Insurance Company Types and Reinsurance

Insurance Questions

• When a mutual insurer becomes a stock company, this process is called demutualization.
• A life insurance policy dividend is a distribution of excess funds accumulated by the insurer on participating policies.
• A participating company is also referred to as a mutual insurer.
• A participating life insurance policy is a contract that allows the policy owner to receive a share of surplus in policy dividends.
• Reinsurance allows an insurer to transfer loss exposures from policies written for its insured.
• Increasing the unearned premium reserve is NOT a characteristic of reinsurance.
• A mutual insurer is owned by its policyholders.
• Reinsurance is an agreement entered into from insurance policies issued.
• A participating policy gives the owner the right to share in the insurer's surplus.
• AAA Insurance Company is considered the primary insurer when it transfers a portion of its loss exposure to BBB Insurance Company in a reinsurance transaction.
• Gambling is a type of speculative risk.
• A large number of similar exposure units is important to an insurer because the larger the number insured, the more accurately the insurer can predict losses and set appropriate premiums.
• Loss not being catastrophic is NOT an element of an insurable risk.
• Probability that an event will occur is not considered a definition of "loss".
• Loss exposure is any situation that presents the possibility of loss.
• Moral hazard is any situation that presents the possibility of a loss.
• Restoring an insured to the same condition as before a loss is known as principles of indemnity.
• The statement "The more times an event is repeated, the more predictable the outcomes become" best describes the Law of Large Numbers.
• Moral hazard is described as increased tendencies.
• Risk elimination would NOT be accomplished with the purchase of an insurance policy.
• An unknown probability of loss is not a circumstance that must be met for loss retention to be an effective risk management technique.
• A hazard is a circumstance that must be met for loss retention to be an effective risk management technique that may increase the chance of loss.
• Pure risk is the only insurable risk.
• Loss exposure is any situation that has the potential for loss.
• A hazard can be described as a condition that may increase the likelihood of loss.
• The cause of a risk is not considered a definition of risk.
• The principle of indemnity is accurately described with the statement "Insureds are entitled to recover an amount not greater than the amount of their loss".
• A contract of indemnity restores one party to the same financial position the party was in before the loss occurred.
• An insurer has the recourse to rescind the policy if a material warranty violation on the part of the insured is found.
• Express power given to an agent in an agency agreement is the authority to represent the insurer.
• The insurance term "indemnity" refers to making the insured whole.
• Equal consideration is not a requirement of a contract.
• Restoring an insured to the same condition as before a loss exemplifies the principle of indemnity.
• Probability of loss is NOT required in the content of a policy.
• A contract requires an offer and acceptance of the contract terms.
• An indemnity contract restores an injured party to the conditions that were presented before the loss.
• When handling premiums for an insured, the agent is acting in a fiduciary capacity.
• In a unilateral contract, only one party (the insurer) makes any kind of legally enforceable promise.
• The importance of a representation is demonstrated in the rule of materiality of concealment.
• A contract may be accepted or rejected by the insured, describing a contract of adhesion correctly.
• The insured and the insurer do not contribute equally to the contract in an aleatory contract.
• An insurer is entitled to rescind the contract when deliberate concealment is committed by the insured.
• Implied authority covers reasonably necessary acts that an agent must perform to carry out their expressly authorized duties.
• A variable life insurance policy allows the insured to choose where the cash value can be invested.
• Universal life insurance combines a savings element along with a flexible premium option.
• Conversion of a child's coverage to permanent insurance requiring evidence of insurability is NOT true regarding a family policy that covers children.
• The tax penalty for taking a loan against a Modified Endowment Contract (MEC) prior to age 59 ½ is 10%.
• Only children born prior to the policy issue date that may be included does NOT apply to child coverage in a family policy.
• The penalty tax imposed on premature withdrawal in a modified endowment contract is 10%.
• Mortgage redemption is a life insurance policy that provides a death benefit that matches the projected outstanding debt of a new mortgage.
• A life insurance policy's life liability would be the policy's face amount.
• A renewable term policy guarantees the right to renew the policy each year, regardless of health, but at an increased premium.
• Applicants are not required to answer medical questions on the application is NOT a true description of non-medical life insurance.
• Endowment insurance is a life insurance policy that pays the face amount if the insured survives to a specified period of time.
• The proper order of initial life insurance premiums, from lowest to highest: Modified premium, ordinary life, single premium.
