INS21: Mock Exam! Trivia Quiz

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INS21: Mock Exam! Trivia Quiz - Quiz

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Questions and Answers
  • 1. 

    Brown Company's Policy includes a liberalization clause.  Brown's insurer introduces a policy change that broadens coverage at no additional premium.  How will this change apply to Brown's existing policy?

    • A.

      The broadened coverage does not apply to Brown Company's policy.

    • B.

      The broadened coverage automatically applies to Brown Company's policy.

    • C.

      The broadened coverage will apply to Brown Company's policy with an endorsement.

    • D.

      The broadened coverage will apply to Brown Company's new policies as they are issued.

    Correct Answer
    B. The broadened coverage automatically applies to Brown Company's policy.
    Explanation
    The correct answer is that the broadened coverage automatically applies to Brown Company's policy. This means that Brown Company does not need to take any additional action or pay any extra premium in order to receive the expanded coverage. The insurer has made a policy change that benefits Brown Company by providing broader coverage without any additional cost.

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  • 2. 

    The use of standard forms by insurers leads to a more

    • A.

      Consistent interpretation of insurance policies

    • B.

      Creative interpretation of insurance policies.

    • C.

      Conservative interpretation of insurance policies.

    • D.

      Coordinated interpretation of insurance policies.

    Correct Answer
    A. Consistent interpretation of insurance policies
    Explanation
    The use of standard forms by insurers helps ensure that insurance policies are interpreted consistently. This means that there is less room for subjective or creative interpretation of the policies, and instead, a more uniform and standardized approach is taken. This can be beneficial for both insurers and policyholders, as it reduces the potential for disputes or misunderstandings regarding policy coverage and terms.

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  • 3. 

    If the insurer cancels the policy, the return premium will be calculated usually on a

    • A.

      Short-rate basis.

    • B.

      Flat Basis.

    • C.

      Pro-rata basis.

    • D.

      Penalty basis.

    Correct Answer
    C. Pro-rata basis.
    Explanation
    When an insurer cancels a policy, the return premium is calculated on a pro-rata basis. This means that the premium refund will be calculated based on the portion of the policy period that remains unused. For example, if a policy is cancelled halfway through its term, the insured will receive a refund for the remaining half of the premium. This method ensures a fair and proportional refund based on the time the policy was in effect.

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  • 4. 

     Jim canceled his auto policy 315 days after the inception date. The one-year premium is $1,095. Assuming that a year is 365 days, what is Jim's pro rata premium refund?

    • A.

      $50

    • B.

      $150

    • C.

      $780

    • D.

      $945

    Correct Answer
    B. $150
    Explanation
    Jim's pro rata premium refund would be $150. This is because he canceled his policy 315 days after the inception date, which is 50 days before the policy expires. Since the premium is for a one-year period, Jim would be entitled to a refund for the remaining 50 days of coverage that he did not use. Therefore, the refund would be calculated as 50/365 * $1,095 = $150.

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  • 5. 

    A policy in which the insurer pays a stated amount in the event of a specified loss (usually a total loss), regardless of the actual value of the loss is known as a

    • A.

      Replacement policy.

    • B.

      Valued policy.

    • C.

      Conditional policy.

    • D.

      Specified policy.

    Correct Answer
    B. Valued policy.
    Explanation
    A valued policy is a type of insurance policy where the insurer agrees to pay a predetermined amount in the event of a specified loss, regardless of the actual value of the loss. This means that the insured will receive a fixed sum of money, agreed upon when the policy is issued, if the specified loss occurs. This is in contrast to an actual cash value policy where the insurer would pay the current market value of the loss.

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  • 6. 

    Which one of the following statements is true regarding types of rates used by insurers? 

    • A.

      Class rates apply to all insureds in the same rating category.

    • B.

      Merit rating plans are also called manual rating plans.

    • C.

      Class rates are not based on loss statistics.

    • D.

      Class rates reflect loss characteristics of a particular insured.

    Correct Answer
    A. Class rates apply to all insureds in the same rating category.
    Explanation
    Class rates apply to all insureds in the same rating category. This means that all individuals or entities within a specific rating category will be charged the same rate for insurance coverage. The rating category is determined based on certain characteristics or factors that are common among the insureds, such as occupation, location, or type of business. Class rates ensure that individuals or entities with similar risk profiles are charged similar premiums, providing a fair and equitable pricing structure for insurance coverage.

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  • 7. 

    Why would an underwriter modify the rate charged for the coverage provided when evaluating an application for insurance? 

    • A.

      Because treaty reinsurance in unavailable for the exposures indicated

    • B.

      To address the moral hazards the underwriter identified during investigation

    • C.

      To better match the rate to the characteristics of the risk

    • D.

