Chapter 1: Basic Principles Of Life And Health Insurance

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  • 1/15 Questions

    What is considered to be the primary reason for buying life insurance?

    • Provide death benefits
    • Provide money for retirement
    • Provide living benefits
    • Provide money for college
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About This Quiz

This quiz focuses on fundamental principles of life and health insurance, covering topics such as reinsurance, regulatory exemptions, types of insurance companies, and consumer protection laws. It assesses understanding of industry practices and compliance, crucial for professionals in the field.

Chapter 1: Basic Principles Of Life And Health Insurance - Quiz

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  • 2. 

    The Fair Credit and Reporting Act's main purpose is to 

    • Assist in the underwriting of insurance policies

    • Protect insurers from an applicant's misrepresentation

    • Protect consumers with guidelines regarding credit reporting and distribution

    • Assist an insurer n determining an applicant's creditworthiness

    Correct Answer
    A. Protect consumers with guidelines regarding credit reporting and distribution
    Explanation
    The Fair Credit and Reporting Act (FCRA) is a federal law that aims to protect consumers by providing guidelines for credit reporting and distribution. It ensures that credit reporting agencies maintain accurate and fair information about individuals' credit histories and allows consumers to dispute any errors on their credit reports. The FCRA also regulates how consumer credit information is shared and distributed, ensuring that it is done in a responsible and secure manner. By doing so, the FCRA helps to protect consumers from unfair practices and promotes transparency in the credit reporting industry.

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  • 3. 

    Ken is a producer who has obtained Consumer Information Reports under false pretenses. Under the Fair Cedit Reporting Act, what is the maximum penalty that may be imposed on Ken?

    • $1,000

    • $3,000

    • $5,000

    • $7,000

    Correct Answer
    A. $5,000
    Explanation
    Under the Fair Credit Reporting Act, the maximum penalty that may be imposed on Ken for obtaining Consumer Information Reports under false pretenses is $5,000.

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  • 4. 

    Which of the following is NOT considered advertising?

    • A rating from a rating service company, such as A.M. Best

    • An illustration

    • A sales presentation

    • Direct mailing fro an agency

    Correct Answer
    A. A rating from a rating service company, such as A.M. Best
    Explanation
    A rating from a rating service company, such as A.M. Best, is not considered advertising because it is an evaluation or assessment of an entity's financial strength or creditworthiness. It does not promote or market a product or service, but rather provides an objective opinion or rating. Advertising typically involves the promotion or communication of goods, services, or ideas to a target audience with the aim of influencing their behavior or perception.

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  • 5. 

    A life insurance company has transferred some of its risk to another insurer. The insurer assuming the risk is called the 

    • Mutual insurer

    • Reinsurer

    • Reciprocal insurer

    • Participating insurer

    Correct Answer
    A. Reinsurer
    Explanation
    A life insurance company transfers some of its risk to another insurer, known as a reinsurer. Reinsurers specialize in assuming risks from primary insurers, like life insurance companies, in exchange for a premium. This allows the primary insurer to reduce its exposure to large losses and maintain financial stability. The reinsurer takes on a portion of the risk and pays out claims when necessary. Therefore, the correct answer is "Reinsurer."

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  • 6. 

    An insurer's ability to make unpredictable payouts to policyowners is called

    • Investment values

    • Liquidity

    • Assets

    • Capital

    Correct Answer
    A. Liquidity
    Explanation
    Liquidity refers to an insurer's ability to make unpredictable payouts to policyowners. It is the measure of how easily an insurer can convert its assets into cash to meet its obligations. A high level of liquidity indicates that the insurer has enough readily available funds to pay out claims and other policyholder obligations, even in unforeseen circumstances. Therefore, liquidity is the correct answer in this case.

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  • 7. 

    A type of insurer that is owned by its policyowners is called

    • Domestic

    • Mutual

    • Stock

    • In-house

    Correct Answer
    A. Mutual
    Explanation
    A mutual insurer is owned by its policyowners, meaning that the policyholders are also the owners of the company. They have the right to vote on company matters and may receive dividends or premium reductions based on the company's performance. This type of insurer operates for the benefit of its policyholders rather than shareholders, as in the case of a stock insurer. Domestic, in-house, or any other terms do not accurately describe an insurer that is owned by its policyowners.

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  • 8. 

    What is the primary purpose of a rating service company such as A. Best?

    • Determine which insurer offers the best rates

    • Determine which insurer offers the best policies

    • Determine financial strength of an insurance company

    • Determine which agent to use locally

    Correct Answer
    A. Determine financial strength of an insurance company
    Explanation
    The primary purpose of a rating service company such as A. Best is to determine the financial strength of an insurance company. These companies assess the financial stability and creditworthiness of insurers, providing ratings that help consumers and other stakeholders make informed decisions. By evaluating factors such as the insurer's capitalization, claims-paying ability, and overall financial health, rating service companies like A. Best offer valuable insights into the financial strength and stability of insurance companies, assisting individuals and businesses in selecting reliable and secure insurance providers.