• Second-to-die policy is best suited for Jen and Mary who have a handicapped child that is financially dependent upon them and would be financially disastrous if both parents were to die.
• A renewable term policy insurance policy will usually require a higher premium payable at each renewal.
• An insurable policy written after 1988 that fails to pass the seven-pay test is known as a modified endowment contract.
• Decreasing term life insurance is normally associated with a mortgage loan.
• Non-medical life insurance is a life insurance policy that does not require a physical exam.
• Joint life policy covers two people and pays the face amount only when the first person dies.
• Separate account investment is NOT what premium payments for a Universal life policy are used for.
• Variable life insurance gives the policy holder the right to select the investment which will provide the greatest return.
• Monthly income payments are NOT a valid policy dividend option.
• The reinstatement provision allows the insured to continue coverage after a policy has lapsed.
• A life insurance policy dividend is legally defined as a return of excess premium and is not taxable.
• When a life insurance policy is surrendered, the policy's cost basis is exempt from taxation under the cost recovery rule.
• A policyowner does not have a right to change the dividend schedule.
• The accelerated death benefit provision will pay a portion of the death benefit due seriousness of an insured's illness prior to death.
• The guaranteed insurability option allows an insured to purchase additional coverage without evidence of insurability.
• A life insurance policy can be surrendered for its cash value under the nonforfeiture option.
• A life insurance policy waiver of premium takes effect when the insured becomes totally disabled.
• The waiver of premium provision allows Bruce's insurance policy to continue in force without payment of further premiums after he became permanently disabled due to an accident.
• Extended term is NOT a common life insurance policy rider.
• Collateral assignments are normally associated with bank loans.
• The grace period policy provision protects the policyowner from unintentional lapse of the contract.
• The suicide clause helps an insurer to be protected from adverse selection.
• Mike has the option of using his cash value to purchase a reduced amount of paid-up whole life insurance is not true of 30 year old identical twins purchasing life policies where Mike buys a 10 year renewable term policy and IKE purchases a whole life policy.
• The grace period allows an insured's life insurance policy to remain in force even if the premium was not paid on the due date.
• The grace period allows a life insurance policyowner to make a premium payment after the due date without any loss of coverage.
• A dividend option is selected by the insured at the time of the policy purchase, regarding policy dividends.
• To calculate the adjusted death benefit for an insured who understated his age on a life insurance application, multiply 12/15th of the policies face amount.
• The accidental death rider provides additional coverage if an insured dies because of an accident
• Acts of war and aviation are treated as policy exclusions under a group life insurance policy.
• A beneficiary receiving only the death benefit earning is an interest option settlement option.
• Rate is the price of insurance for each exposure unit.
• The probability of death listed by year is demonstrated in mortality tables.
• Dividends are NOT a component in determining policy premiums.
• When calculating life insurance premium rates, mortality is affected by an insureds age and gender.
• Insurer's expense is the component for life insurance premium rates for an agent's commission.
• Extended term option is NOT a life insurance settlement option.
• Premiums are NOT an insurer policy expense.
• A creditor would be allowed rights to life insurance policy proceeds if the insured's estate beneficiaries is chosen.
• Death benefits received by a beneficiary are normally treated as exempt from federal income taxes.
• PAM should choose the interest option, being the primary beneficiary of a life insurance policy and wanting to let the death benefit accumulate and receive only the monthly investment proceed.
• A lump-sum is the automatic mode of settlement for life insurance policy proceeds.
• If the beneficiary dies from the same accident as the insured individual, the insured will proceed as if the insured outlived the beneficiary.
• Life insurance creates an immediate estate because, after the first premium is paid, the face amount may be available to the beneficiary.
• The total amount of premium paid for an insurance policy increases when the payment frequency increases.
• Premiums are best described as the amount an insured pays per unit of coverage.
• A spendthrift clause in a life insurance policy restricts the ability of the beneficiary to assign benefits.
• A policy owner can receive a percentage payment of the death benefits prior to death by using a viatical settlement agreement.
• Purchasing a life insurance policy in order to avoid the forced sales of assets upon death is called estate conservation.
• The primary feature of a viatical settlement is reduced death benefit prepayment.
• The next item needed is an attending physician's statement when an applicant has revealed conditions that require more information.
• Substandard risk classification charges the higher premium.
• Preferred risk classification charges the lowest premium.
