Question 1

After Hurricane Katrina it was difficult to determine whether the cause of destruction to property was wind or flood.

Accepted Answer

A) True 
 B)False

Question 2

Midlands Insurance has 100 policyholders. It expects that this year's losses for all of its policyholders will total $111,000. The predicted expenses of operating the insurance pool are $46,000,expected investment earnings are $20,000,and the actuary determines that there is no need to charge for a risk reserve this year. What should the premium for each of Midland's 100 policyholders be?

Accepted Answer

A) $1,110 
B) $1,370 
C) $1,570 
D) $1,770

Question 3

From 2000 to 2004,the U.S.insurance industry had only two profitable underwriting years.

Accepted Answer

A) True 
 B)False

Question 4

A "pure risk" is defined as a situation where there is the possibility:

Accepted Answer

A) of loss or no change 
B) of profit or no change 
C) of profit or loss 
D) that actual losses will deviate from expected losses

Question 5

All the following are direct losses except:

Accepted Answer

A) a car is stolen 
B) a house suffers flood damage 
C) an apartment must be rented after a house is destroyed by fire 
D) a business loses $100,000 in a law suit

Question 6

What is cash flow underwriting? Why is it a concern for insurance companies?

Accepted Answer

The answer of What is cash flow underwriting? Why is...

Question 7

Objective risk is defined as:

Accepted Answer

A) risk with two possible outcomes 
B) risk with three possible outcomes 
C) an individual's perception of risk 
D) none of the above

Question 8

Which of the following potential losses is not an example of a pure risk?

Accepted Answer

A) loss of a home by fire 
B) theft of a car 
C) loss of $10,000 in the stock market 
D) theft of your wallet containing $100

Question 9

All of the following are perils except:

Accepted Answer

A) heart attack 
B) theft 
C) forgery and embezzlement 
D) incorrect instructions on the label of a pesticide

Question 10

Having 50 gallons of gasoline in your garage is a:

Accepted Answer

A) peril 
B) moral hazard 
C) pure risk 
D) physical hazard

Question 11

Smoking cigarettes is an example of:

Accepted Answer

A) moral hazard 
B) morale hazard 
C) speculate risk 
D) a peril

Question 12

Which of the following is a true statement?

Accepted Answer

A) Insurers are significant financial intermediaries in the U.S. economy 
B) Property insurers are prohibited from investing their reserve accounts in private enterprise 
C) The insurance companies in the U.S. are estimated to hold approximately $5 trillion in assets 
D) Both a and c above are true statements

Question 13

It may be correctly claimed that insurers usually do not pay for losses because:

Accepted Answer

A) it is the insured's money that is used to pay the claims 
B) most insurers do not pay claims until the insured sues them 
C) almost all claims are caused by fraud 
D) insurers estimate claims actuarially in advance in order to avoid payments

Question 14

Insurance increases the number of intentional losses that occur in society.

Accepted Answer

A) True 
 B)False

Question 15

Assume 1000 students all healthy,all age 22,and all male,form a life insurance pool to pay $500 to the beneficiaries of any member who dies in the next 365 days.The chance of loss or probability of death for the members of this group is .002.To join the pool a member must pay: (disregard interest earnings and reserves and assume expenses of operating the insurance pool are 30% of losses).

Accepted Answer

A) $1 
B) $1.30 
C) $3 
D) $2.28

Question 16

Which of the following is NOT a direct social benefit of the insurance mechanism?

Accepted Answer

A) increased business and social stability 
B) better allocation of society's resources 
C) better choice of optimum size of business operations 
D) lower federal and state income taxes

Question 17

Hazards may increase either the frequency or the severity of losses.

Accepted Answer

A) True 
 B)False

Question 18

Under an open perils insurance policy:

Accepted Answer

A) covered perils are spelled out, usually using a numbered list 
B) any piece of property not excluded is covered 
C) absolutely all risks of losses are covered, those having an illegal purpose 
D) all perils not excluded are covered

Question 19

Drinking a lot of alcohol before swimming could cause a person to drown. In this context,which of the following is the hazard?

Accepted Answer

A) drinking too much 
B) knowing how to swim 
C) drowning 
D) death 
E) none of the above

Question 20

Which of the following is an accurate definition of "insurance?"

Accepted Answer

A) A savings account designed to protect you in the event of a rainy day 
B) A financial arrangement that redistributes the costs of unexpected losses among a pool of insureds 
C) A communist plot to destroy capitalist enterprise 
D) A contractual agreement in which the insurer agrees to pay the insured only if the insured requests the money

Exam 1: Fundamentals and Terminology

After Hurricane Katrina it was difficult to determine whether the cause of destruction to property was wind or flood.

From 2000 to 2004,the U.S.insurance industry had only two profitable underwriting years.

A "pure risk" is defined as a situation where there is the possibility:

All the following are direct losses except:

What is cash flow underwriting? Why is it a concern for insurance companies?

Objective risk is defined as:

Which of the following potential losses is not an example of a pure risk?

All of the following are perils except:

Having 50 gallons of gasoline in your garage is a:

Smoking cigarettes is an example of:

Which of the following is a true statement?

It may be correctly claimed that insurers usually do not pay for losses because:

Insurance increases the number of intentional losses that occur in society.

Which of the following is NOT a direct social benefit of the insurance mechanism?

Hazards may increase either the frequency or the severity of losses.

Under an open perils insurance policy:

Drinking a lot of alcohol before swimming could cause a person to drown. In this context,which of the following is the hazard?

Which of the following is an accurate definition of "insurance?"