Altfest_2e_Test_Bank_Chapter_12.docx

Test Bank Questions, Chapter 12 1. When losses are material and there is a strong likelihood that they will occur: a. Insurance may not be the appropriate choice b. Insurance is always prudent c. Overhead costs are lower d. Insurance companies will refuse to provide ins...

Test Bank Questions, Chapter 12 1. When losses are material and there is a strong likelihood that they will occur: a. Insurance may not be the appropriate choice b. Insurance is always prudent c. Overhead costs are lower d. Insurance companies will refuse to provide insurance e. None of the above 2. In which of the following cases should one purchase insurance? f. High-severity, high-frequency g. Low-severity, high-frequency h. High-severity, low-frequency i. Low-severity, low-frequency j. None of the above 3. What is business risk? k. A risk that carries no financial reward l. A risk taken for financial reward. m. The risk that the insurance company will not meet its obligations n. The risk that the insurance holder will not meet its obligations o. None of the above 4. Why are most exposures pure risks? p. The loss of income or assets carries no reward q. The loss of health insurance carries a reward r. The loss of income or assets carries a reward s. Both a and b t. None of the above 5. Exposure to the risk of loss is: u. Hazard v. Peril w. Business risk x. Pure risk y. None of the above 6. An individual facing risk: z. Is unaware of the exact outcome and is unaware of the probabilities associated with alternative outcomes a. Is unaware of the exact outcome but is aware of the probabilities associated with alternative outcomes b. Is aware of the exact outcome c. All of the above d. None of the above 7. A hazard is best defined as: e. An increase in the probability of peril. f. The opposite of peril g. Uncertainty h. All of the above i. None of the above 8. Which of the following is not a type of hazard? j. Physical hazard k. Moral hazard l. Morale hazard m. All of the above are types of hazards n. None of the above is a type of hazard 9. The risk of a person behaving negligently because he or she has insurance coverage is associated with which of the following? o. Household risk p. Moral hazard q. Morale hazard r. Pure risk s. None of the above 10. Which of the following is used to only allow you to insure an item when you yourself would suffer a loss should the item be damaged? t. Indemnity u. Screening of applicants v. Segregation of applicants w. Insurable interest x. None of the above 11. Which of the following is used to set maximum reimbursement in the event of loss of an asset that you own equal to the value of the item? y. Indemnity z. Screening of applicants a. Segregation of applicants b. Insurable interest c. None of the above 12. Which of the following is a benefit of instituting deductibles? d. Reduced moral hazard e. Reduced morale hazard f. Reduced processing costs g. All of the above h. None of the above 13. Which of the following is not a method of coinsurance? i. Instituting exclusions and waiting periods j. Instituting risk minimization techniques k. Prespecified limits l. Use of group policies m. All of the above are methods of coinsurance 14. The actions of stockholder-owned insurance companies: n. May conflict with the interests of policyholders o. Never conflict with the interests of policyholders p. Always conflict with the interests of stockholders q. Both a and c r. None of the above 15. An individual is more likely to take out insurance when: s. The individual believes that he or she is at less risk for a negative occurrence than the population at large and the insurance cost has not been raised for that increased occurrence t. The individual believes that he or she is at less risk for a negative occurrence than the population at large and the insurance cost has been raised for that increased occurrence u. The individual believes that he or she is at more risk for a negative occurrence than the population at large and the insurance cost has not been raised for that increased occurrence v. The individual believes that he or she is at more risk for a negative occurrence than the population at large and the insurance cost has been raised for that increased occurrence w. None of the above 16. Which of the following is not an example of property and liability insurance? x. Liability to others y. Umbrella insurance z. Homeowner's insurance a. All of the above are examples of property and liability insurance b. None of the above is an example of property and liability insurance 17. Medicaid is an example of: c. Liability insurance d. Government insurance e. Property insurance f. Personal insurance g. None of the above 18. Real property includes: h. Structures that are affixed to land i. Land j. Assets that are not affixed to land k. All of the above l. None of the above 19. What type of