Deck 6: Financial Services: Insurance Companies

Question 1

The policyholder can vary the premium payments on an endowment life policy.

Answer 1

False

Question 2

In group life insurance,lower rates on policies can be offered because of cost economies as a result of mass administration of plans and reduced selling and commission costs.

Answer 2

True

Question 3

Employers that sponsor non-contributory group life insurance require the employee to pay the insurance premiums.

Answer 3

False

Question 4

Commercial banks sold over 25% of fixed-return annuities,an insurance product,in 2015.

Question 5

In recent years,the total assets of insurance companies in the U.S.have been decreasing.

Question 6

Term life insurance includes a savings element as well as the pure insurance element.

Question 7

The process of life insurance uses risk pooling to transfer income-related uncertainties from a group of individuals to an insured individual.

Question 8

Credit default swaps are a product offered by insurance companies.

Question 9

The payments from an annuity offered by a life insurance company can either begin immediately or may be deferred to start at some future date.

Question 10

A term life policy allows the policyholder to vary the maturity of the policy.

Question 11

Adverse selection is a situation where customers who most need insurance are more likely to apply for insurance.

Question 12

Due to a recent increase in demand for new insurance products,the number of life insurance companies as been increasing in the United States.

Question 13

As of 2015,ordinary life accounted for approximately 80% of policies in force.

Question 14

Annuities are the reverse of life insurance in that they are different means of liquidating a fund.

Question 15

The benefit payment of a credit life policy usually varies based on the outstanding principal and interest of the loan it is intended to insure.

Question 16

The policy that will pay a specific dollar benefit to beneficiaries and remains in effect as long as premiums are paid is called whole life.

Question 17

Adverse selection cannot be reduced by insurance companies so it is considered to be a cost of doing business.

Question 18

As of 2015,there were less than 900 life insurance companies and aggregate industry assets were approximately $6.5 trillion.

Question 19

With variable life insurance,the term "variable" refers to the variable nature of the benefit because premium payments are invested in mutual funds whose return can vary over time.

Question 20

Economies of scope represent the principal advantage of group life over ordinary life policies for insurance companies.

Question 21

Pension fund management is a relatively small portion of the life insurance industry.

Question 22

Insurance companies can increase the spread between premium income and policy payouts only by increasing the premium payments.

Question 23

Returns on an insurer's asset portfolio and new premium income flows act as a backup to unexpected policy losses.

Question 24

Life insurance companies tend to concentrate their investments at the longer term of the investment spectrum.

Question 25

By regulation,the payments on an annuity contract must stop when the annuity holder dies.

Question 26

As of 2014,sales of annuities and sales of traditional life insurance policies were approximately equal.

Question 27

By 2015,life insurance companies were managing approximately 40% of all private pension plans.

Question 28

The rate of growth in the annuities market is increasing primarily because of the recent changes in the capital gains tax rates.

Question 29

Because of the large amounts of policy reserves that life insurance companies carry as liabilities,they are rarely surprised by unexpected fluctuations in expected future payouts.

Question 30

Separate accounts business only appears as a liability on a life insurer's balance sheet.

Question 31

The Wall Street Reform and Consumer Protection Act (2010)led to the Federal Reserve becoming a major supervisor of insurance firms.

Question 32

The cash surrender value of a life insurance policy represents the payment to the insured's beneficiaries at the time of death.

Question 33

As of 2015,the Federal Reserve oversees approximately one-third of U.S.insurance company assets.

Question 34

As of 2015,chartering of life insurance companies can be done only at the state level.

Question 35

Separate accounts business represents those policies and annuities whose return or payout is dependent on the return earned on the premiums invested in the separate account.

Question 36

Annuities must be purchased using a single lump sum of money.

Question 37

Life insurance companies also manage private pension plans that may include guaranteed investment contracts (GICs).

Question 38

The policy reserves on the liability side of the balance sheet of a life insurance company are estimated based on actuarial assumptions of expected future liability commitments on currently existing contracts.

Question 39

Although life insurance companies also provide health and accident insurance,they underwrite less than 35% of all health insurance policies.

Question 40

Annuities are popular retirement savings products because investment returns on contributions are tax-deferred.

Question 41

As with the life insurance industry,property-casualty firms tend to invest the majority of their assets and long-term investments.

Question 42

Property insurance involves coverage against the loss of personal property as well as protection against legal liability claims.

Question 43

In general,maximum levels of losses in the property-casualty industry are more predictable for liability lines than for property lines.

Question 44

State-sponsored insurance guarantee funds are run and administered by private insurance companies operating in the state.

Question 45

As currently structured,contributions to a state-sponsored guarantee fund are collected only after the actual failure of an insurance company.