      Because the applicant is not acceptable for coverage

    Correct Answer
    C. To better match the rate to the characteristics of the risk
    Explanation
    The underwriter may modify the rate charged for the coverage provided when evaluating an application for insurance in order to better match the rate to the characteristics of the risk. This means that the underwriter wants to ensure that the premium charged for the insurance policy accurately reflects the level of risk associated with insuring the applicant. By modifying the rate, the underwriter can adjust the premium to align with the specific characteristics of the risk, such as the probability of a claim occurring and the potential severity of the claim. This helps to ensure that the premium charged is fair and appropriate for the level of risk being assumed by the insurer.

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  • 8. 

    In insurance terminology, which of the following refers to a book of business?

    • A.

      All policies sold by an insurance company or agency

    • B.

      All policies in a particular territory

    • C.

      All policies providing a particular type of insurance

    • D.

      All the above

    Correct Answer
    D. All the above
    Explanation
    A book of business in insurance refers to all policies sold by an insurance company or agency. This includes all policies in a particular territory as well as all policies providing a particular type of insurance. Therefore, the correct answer is "All the above".

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  • 9. 

    In evaluating an application, an underwriter thinks that the class of business is not one that the company wishes to write, but he would need to physically inspect it to be certain.  He also realizes that the business is located in an undesirable section of the city.  Based on the location alone, the underwriter decides not to issue the policy.  According to many state insurance laws, this would be an example of

    • A.

      Diversification.

    • B.

      Unfair discrimination.

    • C.

      Fair discrimination.

    • D.

      Regulated discrimination.

    Correct Answer
    B. Unfair discrimination.
    Explanation
    The underwriter's decision not to issue the policy based solely on the location of the business is considered unfair discrimination. This is because the underwriter is making a decision based on a factor that is not directly related to the risk of the business itself. State insurance laws often prohibit unfair discrimination, which involves treating individuals or businesses differently based on factors that are not relevant to the insurance risk. In this case, the underwriter should evaluate the risk of the business based on its own merits, rather than making a decision based on the location alone.

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  • 10. 

    Some insurers now use expert systems in the underwriting process.  The primary purpose of these expert systems is to

    • A.

      Reduce claim expenses and loss adjustment expenses.

    • B.

      Replace underwriting decision-making and enhance accuracy.

    • C.

      Emulate the underwriting decision-making process as it would be performed by expert underwriters.

    • D.

      Modernize insurance company information systems.

    Correct Answer
    C. Emulate the underwriting decision-making process as it would be performed by expert underwriters.
    Explanation
    Expert systems are used by insurers to emulate the underwriting decision-making process as it would be performed by expert underwriters. This means that the expert systems are designed to replicate the decision-making abilities of experienced underwriters, allowing for more accurate and efficient underwriting. By using these systems, insurers can reduce claim expenses and loss adjustment expenses, as well as enhance the accuracy of their underwriting decisions. The primary purpose of expert systems in the underwriting process is to emulate the expertise of human underwriters.

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  • 11. 

    Select the Correct statement with respect to Auto Insurance in America

    • A.

      Men Pay more for Insurance than Women due to their aggessiveness behind wheels

    • B.

      Women Pay more for Insurance than men due to their soft behind wheels

    • C.

      Premium cannot be different for men and women

    • D.

      None of the above

    Correct Answer
    A. Men Pay more for Insurance than Women due to their aggessiveness behind wheels
    Explanation
    In the context of auto insurance in America, the correct statement is that men pay more for insurance than women due to their aggressiveness behind the wheels. This is because statistically, men are more likely to engage in risky driving behaviors such as speeding and reckless driving, leading to a higher number of accidents and insurance claims. Insurance companies use actuarial data and risk assessment models to determine premiums, and these data consistently show that men are higher risk drivers compared to women. Therefore, they are charged higher premiums to compensate for the increased likelihood of claims.

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  • 12. 

    Roadside assistance plans provides services EXCEPT

    • A.

      24 Hours emergency towing services

    • B.

      24 Hours lost key and lockout services

    • C.

      24 Hours battery services

    • D.

      24 Car higene services

    Correct Answer
    D. 24 Car higene services
    Explanation
    The correct answer is 24 Car higene services. Roadside assistance plans typically offer services such as emergency towing, lost key and lockout assistance, and battery services. However, car hygiene services are not typically included in roadside assistance plans. These plans are primarily focused on providing immediate assistance in emergency situations, rather than maintenance or cleaning services for the vehicle.

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  • 13. 

    Being a owner of house in US

    • A.

      It is mandatory to buy homeowner's Insurance

    • B.

      It is not mandatory to buy homeowner's Insurance

    • C.

      State automatically provides homeowner's Insurance

    • D.

