual Insurers (Participating) - ANSWER Organized and incorporated under state law; no stockholders, policyholders own company and get paid dividends; Mutualization - ANSWER Stock company converting to a mutual company Demutualization - ANSWER Mutual company converting to a stock company Lloyd's of London - ANSWER Association formed to underwrite and issue insurance-like coverage on certain items and areas that might otherwise be uninsurable Reinsurers - ANSWER Specialized branch of the insurance industry that insures other insurance companies' risk; insurance company sells reinsurer the risk Ceding company - ANSWER Insurance company selling risk to reinsurer Home service insurers - ANSWER home service insurance is industrial insurance sold by home service or debit insurance companies; face amounts small ($1,000 - $2,000) and collected door-to-door by agents weekly Service providers - ANSWER Offer benefits to subscribers in return for a premium; most common are HMOs and PPOs Government Insurance Programs - ANSWER Medicare, Medicaid, Social Security Captive Agent - ANSWER Work for/represent only one insurance company Independent Agent - ANSWER Work for/represent many insurance companies 1945 McCarran and Ferguson Act - ANSWER States that while federal government has the authority to regulate the insurance industry, it would not exercise that right if the insurance industry was run effectively and adequately by the states 1970 Fair Credit Reporting Act - ANSWER Provides individuals privacy protection and fair and accurate credit reporting National Association of Insurance Commissioners - ANSWER Organization composed of insurance commissioners from all 50 states, DC, and the four US territories; responsible for resolving insurance regulatory problems and they are active in the formation and recommendation of insurance legislation - designed to bring uniformity from state to state and sim