Question 46

In the case of an insurance company failure,policyholders immediately receive a payout of the cash surrender value of their policies.

Question 47

PC (property-casualty)insurers tend to offer products that combine features of property insurance and liability insurance into single policy packages.

Question 48

The total assets of property-casualty insurers were approximately 35 percent of life insurers total assets as of 2015.

Question 49

Insurance guaranty funds involve a permanent fund similar to the FDIC for the purpose of compensating the policyholders of failed insurers.

Question 50

PC insurers are forbidden from marketing similar products to both individuals and commercial firms.

Question 51

Property-casualty underwriting risk only exists when the premiums generated on a given insurance line are less than the claims (losses)on the line.

Question 52

A permanent guarantee fund for the insurance industry does not exist.

Question 53

Unlike the life insurance industry,property-casualty insurers have more uncertainty about the timing of policy payouts.

Question 54

The largest property-casualty (PC)insurance companies have become less influential over the past decade.

Question 55

The expected loss potential is more difficult to determine with low-severity,high-frequency events.

Question 56

The property casualty insurance industry is concentrated where a few large firms dominate the market.

Question 57

During the most recent financial crisis,life insurance companies with large proportions of separate accounts business were well-protected from the decline in the debt and equity markets.

Question 58

As currently structured,state guarantee funds will continue to collect premium payments and honor life policies and annuity obligations of a failed insurance company.

Question 59

Industry leaders appear to be increasing their share of the PC business over time.

Question 60

Insurance guarantee funds are administered by federal insurance regulators.

Question 61

An insurance policy that often is the least expensive to the insured because of the policy does not include a savings plan is called

A)term life.
B)universal life.
C)whole life.
D)endowment life.

Question 62

The problem of adverse selection

A)implies that many people who do not need insurance coverage have it through group plans.
B)means that those people who apply for insurance are the least likely to need insurance coverage.
C)causes insurance underwriters to alter the health statistics of the general population when determining appropriate premiums.
D)creates a savings element along with the insurance component of the premium and policy.

Question 63

Insurance policy benefits are classified on an insurance company's balance sheet as

A)liabilities,because the insurance company may have to pay out the benefits.
B)assets,because policy benefits are valuable to the company.
C)liabilities,because customers may fall behind on their premium payments.
D)assets,because policy benefits are fully covered by premium payments.

Question 64

An insurance policy in which fixed premium payments are invested in mutual funds of stocks,bonds,and money market instruments is called

A)term life.
B)universal life.
C)whole life.
D)endowment life.
E)variable life.

Question 65

Which of the following is pure life insurance with a savings element built in?

A)term life
B)universal life
C)endowment life
D)variable universal life

Question 66

Hurricane Sandy,which struck the east coast of the United States in 2012,continues to be the worst catastrophe for the PC industry.

Question 67

The Insurance Regulatory Information System (IRIS)is a standardized examination system used to measure the profitability of insurance companies.

Question 68

Unexpected increases in inflation cause loss rates to increase more for long-tail risk than for short-tail risks.

Question 69

Automobile liability insurance provides protection against theft or damage to the vehicle.

Question 70

Unlike the banking industry,globalization of financial services is having little or no effect on the insurance industry.

Question 71

Which of the following involves fixed premium payments and a benefit payout at the time of death that will depend on investment returns over the life of the policy?

A)Term life.
B)Variable life.
C)Whole life.
D)Endowment life.

Question 72

Property-casualty insurers tend to have a higher level of liquidity risk than life insurers.

Question 73

A reasonable way to overcome some of the risk of adverse selection in the life insurance business can be accomplished by

A)refusing to underwrite policies.
B)term life.
C)endowment life.
D)variable universal life.
E)variable life.

Question 74

One reason for the recent decline in the expense ratio for PC insurers is an increase dependence on independent brokers to sell and distribute insurance policies.

Question 75

Loss adjustment expenses refer to the costs surrounding the loss settlement process.

Question 76

The primary function of insurance companies is to

A)generate fees for the banks that sell insurance products.
B)sell a variety of consumer investment products.
C)protect policyholders from adverse events.
D)assist in the transfer of wealth into the future.

Question 77

An insurance policy that protects an individual over an entire lifetime as long as the premiums are paid is called

A)term life.
B)universal life.
C)whole life.
D)endowment life.

Question 78

An operating ratio greater than 100 indicates that the insurance product line was profitable for a giving year.

Question 79

The largest line of life insurance in terms of total contract value in the U.S.is

A)ordinary life.
B)group life.
C)industrial life.
D)credit life.

Question 80

Insurance companies have resisted the investment in technology that banks and other financial service firms have pursued.