MASS STATE LIFE INSURANCE EXAM||
LATEST UPDATE 2025
Which of the following describes a participating life insurance policy? - ANSWER 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? - ANSWER 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? - ANSWER Upon completion of the application
The State Guaranty Association guarantees - ANSWER that a claim will be paid if an
admitted insurer becomes insolvent
Dividends from a mutual insurance company are paid to whom? - ANSWER
Policyholders
What is considered the accounting measurement of an insurance company's future
obligations to its policyowners? - ANSWER reserves
A group-owned insurance company that is formed to assume and spread the liability
risks of its members is known as a - ANSWER risk retention group
Which of the following is a syndicate established by a group of insurers to share
underwriting duties? - ANSWER Lloyd's organization
An agent's authority to bind an insurer to an insurance contract may be granted in the -
ANSWER agent's contract and the insurance company's appointment
Dividends from a stock insurance company are normally sent to - ANSWER
shareholders
Law of Large numbers - ANSWER -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 - ANSWER -involves opportunity for either loss or gain
-not covered by insurance companies
,pure risk - ANSWER -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 - ANSWER simply avoiding as many risks as
possible
-effective but not always practical
treatment of risk through- reduction - ANSWER 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 - ANSWER 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 - ANSWER also known as self-insurance: when
individuals have the financial ability to fund losses by themselves when they occur
treatment of risk through- transfer - ANSWER 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 - ANSWER -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 - ANSWER -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 - ANSWER 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? - ANSWER Many insurers
are able to minimize exposure to loss by reinsuring risks.
,For insurance purposes, similar objects which are exposed to the same group of perils
are referred to as - ANSWER 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"? - ANSWER 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? - ANSWER 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? - ANSWER peril
What type of risk involves the potential for loss and the possibility for gain? - ANSWER
speculative
Purchasing insurance is an example of risk - ANSWER transference
A business becoming incorporated is an example of risk ____. - ANSWER transfer
Which of the following is NOT an example of risk retention? - ANSWER Not doing a
business deal after deciding it would be too risky
legal contract must have: offer and acceptance - ANSWER -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 - ANSWER 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 - ANSWER -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 - ANSWER -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 - ANSWER there is not an equal
exchange of value
, -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 - ANSWER 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
agent's authority - ANSWER an agent is a licensed insurance producer, whose been
appointed to represent an insurance company
-as a rep of the insurer, agents are given certain authority to perform acts on behalf of
the insurance company
-agent is always considered to be acting on the behalf of the insurance company, also
referred to as the principal
express authority - ANSWER authority granted to the agent by the principal, which is
the insurance company, as written in the insurance contract
implied authority - ANSWER authority not expressed or written into the agent contract,
but which the agent is assumed to have in order to transact the businesss of the
insurance for the principal
-it comes from the express authority, since not every single detail of an agent's authority
can be spelled out in the agent's written contract
apparent authority - ANSWER appearance or assumption of authority given based on
the actions or words of the principal
-ex. when an insurance company furnishes an agent with a rate book, applications and
sales literature, the insurance company cannot later deny that a relationship existed
waiver - ANSWER the act of voluntarily giving up a legal right, claim or privilege
estopel - ANSWER the legal process used to prevent a party from reclaiming a right or
privilege that was already waived
parol evidence rule - ANSWER prevents parties from changing the meaning of a written
contract by trying to introduce oral or written statements made before the formation of
the contract
term life - ANSWER Term life insurance is the simplest type of life insurance plan. Term
life provides low-cost insurance protection for a
specified period (or term) and pays a benefit only if the insured dies during that period.
(three types- level, decreasing, increasing)
level term insurance - ANSWER Level term insurance provides a level amount of
protection for a specified period, after which the policy expires.
LATEST UPDATE 2025
Which of the following describes a participating life insurance policy? - ANSWER 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? - ANSWER 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? - ANSWER Upon completion of the application
The State Guaranty Association guarantees - ANSWER that a claim will be paid if an
admitted insurer becomes insolvent
Dividends from a mutual insurance company are paid to whom? - ANSWER
Policyholders
What is considered the accounting measurement of an insurance company's future
obligations to its policyowners? - ANSWER reserves
A group-owned insurance company that is formed to assume and spread the liability
risks of its members is known as a - ANSWER risk retention group
Which of the following is a syndicate established by a group of insurers to share
underwriting duties? - ANSWER Lloyd's organization
An agent's authority to bind an insurer to an insurance contract may be granted in the -
ANSWER agent's contract and the insurance company's appointment
Dividends from a stock insurance company are normally sent to - ANSWER
shareholders
Law of Large numbers - ANSWER -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 - ANSWER -involves opportunity for either loss or gain
-not covered by insurance companies
,pure risk - ANSWER -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 - ANSWER simply avoiding as many risks as
possible
-effective but not always practical
treatment of risk through- reduction - ANSWER 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 - ANSWER 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 - ANSWER also known as self-insurance: when
individuals have the financial ability to fund losses by themselves when they occur
treatment of risk through- transfer - ANSWER 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 - ANSWER -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 - ANSWER -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 - ANSWER 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? - ANSWER Many insurers
are able to minimize exposure to loss by reinsuring risks.
,For insurance purposes, similar objects which are exposed to the same group of perils
are referred to as - ANSWER 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"? - ANSWER 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? - ANSWER 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? - ANSWER peril
What type of risk involves the potential for loss and the possibility for gain? - ANSWER
speculative
Purchasing insurance is an example of risk - ANSWER transference
A business becoming incorporated is an example of risk ____. - ANSWER transfer
Which of the following is NOT an example of risk retention? - ANSWER Not doing a
business deal after deciding it would be too risky
legal contract must have: offer and acceptance - ANSWER -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 - ANSWER 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 - ANSWER -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 - ANSWER -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 - ANSWER there is not an equal
exchange of value
, -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 - ANSWER 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
agent's authority - ANSWER an agent is a licensed insurance producer, whose been
appointed to represent an insurance company
-as a rep of the insurer, agents are given certain authority to perform acts on behalf of
the insurance company
-agent is always considered to be acting on the behalf of the insurance company, also
referred to as the principal
express authority - ANSWER authority granted to the agent by the principal, which is
the insurance company, as written in the insurance contract
implied authority - ANSWER authority not expressed or written into the agent contract,
but which the agent is assumed to have in order to transact the businesss of the
insurance for the principal
-it comes from the express authority, since not every single detail of an agent's authority
can be spelled out in the agent's written contract
apparent authority - ANSWER appearance or assumption of authority given based on
the actions or words of the principal
-ex. when an insurance company furnishes an agent with a rate book, applications and
sales literature, the insurance company cannot later deny that a relationship existed
waiver - ANSWER the act of voluntarily giving up a legal right, claim or privilege
estopel - ANSWER the legal process used to prevent a party from reclaiming a right or
privilege that was already waived
parol evidence rule - ANSWER prevents parties from changing the meaning of a written
contract by trying to introduce oral or written statements made before the formation of
the contract
term life - ANSWER Term life insurance is the simplest type of life insurance plan. Term
life provides low-cost insurance protection for a
specified period (or term) and pays a benefit only if the insured dies during that period.
(three types- level, decreasing, increasing)
level term insurance - ANSWER Level term insurance provides a level amount of
protection for a specified period, after which the policy expires.