• The risk selection process is primarily given to the underwriting insurance company department.
• The medical information bureau consist of life and health insurance companies.
• The objective of underwriting is is to avoid selecting a disproportionate number of bad risks from members of the Medical Information Bureau.
• The MIB requires medical ailments discovered during the underwriting process to be reported.
• An applicant must sign a consent form in order to authorize the release of an attending physician report.
• Most U.S life insurance companies belong to the Medical information Bureau.
• The beneficiary must sign the application before the insurer will issue the policy is NOT an important reason for a life insurance application.
• Part of the premium is paid by the employee is how a contributory group insurance plan is described.
• A participant is issued a certification of insurance with a group insurance policy.
• The parties to the master contract in a group life insurance policy are the insurer and employer.
• Employer-provided group term life insurance is exempt from income taxation up to $50,000.
• Provide proof of insurance is NOT a requirement for a terminated employee that has exercised the conversion privilege.
• Medical questions must be answered on individual insurance is how underwriting differs between group life and individual life insurance.
• Conversion is the process of changing existing group term life insurance to individual permanent life insurance?
• A terminated employee is able to convert term insurance into permanent insurance by exercising the conversion privilege.
• Employee participation in a noncontributory group life plan must be 100%.
• The cost of employer-provided group life insurance with coverage amount above $50,000 is treated for tax purposes as taxable income to the employee.
• If Victoria owns a life annuity and elects to receive annuity payments monthly for the remainder of her life with "ten years certain", her annuity will make payments for a minimum of 120 months and a maximum of the remainder of her life.
• An annuitant multiplies the number of "accumulation units" she owns times the unit value of the "separate account" to determine the current value of her annuity based on a variable annuity contract.
• The time at which benefit payment starts distinguishes a deferred annuity from an immediate annuity and distinguishes an immediate annuity.
• An annuity that is backed by a life insurer's separate account is called a variable annuity.
• The common reason people purchase an annuity is to protect against the risk of outliving their financial resources.
• A saving vehicle designed to first accumulate funds and then systematically liquidate the funds is called a deferred annuity.
• The system for liquidating a sum of money is provided by a(n) annuity.
• Offering a maximum interest rate that increases annually is NOT a feature of equity-indexed annuities.
• An exclusion ratio is used to determine the amount of an annuity distribution that is exempt from taxation.
• After Cindy buys a 10-year certain annuity with an installment refund and dies after 5 years of receiving monthly payments the insurer will make exactly 60 payments to her beneficiary.
• A deceased worker's dependent parents of any age is NOT eligible for Social Security survivor benefits.
• An individual that has 40 quarters of coverage, for social security purposes, is considered to be fully insured.
• A fully insured worker has Social Security benefits available to them.
• The SOCIAL SECURITY normal retirement age is determined by the year in which a worker was born.
• A worker with 6 quarters of coverage during the last 13-quarter period has currently insured Social Security status.
• The reason for social insurance is to protect certain vulnerable segments of the population.
• According to social security, disability is the inability to engage in any substantial gainful activity.
• A surviving spouse without dependents is eligible for Social Security survivor benefits at age 60 years old.
• Not actively seeking other employment is required for a worker to be entitled to social security disability benefits.
• Benefits are designed to replace the entire amount of the worker's earnings is NOT true regarding Social Security benefits.
• The "blackout period" affects the benefits of the surviving spouse.
• Fully insured workers are eligible for retirement benefits under Social Security.
• An individual with 6 credits of coverage during the previous 13-quarter period is considered to be currently insured.
• An individual must be unable to engage in any gainful activity due to physical or mental disability for 12 months in order to qualify for social security total disability.
• An insured's status under Social Security can be described as fully insured.
• Non-deductible contributions are typically associated with Roth IRA.
• Disclosure and reporting of group health insurance is regulated under the employee retirement security act of 1974.
• Employer contributions to qualify plans are tax deductible by the employer.
• Under a 10-year vesting schedule, 100% of employer contributions must be vested after 10 years of service.
• ESOP stands for employee stock ownership plan.
• ROTH_IRA'S are treated as non-deductible contributions and tax-free distributions for tax purposes.
• ESOPs are typically invested in employer's stock.
• Retirement plans cannot favor highly compensated employees and this regulation is called nondiscrimination.
• Retirement plans are prevented from favoring highly compensated employees under regulations of nondiscrimination.