      The bank which loaned should buy homeowners's Insurance

    Correct Answer
    B. It is not mandatory to buy homeowner's Insurance
    Explanation
    The given answer states that it is not mandatory to buy homeowner's insurance. This means that as a homeowner in the US, it is not a legal requirement to purchase this type of insurance. While it is highly recommended to have homeowner's insurance to protect your property and belongings, it is ultimately a personal choice whether to purchase it or not.

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  • 14. 

    If an Insured is Sued(Dragged to court) does the Insurance Company defend the Insured in court?

    • A.

      Insurance company defends the Insured until final judgement is given

    • B.

      Insurance company defends the Insured until the limits of the coverage is expended for the defence

    • C.

      Insurance company does washes of hands as it is not their responsibility to go to court

    • D.

      None of the above

    Correct Answer
    B. Insurance company defends the Insured until the limits of the coverage is expended for the defence
    Explanation
    The correct answer is that the insurance company defends the insured until the limits of the coverage are expended for the defense. This means that the insurance company will provide legal representation and cover the costs of defending the insured in court until the maximum amount specified in the insurance policy is reached. Once the coverage limits are exhausted, the insured may be responsible for their own legal defense.

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  • 15. 

    If an insurance company refuses to pay a claim that should be paid or offers to settle a claim for less than it knows the claim is worth or denies a claim without adequate investigation, this could give rise to

    • A.

      Bad faith claim against the Insurance company

    • B.

      Unfair descrimination by Insurance company

    • C.

      Long term profit for the Insurance company

    • D.

      Cancellation of Liscence doing business by the Insurance company

    Correct Answer
    A. Bad faith claim against the Insurance company
    Explanation
    If an insurance company refuses to pay a claim that should be paid, offers to settle a claim for less than it knows the claim is worth, or denies a claim without adequate investigation, it can give rise to a bad faith claim against the insurance company. This means that the policyholder can take legal action against the insurance company for acting in bad faith and not fulfilling its obligations under the insurance policy.

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  • 16. 

    A "___________" letter from your insurer is a notice that even though the company is proceeding to handle your claim, depending on what happens, certain losses might not be covered by the terms of the policy. By such a letter, the company preserves its right to deny coverage at a later date based on the terms of the policy.

    • A.

      Preservation of rights

    • B.

      Reservation of rights

    • C.

      Denial of rights

    • D.

      None of the above

    Correct Answer
    B. Reservation of rights
    Explanation
    A "reservation of rights" letter from your insurer is a notice that even though the company is proceeding to handle your claim, depending on what happens, certain losses might not be covered by the terms of the policy. By such a letter, the company preserves its right to deny coverage at a later date based on the terms of the policy.

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  • 17. 

    Insurance companies are exempted from Consumer protection laws in some states

    • A.

      Yes

    • B.

      Yes, becuase Insurance is not consumable product

    • C.

      No

    • D.

      No, because Insurance customers are consumers

    Correct Answer
    A. Yes
    Explanation
    Insurance companies are exempted from consumer protection laws in some states because insurance is not considered a consumable product. Consumer protection laws are typically designed to protect individuals who purchase goods or services for personal use or consumption. However, insurance is a contract between the insurer and the insured, providing coverage for potential risks and losses. As insurance is not something that is consumed or used up, it falls outside the scope of consumer protection laws in certain states.

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  • 18. 

    You have bought a flame red high performance engine car. You were surprised that despite your car has so many great safety features similar to other brand cars, your insurance company charged you more than what it was charging for other brand cars. What could be the reason?  

    • A.

      The red color cars are alway percieved to recieved more traffic tickets

    • B.

      The high performance engine makes your car engine more prone to theft

    • C.

      The Insurance company battling a case against your car brand company

    • D.

      The Insurance company had some secret dealings with the rival company

    Correct Answer
    B. The high performance engine makes your car engine more prone to theft
    Explanation
    The high performance engine in your car makes it more attractive to thieves, which increases the risk of theft. Insurance companies take into consideration the likelihood of a car being stolen when determining insurance premiums. Therefore, your insurance company charged you more because the high performance engine in your car increases the risk of theft compared to other brand cars.

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  • 19. 

    Ideally insurable loss exposures include:

    • A.

      Losses those are accidental.

    • B.

      Losses those are definite and measurable

    • C.

      A large number of similar exposure units.

    • D.

      All of the above.

    Correct Answer
    D. All of the above.
    Explanation
    The ideal insurable loss exposures should meet certain criteria. They should be accidental, meaning they occur unexpectedly and unintentionally. They should also be definite and measurable, allowing for a clear determination of the amount of loss. Additionally, there should be a large number of similar exposure units, meaning there is a sufficient pool of potential insureds to spread the risk. Therefore, all of the given options - losses that are accidental, losses that are definite and measurable, and a large number of similar exposure units - should be present for an ideal insurable loss exposure.