coverage is associated with a condominium and cooperative? m. Basic coverage n. Broad coverage o. Unit owner's form p. Contents broad form q. None of the above 20. Which of the following homeowner's policies covers the most risk? r. HO1 s. HO2 t. HO3 u. All of the above cover equal risk v. None of the above 21. Depreciation is not deducted: w. When assets are valued for loss purposes on a replacement-cost basis x. When assets are valued for loss purposes on either an actual cash value at the time of the loss or on a replacement-cost basis y. When assets are valued for loss purposes on an actual cash value at the time of the loss basis z. Depreciation is always deducted a. None of the above 22. Which of the following equations is accurate? b. Insurance reimbursement = (amount of insurance required / amount of insurance in force) x amount of loss c. Insurance reimbursement = (amount of insurance in force / amount of loss) x amount of insurance required d. Insurance reimbursement = (amount of insurance in force / amount of insurance required) x amount of loss e. None of the above f. None of the above 23. Which of the following statements is accurate? g. Payments as reimbursement for property losses are not taxable h. Payments as reimbursement for property losses are not tax deductible i. Property losses are not tax deductible j. All of the above k. None of the above 24. Which of the following is not part of an automobile insurance policy? l. Liability m. Medical n. Damage o. All of the above are part of an automobile insurance policy p. None of the above is part of an automobile insurance policy 25. Modified no-fault insurance: q. May use the traditional tort system for cases that are not as involved and revert to no-fault for serious injuries or death r. May use no-fault for cases that are not as involved and revert to the traditional tort system for serious injuries or death s. May allow the insurance company to decide whether to use no-fault or the traditional tort system t. May allow the policy holder to decide whether to use no-fault or the traditional tort system u. None of the above 26. Coverage of losses to you or your property directly is called: v. First-party coverage w. Second-party coverage x. Third-party coverage y. Fourth-party coverage z. None of the above 27. The minimum coverage generally associated with umbrella coverage is: a. \$250,000 b. \$500,000 c. \$750,000 d. \$1 million. e. There is no minimum coverage. 28. Which of the following is not offered by all three types of medical coverage? f. Nonsurgical costs whether in or out of the hospital g. A basic surgical policy to pay for the surgeon's costs, whether in or out of the hospital h. A basic hospital policy for hospital costs such as room, board and ancillary services i. All of the above are offered by all three types of medical coverage j. None of the above is offered by all three types of medical coverage 29. Under the Consolidated Omnibus Budget Reconciliator Act of 1986, the federal government requires: k. That people who leave positions be allowed to maintain their medical coverage for a maximum of 18 months regardless of their medical condition at the time l. That people who leave positions be allowed to maintain their medical coverage for a maximum of 12 months regardless of their medical condition at the time m. That people who leave positions be allowed to maintain their medical coverage for a maximum of 12 if they were in good health when leaving n. That people who leave positions be allowed to maintain their medical coverage for a maximum of 18 months if they were in good health when leaving o. None of the above Answer: a Essay questions: 30. Please list the type of dwelling and type of coverage associated with the eight types of homeowner's policies. Answer: **Name** **Type Dwelling** **Type Coverage** ---------- ----------------------------- ------------------------ HO1 Homeowner Basic coverage HO2 Homeowner Broad coverage HO3 Homeowner Special coverage HO4 Tenant Contents broad form HO5 Homeowner Comprehensive coverage HO6 Condominium and Cooperative Unit owner's form HO8 Homeowner Modified Coverage 31. Please explain how each of the following variable factors influences long-term care insurance. p. Age. q. Maximum Benefit. r. Inflation Adjustment. s. Underwriting. t. Reimbursement and Selection Policy. Answer: a. Age: The younger the age the lower the yearly cost but generally the longer the period of pay in until potential reimbursement begins. b. Maximum Benefit: Generally depends on reimbursement amount with sum needed contingent in part on insured location. c. Inflation Adjustment: Costly; can be CPI or as much as 5 percent a year. Inflation in long term care is expected exceed CPI. d. Underwriting: Client health a factor in quotation. e. Reimbursement and Selection Policy: Ability to select care giver can save middleman agency costs.