Mass State Life Insurance Exam Questions with Verified Solutions Updated 2025

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Mass State Life Insurance Exam
Questions with Verified Solutions
Updated 2025
Which of the following describes a participating life insurance policy? - Correct Ans-A
participating life policy is one in which the policyowner receives dividends deriving from
the company's divisible surplus

What type of reinsurance contract between two insurers involves an automatic sharing
of the risks assumed? - Correct Ans-Under treaty reinsurance, each party automatically
accepts specific percentages of the insurer's business.

At what point must a life insurance applicant be informed of their rights that fall under
the Fair Credit Reporting Act? - Correct Ans-Upon completion of the application

The State Guaranty Association guarantees - Correct Ans-that a claim will be paid if an
admitted insurer becomes insolvent

Dividends from a mutual insurance company are paid to whom? - Correct Ans-
Policyholders

What is considered the accounting measurement of an insurance company's future
obligations to its policyowners? - Correct Ans-reserves

A group-owned insurance company that is formed to assume and spread the liability
risks of its members is known as a - Correct Ans-risk retention group

Which of the following is a syndicate established by a group of insurers to share
underwriting duties? - Correct Ans-Lloyd's organization

An agent's authority to bind an insurer to an insurance contract may be granted in the -
Correct Ans-agent's contract and the insurance company's appointment

Dividends from a stock insurance company are normally sent to - Correct Ans-
shareholders

Law of Large numbers - Correct Ans--insurance is based on the sharing of risks among
a large group of people
-states that the larger the number of people, the more predictable the actual losses will
be
-companies use this data to calculate rates

Speculative risk - Correct Ans--involves opportunity for either loss or gain



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-not covered by insurance companies

pure risk - Correct Ans--a situation that can only result in a loss, there is no opportunity
for financial gain
-only type of risk that is insurable

treatment of risk through: avoidance - Correct Ans-simply avoiding as many risks as
possible
-effective but not always practical

treatment of risk through- reduction - Correct Ans-since we cannot avoid risk entirely we
often attempt to lessen the possibility of a loss by taking acting to reduce the risk
-

treatment of risk through- sharing - Correct Ans-when a group of individuals or
businesses with similar exposures share the losses that occur within that group
-reciprocal insurance exchange is a formal risk sharing arrangement

treatment of risk through- retention - Correct Ans-also known as self-insurance: when
individuals have the financial ability to fund losses by themselves when they occur

treatment of risk through- transfer - Correct Ans-the most effective way to handle risk
- risk is transferred to another party - insurance is the most common method of
transferring risk from an individual or group to an insurance company

elements of insurable risk - Correct Ans--must be due to chance
-cannot be catastrophic
-must be randomly selected
• Loss exposure to be insured must be large - Insurance company must be able to
predict
loss ( based on law of large numbers)
- Loss must be definite and measurable - Time, place, amount, and when payable

nature of insurance - Correct Ans--to provide financial protection against losses that
may be incurred due to a chance happening or event such as death, illness, or accident
-protection is provided through an insurance policy which is a simple device for
accumulating funds to meet these uncertain losses

ABC Company is attempting to minimize the severity of potential losses within its
company. The company is engaged in risk - Correct Ans-Risk reduction can reduce the
chance that a particular loss will occur, or it can reduce the amount of a potential loss if
it occurs.

How can an insurance company minimize exposure to loss? - Correct Ans-Many
insurers are able to minimize exposure to loss by reinsuring risks.




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For insurance purposes, similar objects which are exposed to the same group of perils
are referred to as - Correct Ans-Similar objects of insurance that are exposed to the
same group of perils are called homogeneous exposure units.

Which of the following can be defined as "the potential for loss"? - Correct Ans-risk

An insurer has a contractual agreement which transfers a portion of its risk exposure to
another insurer. What type of contractual arrangement is this? - Correct Ans-
Reinsurance contracts accept a portion of the risk underwritten by another insurer who
has contracted for the entire coverage amount.

Which of the following can be defined as a cause of a loss? - Correct Ans-peril

What type of risk involves the potential for loss and the possibility for gain? - Correct
Ans-speculative

Purchasing insurance is an example of risk - Correct Ans-transference

A business becoming incorporated is an example of risk ____. - Correct Ans-transfer

Which of the following is NOT an example of risk retention? - Correct Ans-Not doing a
business deal after deciding it would be too risky

legal contract must have: offer and acceptance - Correct Ans--an offer is made when
the applicant submits an application for insurance to the insurance company
-the offer is accepted after it has been approved by the insurance company's
underwriters

legal contract must have: consideration - Correct Ans-something of value that each
party gives to the other
-on part of insured: payment of premium
-on part of insurance company: promise to pay in event of loss

legal contract must have: legal purpose - Correct Ans--must be legal and not against
public policy
-has legal purpose if contract has a insurable interests and the insured has provided
written consent

legal contract must have: competent parties - Correct Ans--all parties must be of legal
competence
-must be of legal age, mentally capable of understanding the terms, and not under the
influence of drugs or alcohol

specifal features of insurance contracts: aleatory - Correct Ans-there is not an equal
exchange of value




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-premiums paid by the insured are small in relation to the amount that will be paid by the
insurance company, in the event of a loss

specifal features of insurance contracts: adhesion - Correct Ans-also known as "take it
or leave it agreements" because they're prepared by only one party, the insurance
company
-accepted or rejected by the other party (the applicant) with no negotiations or changes

specifal features of insurance contracts: unilateral - Correct Ans-one sided agreement in
which only one party (the insurance company) is legally bound to do anything
-policy owner is under no legally binding promise to pay premiums, however the
insurance company is legally bound to pay losses covered by the policy
-if the policy owner does not pay their premiums, the insurance company does have the
right to terminate the insurance policy

personal contract - Correct Ans-insurance contracts are personal contracts between an
individual and the insurance company, and cannot transfer owner ship without the
insurance company's written consent

conditional - Correct Ans-insurance contracts are conditional because certain contracts
must be met by all parties when a loss occurs, otherwise the contract would not be
legally enforceable
-if the policy owner is past due on his payments and the insured dies, the insurance
company does not have to pay the death benefit because a condition was not met

value or indemnity - Correct Ans--life insurance is a valued contract, which pays a
stated amount, regardless of the actual loss incurred
-health insurance is an indemnity contract (only pays equal to the loss)
-with health insurance you are not allowed to make a profit

utmost good faith - Correct Ans--implies that there will be no fraud, misrepresentation,
or concealment, between the parties as it pertains to insurance policies
-both the insurance company and the policy owner must be able to rely on the other for
relevant and accurate information
-policy owner is expected to provide accurate information on the application for
insurance
-insurance company must clearly and truthfully describe policy features and benefits,
and they must not conceal or mislead the insured

warranty - Correct Ans-statements that are guaranteed to be true and are a part of the
legal contract

representation - Correct Ans-statements believed to be true, to the best of one's
knowledge, but they are not guaranteed to be true for insurance purposes
-answers the applicant for insurance gives to the questions on the insurance application




Mass State Life Insurance