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  • 20. 

    Most liability insurance policies exclude coverage for losses intentionally caused by the insured because such losses do not meet which one of the following characteristics of an ideally insurable exposure?

    • A.

      Large number of similar exposure units

    • B.

      Accidental

    • C.

      Not catastrophic

    • D.

      Not economically feasible to insure

    Correct Answer
    B. Accidental
    Explanation
    Liability insurance policies typically exclude coverage for losses intentionally caused by the insured because such losses do not meet the characteristic of being accidental. Accidental losses are events that occur unexpectedly and unintentionally, whereas intentionally caused losses are deliberate actions taken by the insured. Insurance is designed to provide coverage for unforeseen and accidental events, not intentional acts. Therefore, intentional losses are not considered ideally insurable exposures and are excluded from liability insurance policies.

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  • 21. 

    Which of the following statements best describes the way in which “support for credit” is a benefit of insurance?

    • A.

      Insurance is required to get a drivers license.

    • B.

      Insurance satisfies lenders that their loans will be repaid.

    • C.

      Insurers lend money to fund new construction and other projects.

    • D.

      People who are indemnified by insurance don’t have to borrow money to replace damaged property.

    Correct Answer
    B. Insurance satisfies lenders that their loans will be repaid.
    Explanation
    Insurance satisfies lenders that their loans will be repaid. This means that when someone has insurance, lenders have the assurance that if the borrower is unable to repay the loan due to unforeseen circumstances, the insurance will cover the repayment. This benefit of insurance helps to reduce the risk for lenders and gives them confidence in providing loans.

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  • 22. 

    All of the following are correct, EXCEPT:

    • A.

      Insurance works as a system of transferring and sharing the costs of losses

    • B.

      The law of large numbers assists the insurance mechanism by improving the relative accuracy of prediction.

    • C.

      Property loss exposures include negligence, real property, and personal property.

    • D.

      A liability loss exposure presents the possibility of a claim alleging legal responsibility.

    Correct Answer
    C. Property loss exposures include negligence, real property, and personal property.
    Explanation
    The correct answer is "Property loss exposures include negligence, real property, and personal property." This statement is incorrect because property loss exposures do not include negligence. Property loss exposures refer to the risks or potential for property damage or loss, such as damage to real property (land and buildings) or personal property (possessions). Negligence, on the other hand, refers to a failure to exercise reasonable care, which can lead to liability loss exposures.

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  • 23. 

    State insurance departments:

    • A.

      Regulate insurance rates to protect consumers from inadequate, excessive, or unfairly discriminatory rates.

    • B.

      Are located in most but not all states

    • C.

      Provide a source of investment funds.

    • D.

      Answer to the federal government insurance department.

    Correct Answer
    A. Regulate insurance rates to protect consumers from inadequate, excessive, or unfairly discriminatory rates.
    Explanation
    State insurance departments regulate insurance rates to protect consumers from inadequate, excessive, or unfairly discriminatory rates. This means that they have the authority to review and approve insurance rates to ensure that they are fair and reasonable for consumers. This regulation helps to prevent insurance companies from charging excessively high rates or denying coverage based on discriminatory factors. By doing so, state insurance departments play a crucial role in safeguarding consumers' interests and ensuring that insurance remains accessible and affordable for all.

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  • 24. 

    Reinsurance is a contractual agreement:

    • A.

      In which one insurer transfers some or all of its loss exposures to another insurer.

    • B.

      That is formed as a subsidiary of its parent company for the purpose of writing insurance on the parent company.

    • C.

      That ideally insures large numbers of similar exposure units.

    • D.

      That insures through an attorney-in-fact.

    Correct Answer
    A. In which one insurer transfers some or all of its loss exposures to another insurer.
    Explanation
    Reinsurance is a contractual agreement in which one insurer transfers some or all of its loss exposures to another insurer. This means that the original insurer, known as the ceding insurer, transfers the risk of potential losses to a reinsurer. The reinsurer then assumes responsibility for paying a portion of any claims that may arise from the original insurance policies. This arrangement helps the ceding insurer reduce its exposure to large losses and stabilize its financial position. It also allows the reinsurer to diversify its risk portfolio and earn premium income from assuming the transferred risks.

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  • 25. 

    A guaranty fund is:

    • A.

      Created by the federal government for the purpose of providing insurance for the social good.

    • B.

      The primary funding for the Fair Access to Insurance Requirements program.

    • C.

      A state fund that provides a system to pay the claims of insolvent insurers.

    • D.

      Managed by the National Association of Insurance Commissioners.

