Alabama Life & Health Insurance Exam
questions with correct answers
Which of the following would be considered a speculative risk? ans ✓✓ 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? ans ✓✓
A mutual insurance company
A producer who is acting as an agent is representing: ans ✓✓ Always the
insurer
All of the following are elements of a contract, except: ans ✓✓ 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: ans
✓✓ 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 ans ✓✓ 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: ans ✓✓ 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: ans ✓✓ Competent
parties
An insurance contract is an aleatory contract. This means: ans ✓✓ 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.
ans ✓✓ Residual
To address adverse selection what can an insurer legally do? ans ✓✓ 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): ans ✓✓ Contract of Adhesion
_________ refers to the jurisdiction where an insurer was formed or incorporated.
ans ✓✓ 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. ans ✓✓ 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: ans ✓✓ 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.
ans ✓✓ 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: ans ✓✓ A situation where the policyowner is
someone other than the insured
Which statement best describes the term reserve? ans ✓✓ 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: ans ✓✓ An
insurable interest in the life of the insured
Controlled business may be defined as insurance sold: ans ✓✓ To the producer,
the producer's family and friends, and the producer's business associates
With regard to life insurance policies, loading refers to: ans ✓✓ 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? ans ✓✓ 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? ans
✓✓ It requires a fund portfolio manager
Characteristics:
It creates an immediate estate
questions with correct answers
Which of the following would be considered a speculative risk? ans ✓✓ 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? ans ✓✓
A mutual insurance company
A producer who is acting as an agent is representing: ans ✓✓ Always the
insurer
All of the following are elements of a contract, except: ans ✓✓ 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: ans
✓✓ 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 ans ✓✓ 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: ans ✓✓ 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: ans ✓✓ Competent
parties
An insurance contract is an aleatory contract. This means: ans ✓✓ 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.
ans ✓✓ Residual
To address adverse selection what can an insurer legally do? ans ✓✓ 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): ans ✓✓ Contract of Adhesion
_________ refers to the jurisdiction where an insurer was formed or incorporated.
ans ✓✓ 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. ans ✓✓ 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: ans ✓✓ 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.
ans ✓✓ 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: ans ✓✓ A situation where the policyowner is
someone other than the insured
Which statement best describes the term reserve? ans ✓✓ 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: ans ✓✓ An
insurable interest in the life of the insured
Controlled business may be defined as insurance sold: ans ✓✓ To the producer,
the producer's family and friends, and the producer's business associates
With regard to life insurance policies, loading refers to: ans ✓✓ 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? ans ✓✓ 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? ans
✓✓ It requires a fund portfolio manager
Characteristics:
It creates an immediate estate
