Life Practice Exam 2 Part I

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1) The two catagories for risk are:

a) general risk, speculative risk

b) speculative risk, specific risk

c) ideal risk, pure risk

d) pure risk, speculative risk


2) Insurance addresses the issue of speculative risk.

a) true b) false


3) In life insurance the insurable interest condition must exist:

a) at the time of application only

b) at the time of issue only

c) at time of loss only

d) none of the above


4) ABC Insurance Company is incorporated in the State of California. Therefore it would be correct to refer to this insurer as:

a) reciprocal

b) interexchange

c) domestic

d) mutual


5) ABC Insurance Company raises capital from investors. These investors share in the profits and losses of the insurer. This company would therefore be:

a) fraternal

b) assessment

c) mutual

d) stock


6) Best Insurance Company raises capital through policies it markets to the public. Under this arrangement the policyowners are entitled to any divisible surplus. This insurer could therefore be known as:

a) stock

b) assessment

c) mutual

d) all of the above


7) Of the following, which is not considered to be a risk management tool:

a) avoidance

b) transference

c) obligatory

d) reduction


8) All of the following are false regarding the concept of insurance except:

a) it is a corporate mechanism to spread profits to policyholders

b) it is a means of obsorbing capital without an exchange of benefit

c) it is means of pooling capital from many so that losses may be indemnified

d) it is a method of gambling


9) There are some insurers that do not charge a full premium on the policies they issue. During the period of coverage the insurer determines the actual losses and then charges policyholders for their share of these losses. This type of insurer is:

a) fraternal

b) stock

c) mutual

d) assessment


10) A General agent has the authority to appoint other agents, supervise them and receive an override commission.

a) true b) false


11) With regards to the concept of an agency; the entity known as the agent is most appropriately known as:

a) registrar

b) broker

c) fiduciary

d) conservator


12) An insurance agent has a duty to act on the clints behalf in all aspects including among others things; honesty, faith, trust. This obligation is best described by:

a) conditional obligations

b) code regulations

c) commissioner regulations

d) fiduciary duty


13) In an Agency relationship: Is it true that the knowledge of an agent is considered to be knowledge of the insurer.

a) true b) false


14) Insurance agents have duties and responsibilities with the insurer. This authority is descibed in the agency contract and can be descibed as:

a) implied authority

b) presumed authority

c) apparent authority

d) expressed authority


15) In contract law, the movement of one party to intentionally or voluntarily give up a known right in a contract is:

a) a warranty

b) a waiver

c) a binder


16) Which of the following words describes the legal doctrine: when one party appears to have given up a particular right by acts or by inaction that another party has relied on, the legal basis for asserting the original right may have been lost.

a) warrant

b) presciption

c) estoppel

d) adhesion


17) Of the following descriptions; which one most likely has an insurable interest relationship with the proposed insured?

a) an investor insuring the life of his management team on his mutual fund

b) a local businessman in the life of the county sheriff

c) a voter in the life of their assemblyman

d) a businessman in the life of his partner


Insurance Regulations

18) As you know an insurance policy is a contract. Of the following words which is essential for the formation of a valid contract.

a) conditions

b) mutual assent

c) signatures

d) warranties


19) In order to form a valid contract each party must give something of worth. With regard to contract law this is referred to as:

a) consideration

b) indemnity

c) aleatory

d) condition


20) It is accepted that the insurer is the party with the primary responsibility of designing and formatting the insurance contract. Since this is the case what word would most appropriately describes the situation whereby if the contract is determined to be ambiguous the prevailing party would be the insured?

a) indemnity

b) concurrent causation

c) adhesion

d) aleatory


21) Statements made by the proposed insured as they relate to past or present events is most appropriately referred to as:

a) waivers

b) endorsements

c) addendums

d) representations


22) Do Life insurance and Health insurance contracts contain warranties by an insured?

a) true b) false


23) In determining original intent it would be most correct to consider which sequence?

a) typewritten, printed, handwritten

b) handwritten, typewritten, printed

c) printed, handwritten, typewritten

d) only the printed is considered


24) Ken is filling out an insurance application. He fails to disclose all pertinent facts. He therefore is:

a) conserving

b) indemnifying

c) concealing

d) inslovent


25) Many court cases have changed from time to time the regulatory powers of the insurance industry. Which of the following set forth that the insurance industry was not subject to federal anti-trust laws to the extent the insurance is not regulated by state law?