    Correct Answer
    C. A state fund that provides a system to pay the claims of insolvent insurers.
    Explanation
    A guaranty fund is a state fund that provides a system to pay the claims of insolvent insurers. This means that if an insurance company becomes insolvent and is unable to fulfill its obligations to policyholders, the guaranty fund steps in to ensure that policyholders are still able to receive the benefits they are entitled to. The fund acts as a safety net for policyholders and helps to maintain the stability and integrity of the insurance industry.

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  • 26. 

    All of the following are true, EXCEPT:

    • A.

      The standard market refers collectively to insurers who voluntarily offer insurance coverages at markets designed for customers with average or better-than-average loss exposures.

    • B.

      Excess and surplus lines insurance consists of insurance coverages, usually available in the standard market, that are written by unlicensed insurers.

    • C.

      Nonadmitted (or unlicensed) insurers are insurers that are not licensed in many of the states in which they operate and that write excess and surplus lines insurance coveages

    • D.

      The excess and surplus lines market is not subject to any state regulation.

    Correct Answer
    B. Excess and surplus lines insurance consists of insurance coverages, usually available in the standard market, that are written by unlicensed insurers.
    Explanation
    Excess and surplus lines insurance refers to insurance coverages that are not readily available in the standard insurance market. These coverages are typically provided by nonadmitted (unlicensed) insurers. Unlike standard insurance, which is regulated by state insurance departments, the excess and surplus lines market operates with less regulatory oversight. This allows it to provide coverage for unique or high-risk situations where standard insurers may be unwilling to offer coverage.

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  • 27. 

    A ratemaking concept through which actuaries base rates on actuarially calculated loss experience and place insureds with similar characteristics into the same rating class is

    • A.

      Social equity

    • B.

      Flex rating laws

    • C.

      Actuarial equity

    • D.

      Open competition

    Correct Answer
    C. Actuarial equity
    Explanation
    Actuarial equity is a ratemaking concept where rates are determined based on actuarially calculated loss experience. This means that the rates are set based on the statistical analysis of past claims and the expected future claims for a particular group of insured individuals. Insureds with similar characteristics are placed into the same rating class, ensuring fairness and consistency in the pricing of insurance policies. This approach helps to ensure that premiums are accurately reflective of the risk associated with each insured individual or group.

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  • 28. 

    The two major types of liabilities found on the financial statements of insurers are:

    • A.

      Policyholder surplus and assets

    • B.

      Unearned premium reserve and loss reserve

    • C.

      Admitted asset and nonadmitted assets

    • D.

      Earned premiums and underwriting expenses

    Correct Answer
    B. Unearned premium reserve and loss reserve
    Explanation
    The correct answer is unearned premium reserve and loss reserve. These are the two major types of liabilities found on the financial statements of insurers. The unearned premium reserve represents the portion of premiums that have been collected but have not yet been earned by the insurance company. The loss reserve represents the estimated amount that the insurance company will have to pay out in claims for policies that have already been issued. These reserves are important for insurers to ensure that they have enough funds to cover potential claims and fulfill their obligations to policyholders.

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  • 29. 

    Humongous Insurance Company is considering the purchase of Itty-Bitty Insurance Company. Following is financial data of Itty-Bitty Insurance Company.     Expense ratio 39%     Loss ratio 57%     Investment income ratio 18%The combined ratio for Itty-Bitty Insurance Company is:

    • A.

      96%

    • B.

      75%

    • C.

      114%

    • D.

      78%

    Correct Answer
    A. 96%
  • 30. 

    Humongous Insurance Company is considering the purchase of Itty-Bitty Insurance Company. Following is financial data of Itty-Bitty Insurance Company.     Expense ratio 39%     Loss ratio 57%     Investment income ratio 18% The overall operating ratio is:

    • A.

      96%

    • B.

      75%

    • C.

      114%

    • D.

      78%

    Correct Answer
    A. 96%
    Explanation
    To find the overall operating ratio, you add the expense ratio and the loss ratio:
    Expense ratio: 39% Loss ratio: 57%
    Overall operating ratio = Expense ratio + Loss ratio Overall operating ratio = 39% + 57% Overall operating ratio = 96%
    So, the overall operating ratio is 96%.

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  • 31. 

    An insurer’s capacity ratio is:

    • A.

      Calculated by dividing its written premiums by its policyholders surplus.

    • B.

      Calculated by subtracting the investment income ratio from the combined ratio.

    • C.

      Calculated by dividing net investment income by earned premiums for a particular period.

    • D.

      The sum of the loss ratio and the expense ratio.

