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