a) Paul vs. Virginia

b) SEUA of 1944

c) McCarren vs. Ferguson

d) McCarren-Ferguson Act


26) When an insurer becomes insolvent which of the following entities would be available to policyowners and claimants?




d) MIB


27) Pretext interviews are forbidden by law with one exception. This exception is best described in which of the following?

a) suspected criminal activity in connection with a claim

b) suspected claim processing in connection with losses

c) suspected claim activity within 60 days of claim filing

d) any of the above


28) In order to determine insolvency of an insurer, the Department of Insurance may do all of the following except:

a) compute reserve liabilities

b) prepare annual reports

c) value assets

d) approve/disapprove investments


29) Does California use the prior approval rate system?

a) true b) false


30) The Supreme Court held that insurance was in fact interstate commerce. This conclusion was reached in the:

a) Paul vs, Virginia case

b) South-Eastern Underwriters case

c) McCarren vs. Ferguson case

D) Rowe vs, Wade case


31) Does the face of a Life Insurance policy provide information about the rights and duties of both parties?

a) true b) false


32) All of the following are considered to be viable avenues for regulation of the insurance business except:

a) state regulations

b) federal regulations

c) investigation regulations

d) self regulations


33) Considering contract law each of the following are considered valid for the formation of a contract except:

a) waiver

b) counter offer

c) an act

d) a promise


34) The insurance industry is regulated primarily by:

a) agencies

b) insurers

c) the states

d) Congress


35) With reference to contract law conditional acceptance:

a) is considered a valid acceptance

b) extinguishes consideration

c) obligates the primary party

d) is considered a rejecting of the original offer


36) All of the following are considered to be descriptive of the nature of an insurance contract except:

a) adhesion

b) conditional

c) bilateral

d) unilateral


37) Policy Replacement rules have all of the following as their goal except:

a) stabilize the competition among insurers

b) monitor the conduct of agents and insurers

c) complete and concise information distribution

d) protect the buying public


38) Split Dollar Life Insurance:

a) are best suited for legal partnerships

b) are best suited for sole proprietors

c) are policies where the premiums are shared by employees/employers

d) none of the above


39) All of the following are true about group life insurance except:

a) these contracts have grace periods

b) each person in the group plan gets a policy

c) usually nonmedical underwriting

d) premiums based on the loss history of the group


40) John and Ken are equal partners in a business. Should one of them pass away the deceased family or estate would have claim to the appropriate asset valuation of the deceased owner. To protect the interests of the business, the partners can make arrangements through:

a) combination life policy

b) split dollar policy

c) buy sell agreement

d) key employee policy


41) Bob has worked for his employer for over twelve years and has now decided to leave the company. During his employment he has been covered by a group life plan. Can he convert his group life policy to an individual policy with proof of insurability if he applies for conversion before one month?

a) true b) false


42) Social Security provides for all of the following types of benefits except:

a) retirement income

b) deferred compensation income

c) disability income

d) survivor income


43) Social Security benefits are available to a person at what earliest retirement age?

a) 59 and 6 months

b) 62

c) 65

d) 67


44) The primary source of Social Security funds are tazes on payroll?

a) true b) false


45) Human Life Value is a means of measuring an individual’s need for an amount of life insurance. Which of the following would not be a consideration in the factoring of a person’s Human Life Value?

a) annual expenses

b) years to retirement

c) annual income

d) assets


46) All of the following are considered to be liabilities of life insurers except:

a) policy proceeds

b) reserves

c) premiums that are due

d) unpaid policy dividends


47) Which of the following factors is not considered an element in the calculation of a life insurance policy rate:

a) expected deaths during the end of the year

b) expenses

c) interest

d) mortality


48) A substandard risk is a risk that would be given a favorable rate.

a) true b) false


49) A preferred risk is a risk that would be given a favorable rate.

a) true b) false


50) Life Insurance company reserves are actually considered to be:

a) valuable assets

b) liabilities

c) dividends

d) surplus accounts


Answers to Part 1

1)d 2)b 3)a 4)c 5)d 6)c 7)c 8)d 9)d 10)a 11)c 12)d 13)a 14)d 15)b 16)c 17)d

18)b 19)a 20)c 21)d 22)b 23)b 24)c 25)d 26)c 27)a 28)b 29)a 30)b 31)b 32)c

33)b 34)c 35)d 36)c 37)a 38)c 39)b 40)c 41)b 42)b 43)b 44)a 45)d 46)c 47)a

48)b 49)a 50)b


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