    Correct Answer
    A. Calculated by dividing its written premiums by its policyholders surplus.
    Explanation
    The insurer's capacity ratio is calculated by dividing its written premiums by its policyholders surplus. This ratio helps to determine the financial strength and ability of the insurer to handle potential losses and claims. By dividing the written premiums (the total amount of premiums collected from policyholders) by the policyholders surplus (the excess of assets over liabilities), the capacity ratio gives an indication of the insurer's ability to pay claims and meet its financial obligations. A higher capacity ratio indicates a stronger financial position, while a lower ratio may suggest potential financial risks.

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  • 32. 

    All of the following are true of insurance company financial statements, EXCEPT:

    • A.

      The major expense category for most insurance companies is payment for losses arising from claims.

    • B.

      Underwriting expenses include acquisition expenses, general expenses, and taxes and fees.

    • C.

      On their financial statements, insurance companies add expenses from investment income to show the net income from investments.

    • D.

      An insurer’s net underwriting gain or loss is equal to its earned premiums minus its losses and underwriting expenses for a specific period.

    Correct Answer
    C. On their financial statements, insurance companies add expenses from investment income to show the net income from investments.
    Explanation
    Insurance companies do not add expenses from investment income to show the net income from investments on their financial statements. Instead, they include investment income as a separate category to show the income generated from their investment activities. The net income from investments is calculated by subtracting the investment expenses from the investment income.

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  • 33. 

    Binding authority

    • A.

      Is usually granted in the agency contract

    • B.

      Is granted by the agent to the principal.

    • C.

      Is always oral.

    • D.

      Is granted by the reinsurance treaty.

    Correct Answer
    A. Is usually granted in the agency contract
    Explanation
    Binding authority is typically granted in the agency contract between the principal and the agent. This contract outlines the terms and conditions under which the agent can act on behalf of the principal and make decisions that are legally binding. It is not granted by the agent to the principal, nor is it always oral or granted by a reinsurance treaty.

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  • 34. 

    An independent agent

    • A.

      Usually represents several unrelated insurance companies

    • B.

      Is salaried by the insurance company.

    • C.

      Uses only mail, telephone, or Internet to solicit business

    • D.

      Usually does not own its expiration list.

    Correct Answer
    A. Usually represents several unrelated insurance companies
    Explanation
    An independent agent usually represents several unrelated insurance companies, meaning they have the ability to offer a variety of insurance options to their clients. This allows them to provide a wider range of coverage and find the best fit for each individual's needs. Unlike agents who are salaried by a specific insurance company, independent agents work on a commission basis, earning a percentage of the premiums they sell. They typically use various methods such as mail, telephone, or the internet to solicit business, making it convenient for clients to connect with them. Additionally, independent agents usually do not own their expiration list, which refers to the list of clients whose policies are about to expire.

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  • 35. 

    Marketing management

    • A.

      Provides producer supervision.

    • B.

      Provides producer motivation.

    • C.

      Provides product management and development

    • D.

      All of the above.

    Correct Answer
    D. All of the above.
    Explanation
    The correct answer is "All of the above" because marketing management encompasses a wide range of activities. It involves supervising producers to ensure that they meet the desired standards and objectives. It also includes motivating producers to perform at their best and achieve the desired results. Additionally, marketing management involves managing and developing products to meet the needs and preferences of the target market. Therefore, all the options mentioned (producer supervision, producer motivation, and product management and development) are part of marketing management.

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  • 36. 

    Rebating is

    • A.

      Requiring that the purchase of insurance be tied to some other sale or financial arrangement.

    • B.

      Misrepresenting the benefits, advantages, conditions, or terms of any insurance policy.

    • C.

      Offering anything of value, other than the insurance itself, to an applicant as an inducement to buy or maintain insurance.

    • D.

      All of the above.

    Correct Answer
    C. Offering anything of value, other than the insurance itself, to an applicant as an inducement to buy or maintain insurance.
    Explanation
    Rebating is the act of offering something of value, other than the insurance itself, to an applicant as an inducement to buy or maintain insurance. This means that an insurance agent or company cannot provide any additional incentives or rewards to entice someone to purchase or continue their insurance coverage. This practice is considered unethical and can lead to unfair competition in the insurance market.

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  • 37. 

    Producers can be compensated by

    • A.

      Salary.

    • B.

      Commissions.

    • C.

      Contingency commissions.

    • D.

      All of the above.

    Correct Answer
    D. All of the above.
    Explanation
    Producers can be compensated through various means, including a salary, commissions, and contingency commissions. A salary is a fixed amount paid to producers on a regular basis. Commissions are a percentage of sales or profits that producers earn based on their performance. Contingency commissions are additional payments that producers receive if they meet certain targets or objectives. Therefore, the correct answer is "All of the above" as producers can be compensated through salary, commissions, and contingency commissions.

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  • 38. 

    All of these statements about unfair claim practices are correct, EXCEPT:

    • A.

      Unfair claim practices specify claim practices that are illegal according to federal law.