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  • 9. 

    The Do Not Call Registry offers exemptions for calls placed from all of the following EXCEPT

    • Charities

    • Political organizations

    • Insurance sales calls

    • Surveys

    Correct Answer
    A. Insurance sales calls
    Explanation
    The Do Not Call Registry offers exemptions for calls placed from charities, political organizations, and surveys. However, it does not offer exemptions for insurance sales calls. This means that individuals who have registered their phone numbers on the Do Not Call Registry can still receive calls from insurance sales representatives, unless they specifically request to be added to the company's internal do not call list.

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  • 10. 

    What kind of life insurance policy issued by a mutual insurer provided a return of divisible surplus?

    • Nonparticipating life insurance policy

    • Participating life insurance policy

    • Divisible surplus life insurance policy

    • Straight life insurance policy

    Correct Answer
    A. Participating life insurance policy
    Explanation
    A participating life insurance policy is issued by a mutual insurer and provides a return of divisible surplus. This means that policyholders who hold participating policies are entitled to receive a portion of the profits made by the insurance company. The divisible surplus is distributed among the policyholders in the form of dividends or other benefits. This type of policy allows the policyholders to share in the financial success of the insurance company, making it a popular choice for those looking for potential additional returns on their investment.

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  • 11. 

    A plan in which an employer pays insurance benefits from a fund derived from the employer's current

    • A self-derived plan

    • A multiple-employer plan

    • A blanket plan

    • A self-funded plan

    Correct Answer
    A. A self-funded plan
    Explanation
    A self-funded plan refers to a type of insurance plan where the employer pays for the insurance benefits using funds derived from their current resources. In this plan, the employer takes on the financial risk and responsibility for providing healthcare coverage to their employees, rather than relying on an insurance company. This allows the employer to have more control over the plan design and potentially save costs if the claims are lower than expected.

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  • 12. 

    A nonparticipating company is sometimes called a(n)

    • Alien insurer

    • Mutual insurer

    • Reinsurer

    • Stock insurer

    Correct Answer
    A. Stock insurer
    Explanation
    A nonparticipating company is sometimes called a stock insurer because it is owned by shareholders who hold stock in the company. These shareholders have the right to receive dividends and have voting rights in the company's operations and decisions. Unlike a mutual insurer, where policyholders are also owners and share in the company's profits, a stock insurer operates for the benefit of its shareholders. Reinsurers, on the other hand, provide insurance to other insurance companies, and alien insurers are foreign insurance companies operating in a different country.

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  • 13. 

    Fraternal Benefit Society has each of the following characteristics EXCEPT

    • Incorporated

    • Without capial stock

    • Exist For profit

    • Exist for the benefit of its members

    Correct Answer
    A. Exist For profit
    Explanation
    A Fraternal Benefit Society has each of the following characteristics: incorporated, without capital stock, and exists for the benefit of its members. However, it does not exist for profit. Fraternal Benefit Societies are nonprofit organizations that provide benefits to their members, such as insurance or other financial assistance. They are not focused on generating profit, but rather on serving the needs of their members.

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  • 14. 

    Why ae dividends from a mutual insurer not subject to taxation?

    • Because insurance premiums are tax-deductible

    • Because dividends are already subject to capital gains

    • Because dividends are payable directly to the policyholder

    • Because dividends are considered to be a return of premium

    Correct Answer
    A. Because dividends are considered to be a return of premium
    Explanation
    Dividends from a mutual insurer are not subject to taxation because they are considered to be a return of premium. This means that the dividends are viewed as a refund or repayment of a portion of the premiums paid by the policyholder. Since the premiums were already taxed when they were initially paid, the dividends are not taxed again to avoid double taxation.

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  • 15. 

    An insurer's claim settlement practices are regulated by the 

    • Securities and Exchange Commission (SEC)

    • National Association of Claims Adjusters (NACA)

    • National Association of Insurance Commissioners (NAIC)

    • State insurance departments

    Correct Answer
    A. State insurance departments
    Explanation
    State insurance departments regulate an insurer's claim settlement practices. These departments oversee and enforce insurance laws and regulations within their respective states. They ensure that insurers comply with fair claim settlement practices, including timely and fair payment of claims. State insurance departments also handle consumer complaints and investigate any potential violations by insurers. By regulating claim settlement practices, state insurance departments aim to protect policyholders and ensure that insurers fulfill their obligations to policyholders in a fair and transparent manner.

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Quiz Review Timeline (Updated): Jan 30, 2023 +

Our quizzes are rigorously reviewed, monitored and continuously updated by our expert board to maintain accuracy, relevance, and timeliness.

  • Current Version
  • Jan 30, 2023
    Quiz Edited by
    ProProfs Editorial Team
  • Jan 09, 2020
    Quiz Created by
    Kernsshanice
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