EXAM FAM - QUALITATIVE QUESTIONS & ANSWERS
Which of these statements is not true with respect to expenses incurred by the insurer?
A. Commissions are often paid to an agent in the form of a high percentage of the first
year's premium plus a lower percentage of subsequent premiums.
B. In calculating gross premiums, specific allowances are sometimes made for
termination expenses.
C. Initial expenses cover the costs to produce annual statements to policyholders.
D. Per-policy renewal costs are often assumed to increase to account for inflation over
the term of the policy.
E. Underwriting expenses may vary according to the amount of the death benefit. -
Answers - C
The cost of annual statements is an annual continuing expense. It is not an initial
expense.
A company offers a modern insurance contract that has the following features:
- A benefit linked to the performance of an investment fund
- A guaranteed minimum return on the premiums paid
- A guaranteed minimum death benefit payable if the insured dies before the contract
matures
- A contract term of 7 years
Determine the type of contract offered. - Answers - Variable annuity
Determine which of the following statements is false.
A. Copays commonly apply to physician office visits, prescription drugs, and emergency
room visits.
B. Comprehensive major medical coverage typically has small deductibles.
C. Catastrophic major medical coverage is intended to protect against large, infrequent
medical expenses.
D. Short term medical insurance was developed in response to high lapse rates in the
first duration of individual major medical policies.
E. Funds in health savings accounts (HSAs) that are unused by the end of the plan year
will be forfeited. - Answers - E
Which of these statements is false with respect to defined benefits and defined
contributions pension plans?
A. A defined benefit pension plan specifies the amount of annual pension the employee
will receive.
B. In a defined benefit pension plan, a multiple of the annual pension may be offered as
a lump sum retirement benefit.
, C. In a defined benefit pension plan, the annual retirement benefit depends on the
member's pensionable salary and interest earned on the fund.
D. A defined contribution pension plan specifies the amount, usually as a percentage of
salary, the employer and the employee will contribute into the pension fund.
E. In a defined contribution pension plan, the proceeds are available as a lump sum to
the employee when he or she leaves or retires. - Answers - C - the benefit does not
depend on interest earned.
The benefit depends on the:
- total number of years of service
- accrual rate, which is between 0.01 and 0.02
- pensionable salary,
where the measure of pensionable salary depends on one of:
- final salary pensionable plan
- career average earnings pension plan
- Career average revalued earnings pension plan (same as above, but adjusted for
inflation).
When using the chain-ladder approach to develop incurred losses, an actuary notices a
loss development factor less than 1.
Determine which of the following is an unlikely reason for this.
A. Salvage
B. Subrogation
C. Conservative case reserves
D. Reinsurance
E. Increased payments - Answers - E
Note that:
- Salvage can lower incurred losses due to the insurer receiving funds from the sale of a
totaled vehicle.
- Subrogation can lower incurred losses due to the insurer receiving reimbursement
from the liable party.
- An adjustment in case reserves, due to case reserves having been too conservative,
could lower incurred losses from one year to the next.
- Depending on how a reinsurance agreement is structured, a primary insurer could
receive payment from a reinsurer, which in turn could lower incurred losses.
An annuity that makes payments to the annuitant after the death of the insured, for as
long as the annuitant survives, is known as a:
A. temporary life annuity.
Which of these statements is not true with respect to expenses incurred by the insurer?
A. Commissions are often paid to an agent in the form of a high percentage of the first
year's premium plus a lower percentage of subsequent premiums.
B. In calculating gross premiums, specific allowances are sometimes made for
termination expenses.
C. Initial expenses cover the costs to produce annual statements to policyholders.
D. Per-policy renewal costs are often assumed to increase to account for inflation over
the term of the policy.
E. Underwriting expenses may vary according to the amount of the death benefit. -
Answers - C
The cost of annual statements is an annual continuing expense. It is not an initial
expense.
A company offers a modern insurance contract that has the following features:
- A benefit linked to the performance of an investment fund
- A guaranteed minimum return on the premiums paid
- A guaranteed minimum death benefit payable if the insured dies before the contract
matures
- A contract term of 7 years
Determine the type of contract offered. - Answers - Variable annuity
Determine which of the following statements is false.
A. Copays commonly apply to physician office visits, prescription drugs, and emergency
room visits.
B. Comprehensive major medical coverage typically has small deductibles.
C. Catastrophic major medical coverage is intended to protect against large, infrequent
medical expenses.
D. Short term medical insurance was developed in response to high lapse rates in the
first duration of individual major medical policies.
E. Funds in health savings accounts (HSAs) that are unused by the end of the plan year
will be forfeited. - Answers - E
Which of these statements is false with respect to defined benefits and defined
contributions pension plans?
A. A defined benefit pension plan specifies the amount of annual pension the employee
will receive.
B. In a defined benefit pension plan, a multiple of the annual pension may be offered as
a lump sum retirement benefit.
, C. In a defined benefit pension plan, the annual retirement benefit depends on the
member's pensionable salary and interest earned on the fund.
D. A defined contribution pension plan specifies the amount, usually as a percentage of
salary, the employer and the employee will contribute into the pension fund.
E. In a defined contribution pension plan, the proceeds are available as a lump sum to
the employee when he or she leaves or retires. - Answers - C - the benefit does not
depend on interest earned.
The benefit depends on the:
- total number of years of service
- accrual rate, which is between 0.01 and 0.02
- pensionable salary,
where the measure of pensionable salary depends on one of:
- final salary pensionable plan
- career average earnings pension plan
- Career average revalued earnings pension plan (same as above, but adjusted for
inflation).
When using the chain-ladder approach to develop incurred losses, an actuary notices a
loss development factor less than 1.
Determine which of the following is an unlikely reason for this.
A. Salvage
B. Subrogation
C. Conservative case reserves
D. Reinsurance
E. Increased payments - Answers - E
Note that:
- Salvage can lower incurred losses due to the insurer receiving funds from the sale of a
totaled vehicle.
- Subrogation can lower incurred losses due to the insurer receiving reimbursement
from the liable party.
- An adjustment in case reserves, due to case reserves having been too conservative,
could lower incurred losses from one year to the next.
- Depending on how a reinsurance agreement is structured, a primary insurer could
receive payment from a reinsurer, which in turn could lower incurred losses.
An annuity that makes payments to the annuitant after the death of the insured, for as
long as the annuitant survives, is known as a:
A. temporary life annuity.