    • B.

      Misrepresentation of pertintent facts or insurance policy provisions relating to coverage at issue in a claim is an unfair claim practice.

    • C.

      Refusal to pay a claim without first conducting a reasonable investigation based on all available information is an unfair claim practice.

    • D.

      . Insurance regulators usually learn of unfair claim practices when they receive complaints from insureds and claimants.

    Correct Answer
    A. Unfair claim practices specify claim practices that are illegal according to federal law.
    Explanation
    The given answer is incorrect because unfair claim practices are not specifically defined by federal law. Instead, they are determined by individual state laws and regulations.

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  • 39. 

    Loss reserves are

    • A.

      The largest and most important liabilities of property and liability insurance companies.

    • B.

      An estimate of the amount of claims payments that an insurer will make in the future

    • C.

      Always an estimate.

    • D.

      All of the above.

    Correct Answer
    D. All of the above.
    Explanation
    The correct answer is "All of the above." This is because loss reserves are indeed the largest and most important liabilities of property and liability insurance companies. They are also an estimate of the amount of claims payments that an insurer will make in the future and are always an estimate. Therefore, all of the given statements accurately describe loss reserves.

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  • 40. 

    The claim handling process includes

    • A.

      Investigating.

    • B.

      Evaluating.

    • C.

      Negotiation.

    • D.

      All of the above.

    Correct Answer
    D. All of the above.
    Explanation
    The correct answer is "All of the above" because the claim handling process involves investigating the details of the claim to gather relevant information, evaluating the validity and extent of the claim, and negotiating with the involved parties to reach a fair settlement. All three steps are essential components of the claim handling process.

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  • 41. 

    Clara is insured by IIA Insurance Company. One night, on the way home from work, shewas involved in an auto accident. Clara ran a red light when her brand new Mazda did not have any brakes, and her car struck the pickup driven by Bill, an employee of Big Bob’s Produce Company. Bill was injured, and a claim was filed with IIA Insurance Company for injury to Bob and damage to the pickup. Bill’s claim will most likely be handled for IIA Insurance Company by a(n)

    • A.

      Inside staff claim representative.

    • B.

      Outside staff claim representative.

    • C.

      Insurance agent handling Clara’s account.

    • D.

      Public adjuster.

    Correct Answer
    B. Outside staff claim representative.
    Explanation
    The most likely person to handle Bill's claim for IIA Insurance Company would be an outside staff claim representative. This is because Bill's claim involves an accident caused by Clara, who is insured by IIA Insurance Company. Since Clara's car did not have any brakes, it is considered a mechanical failure and not something that Clara intentionally caused. Therefore, IIA Insurance Company would assign an outside staff claim representative to handle Bill's claim and assess the damages to his pickup and the extent of his injuries.

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  • 42. 

    Clara is insured by IIA Insurance Company. One night, on the way home from work, shewas involved in an auto accident. Clara ran a red light when her brand new Mazda did not have any brakes, and her car struck the pickup driven by Bill, an employee of Big Bob’s Produce Company. Bill was injured, and a claim was filed with IIA Insurance Company for injury to Bob and damage to the pickup. If there had been no injuries and damage to both vehicles had been minor, the claim would most likely be handled by a(n)

    • A.

      Inside staff claim representative.

    • B.

      Outside staff claim representative.

    • C.

      Public adjuster.

    • D.

      Independent adjuster.

    Correct Answer
    A. Inside staff claim representative.
    Explanation
    The claim would most likely be handled by an Inside staff claim representative because the accident involved minor damage to both vehicles and no injuries. An Inside staff claim representative is typically responsible for handling low-value claims that do not require extensive investigation or negotiation. Since the accident resulted in minor damage and no injuries, it can be assumed that the claim can be easily resolved without the need for external assistance from an outside staff claim representative, public adjuster, or independent adjuster.

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  • 43. 

    Which is an example of the reduction in value of property?

    • A.

      A camera that was worth $200 is run over by the truck; the camera is now worthless.

    • B.

      Because a business owner had a fire, he has lost income.

    • C.

      A homeowner must live in a motel while his burned home is repaired.

    • D.

      Inflation causes a home to appreciate in value.

    Correct Answer
    A. A camera that was worth $200 is run over by the truck; the camera is now worthless.
    Explanation
    The example of a camera being run over by a truck and becoming worthless demonstrates a reduction in the value of property. The camera, which was originally worth $200, is now completely worthless due to the damage caused by the accident. This incident represents a clear depreciation in the value of the camera, as it can no longer be used or sold for any value.

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  • 44. 

    The parties that might be affected by a property loss include

    • A.

      Users of the property

    • B.

      The property owner.

    • C.

      Secured lenders of money to the property owner.

    • D.

      All of the above.