• A Roth IRA owner must be at least 59 1/2 and owned account for a minimum of 5 years in order to make tax-free withdrawals.
• The human Life value concept is based on income.
• Funding a Buy-Sell agreement are NOT common personal uses of life insurance.
• Key person insurance is intended to cover business losses due to the death of a key employee.
• Buy-Sell agreements are typically funded by life insurance and disability insurance.
• Life insurance creates an immediate estate when the insured dies, a death benefit is paid.
• Illustration is the presentation of terms including non-guaranteed elements used when used in the phrase "Life insurance policy illustration", according to the California insurance code.
• The California Insurance Code allows an individual between 10 and 30 days to cancel a life policy for a full refund.
• The free-look period for life insurance policyowners age 60 or older is 30 days.
• Conservation is an agent's attempt to stop the replacement of an existing life insurance policy.
• Life insurance surplus must be distributed to policyowners annually.
• Statements that all values and benefits are guaranteed do NOT have to be included on life insurance policy illustration.
• Unnecessary replacement is the situation in which Paul has an existing annuity and is sold a new one, which the new policy holds no greater financial benefit to him than the existing contract.
• The incontestability clause prevents a life insurance policy from being rescinded by the insurer after being in force for two years.
• A life settlement broker represents an individual wanting to sell their life policy to a third party.
• A person who asserts a right of recovery under an insurance policy is called a claimant.
• An insurer that has been found to be charging higher rates based on race, religion, or ethnicity is said to be engaging in unfair discrimination.
• Anyone employed in California to assist an insurance agent is transacting insurance is called an insurance solicitor.
• If a life agent sells an insurance policy to an applicant without being appointed by the insurer, a notice of appointment must be submitted to the commissioner
• Prior approval is the type of jurisdiction that requires an insurer to have its rates accepted by the insurance department prior to using them.
• The California insurance code requires that an insurer must have enough assets to cover its liabilities and for reinsurance for all outstanding risk and also possess an additional assets equal to its paid-in capital.
• According to the California insurance code, the maximum penalty per violation for anyone who unwillfully commits an unfair method of competition is exactly $5,000.
• According to the California insurance code an insured suffers a financial loss in the state lottery is NOT an example of an insurable event.
• Advising a claimant to hire an attorney is NOT considered to be an unfair claims settlement practice.
• Life agents must keep their transaction records for 5 years.
• Insurance agents and brokers must make their insurance records available to the commissioner for all times.
• According to section 1729.2 of the California insurance Code, misdemeanor charges filed, not resulting in a conviction does NOT qualify as "Background information".
• The insurance term the state of California uses for an insurer that is eligible to transact business in the state is admitted
• Publishing a magazine where one of the advisers is an insurer is NOT considered to be an act of insurance solicitation.
• Jim must still disclose the conviction on his insurance license application, who is applying to become an insurance agent has a past misdemeanor conviction that was later expunged due to California penal code 1203.4,
• Interpret policy provisions is NOT a primary objective of insurance regulation.
• According to the California Insurance Code, the person responsible for submitting a life agent's appointment is the insurer.
• Failure to report background changes within 30 days as required under section 1729.2 of the California insurance code could subject a license or application to all of these include FINE, SUSPENSION, and DENIAL.
• Life and disability analyst is the type of license required for an individual who charges a fee to review an insured's existing life insurance policy.
• If an agent has advertised that the insurer to which the agent is appointed with is a member of the insurance guarantee association, the agent has committed an unfair method of competition.
• According to the California code governing claim settlement practices, denial of a claim based on reckless behavior is NOT considered to be an act of unfair discrimination.
• All are reasons the commissioner may disapprove a licensee's request to use a fictitious name EXCEPT the name is the licensee's actual name.
• Indemnity means to make whole as it pertains to insurance.
• The California Department of Insurance (CDI) has NO jurisdiction over Medicare.
• Pete is guilty of theft if he is a life agent who has misappropriated fiduciary funds to his own use.
• Insurance solicitors are authorized to help an agent broker sell insurance.
• According to the California Insurance Code a fact affecting the policy premium has to be described as Premium.
• According to the California insurance code, the word "MAY” is interpreted as permissive.
• Rescission of the contract when intentional concealment is involved.
• To specify the insurer's financial rating is NOT a requirement the California insurance code includes for insurance policies.
• An agent is acting in a fiduciary capacity when handling premiums for an insured.