    Correct Answer
    D. All of the above.
    Explanation
    All of the parties mentioned in the options can be affected by a property loss. Users of the property, such as tenants or customers, may lose access to the property or suffer damage to their personal belongings. The property owner may experience financial loss, damage to their investment, or potential legal liabilities. Secured lenders who have provided money to the property owner may face the risk of not being able to recover their loan if the property is damaged or destroyed. Therefore, all three parties mentioned can be affected by a property loss.

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  • 45. 

    A bailment is

    • A.

      Holding the property of another.

    • B.

      An exclusion in the property policy.

    • C.

      A named peril.

    • D.

      A lender that loans money on a home, building, or other real property.

    Correct Answer
    A. Holding the property of another.
    Explanation
    A bailment refers to the act of holding the property of another person. It is a legal relationship where one person, known as the bailee, holds the possession of another person's property, known as the bailor, for a specific purpose and period of time. The bailee is responsible for taking care of the property and returning it to the bailor once the purpose of the bailment is fulfilled. This concept is important in contract law and helps define the rights and responsibilities of both parties involved in the bailment agreement.

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  • 46. 

    Basic form coverage

    • A.

      Is used on all property policies.

    • B.

      Lists covered causes of loss.

    • C.

      Is open peril.

    • D.

      Covers all losses except those specifically excluded.

    Correct Answer
    B. Lists covered causes of loss.
    Explanation
    The correct answer is "Lists covered causes of loss." This option explains that basic form coverage includes a list of covered causes of loss. This means that the policy will only provide coverage for the specific causes of loss that are listed in the policy. It does not provide coverage for any other causes of loss that are not explicitly listed. This type of coverage is more limited compared to open peril coverage, which covers all losses except for those specifically excluded.

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  • 47. 

    Valuation provisions may include  

    • A.

      Replacement cost.

    • B.

      Actual cash value.

    • C.

      Agreed value.

    • D.

      All of the above.

    Correct Answer
    D. All of the above.
    Explanation
    Valuation provisions refer to the methods used to determine the value of an asset or property. Replacement cost is the cost to replace the asset with a similar one, while actual cash value is the current market value of the asset. Agreed value is a value that is agreed upon by the parties involved. Therefore, all of the options mentioned - replacement cost, actual cash value, and agreed value - can be considered as valuation provisions.

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  • 48. 

    A dispute between neighbours can turn into a never-ending feud. Which form of law provides a forum for hearing disputes between private parties?

    • A.

      Criminal law

    • B.

      Statutory law

    • C.

      Constitutional law

    • D.

      Civil law

    Correct Answer
    D. Civil law
    Explanation
    Civil law provides a forum for hearing disputes between private parties. Unlike criminal law which deals with offenses against the state, civil law focuses on resolving conflicts between individuals or organizations. In a dispute between neighbors, civil law would be the appropriate form of law to address the issue and seek a resolution. This could involve matters such as property disputes, contract disputes, or personal injury claims. Civil law aims to provide a fair and just resolution to conflicts and restore harmony between the parties involved.

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  • 49. 

    Under tort law, an individual or organization can face a claim for legal liability on the basis of

    • A.

      Negligence.

    • B.

      Intentional torts.

    • C.

      Absolute liability.

    • D.

      All of the above.

    Correct Answer
    D. All of the above.
    Explanation
    Under tort law, an individual or organization can face a claim for legal liability on the basis of negligence, intentional torts, or absolute liability. Negligence refers to the failure to exercise reasonable care, resulting in harm or injury to another party. Intentional torts involve deliberate actions that cause harm or injury to another party, such as assault or defamation. Absolute liability holds a person or organization responsible for any harm or injury caused, regardless of fault or intent. Therefore, all of the options mentioned - negligence, intentional torts, and absolute liability - can lead to a claim for legal liability under tort law.

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  • 50. 

    Compensatory damages are intended to compensate a victim for harm actually suffered and can include

    • A.

      Punitive damages

    • B.

      Special damages.

    • C.

      Hold harmless costs.

    • D.

      Contractual obligations.

    Correct Answer
    B. Special damages.
    Explanation
    Compensatory damages are awarded to compensate a victim for the actual harm suffered. Special damages, also known as economic damages, are a type of compensatory damages that aim to reimburse the victim for specific financial losses incurred as a result of the harm, such as medical expenses, property damage, or lost wages. Punitive damages, on the other hand, are intended to punish the defendant for their wrongdoing, while hold harmless costs and contractual obligations are not directly related to compensating the victim for their harm.

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Quiz Review Timeline +

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

  • Current Version
  • Feb 19, 2024
    Quiz Edited by
    ProProfs Editorial Team
  • Feb 18, 2010
    Quiz Created by
    Project21

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