Mock Test - Rmip

All of the risks are privately insurable except

• Fire damage to personal property

• Legal liability arising out of negligent use of a car

• Financial insecurity caused by the premature death of the family bread winner

• Adverse commodity price movements

Suresh has not bought accident insurance cover. though his two-wheeler is covered for damages from accidents. He wears a helmet and drives carefully. What can you say about his risk management?

• A) Suresh has insured the property risk. He controls some of his personal riak and retains the rest of the risk.

• B) Suresh has controlled his personal riak and insured his property risk.

• C) Suresh ahs not done anything to amange his risks and has to immediately go for accident and personal risk cover. He can't rely on third party damages alone to cover the risk of the road.

• D) Suresh has tranfered his personal riak to other frivers of the road, insured his property risk and can claim damages from accidents are caused by third party negligence.

Rama has doctrine policy on house which was valued at Rs. 80000 when he took policy 3 years ago & insured for amount & renewed without change every year. house is destroyed by fire & cost of rebuilding is Rs. 1Lac. How much is Rama likely to recover?

• 80000

• 88000

• 58182

• 110000

Third party administrators directly reimburse the Policy holders for any expenses incurred.

• True

• False

• Data Insufficient

A risk that affects the entire economy or a large number of persons or groups within the economy is called a(n)

• Fundamental risk

• Speculative risk

• Particular risk

• Objective risk

Consideration under the law is the return promise to: a) Do certain things b) Abstain from doing certain things c) Forebear some acts d) A minor

• A) AB&C

• B) AB&D

• C) AC&D

• D) BC&D

Minimum age at entry for medi-claim is _______?

• A) 8 years

• B) 91 days

• C) 365 days

• D) 18 years

Insurance brokers are governed by ______

• IRDA

• SEBI

• Both IRDA & SEBI

Dean's Discount store has been experiencing problems with shoplifting system and to use megnetic price tags on products. If a tag not demagnetized before the product bearing the tag leaves the store, an alarm bell sounds. These measures are the examples of

• Risk retention

• Loss control

• Risk transfer

• Risk avoidance

Which of the following statements is (are) true with respect to pure risk?1. Pure risk may produce either profit or loss2. Permenent death and damage to property caused by a fire are pure risks.

• 2 Only

• Both 1 & 2

• Neither 1 nor 2

• 1 Only

In unit linked policy, market risk is with _______ a) Insured b) Insurer

• A) A

• B) B

• C) Both A & B

• D) Neither A nor B

Insurers used to process of selecting and classifying insurance applicants to prevent individuals who have a higher than average probability of loss obtaining at average rates. This process is called

• A. marketing

• A. producing

• A. underwriting

• A. reinsuring

In the sample of 200 observations, lowest & highest scores were 45 and 265. What is the range of distribution?

• 155

• 220

• 155.56

• 110

A person over 60 generally requires_________ Insurance more urgently

• Life

• Professional Indemnity

• Long Term care

The individuals face the risk of doing something that results in bodily injury or property damage to someone else. A court of law may order the person resposible for wrongful act to pay damages to the party who was injured. This type of risk is called the

• Liabilty Risk

• Speculative Risk

• Property Risk

• Fundamental Risk

The spreading of losses incurred by a few individuals over a larger group, so that average loss is substituted for actual loss, is known as

• A. Transfer of risk

• A. Pooling of risk

• A. Loss indemnification

• A. Fortuitous loss

What type of insurance is not easily available in India?

• Officers liability

• Disability Income Protection

• Health

• Life

An Insurance agent must disclose his/her commission to the client in an upfront manner.

• True

• False

For risk to be insurable which one of the following is not correct?

• A) Loss must be fortuitous or accidental.

• B) The loss must not be catastrophic.

• C)The loss produced by the risk must be definite and measurable.

• D) There mus be a sufficietly large number of heterogeneous exposure units to make the losses reasonably predictable.

The first step in the risk management process is to

• Implement and administer the program

• Evaluate potential losses

• Identify potential losses

• Select the appropriate technique of handling losses

Olivia is risk manager of ABC Company. She is trying to determine if a loss control investment is justified. Olivia calculates the present value of the future cash flows she expects the project will generate. She summed the present value of the future cash flows and the subtracted the cost of the loss control equipment. The resulting value is called the project’s

• Net Present Value

• Loss distribution

• Combined ratio

• Capital budget

Speculative risk can have following outcomes ________ a) Loss b) Gain c) Status Quo

• A) A Only

• B) B Only

• C) C Only

• D) A B & C

Professional indemnity cover protects financial advisor who was nehligent in giving investor advice

• Only if advisor had not included the declaimer of liability in contract with investor

• Only if advisor is liable under statute

• Only if contract exists between advisor & investor

• Only if investor relies on advice

Sujata was standing on the terrace for her building hanging out clothes. She accidently fell off and landed on the sunshield of the next floor, which crashed and damaged the car of her neighbour parked below. What are the insurance claims that arise from this event?

• A) Sujata can claim personal accident insurance. Both her neighbours will claim property insurance for he freak accident.

• B) Sujata can't claim accident insurance as the accident was cauised by the negligence. her neighbours can claim property insurance cover for loss to their property.

• C) Sujata's neighbours will collect damages from her, which Sujata can pay out of insurance cover losses to third party.

• D) Sujata's neighbours will not be able to claim insurance as the damage to their property due to such freak accidents is not usually covered by insurance. Sujata will be able to claim her accident insurance, as she did not fall intentionally.

Mrs. Rangnekar a 40 year old widow has a 8 year old son. Her current savings are not adequate to provide for her son's post graduate studies however she will be able to save it up by the time he finishes graduation i.e. when he is 20 years old. Mortality tables indicate that her life expectancy is another 30 years. which of the following is true?

• A) She needs to insure her life for 12 years

• B) She does not need to insure her life

• C) She needs to insure her life for 30 years

• D) She needs to insure her son's life for 30 years.

Two ways of assessing life insurance needs is a need based appraoch and the income replacement method. What in your judgement would be the life cover required for Mr. Joshi on the basis of each of the two approaches. Mr. Joshi is the sole income earner in the family. Mrs Rao is a home maker. They are aged 40 and 36 respectively. Life expectancy of both of them is another 40 years. They have no children. Other information you have is: current investment portfolio Rs.20lac; estimated final expenses Rs. 3.5 lac, present annual expenses is Rs. 4 Lac (including a lac of Mr. rao's personal expenses); Mr. Rao post tax income in hand Rs.3.5 lac; Assume post tax post inflation return is 3%. Calculate the insurance requirement under the needs based method.

• Rs. 14.2 Lac

• Rs. 14.8 Lac

• Rs. 15.8 Lac

• Rs. 15.4 Lac

Government insures programs include insurance desined to deal with complex economic problems that are difficult to insure privately. These programs are compulsory and the right benefits is based upon past contributions or coverage under the program. These programs, which include workers compensation and social security are called

• Social insurance program

• Public assistance (welfare) program

• Marine insurance

• Multiple line insurance

In the event of loss due to insured event the principle of indemnity ebsures that

• Compensation paid to insured in always less than the loss

• Compensation is equal to the loss

• Never less than loss

• Not attempting

Important legal doctrine that stipulates person seeking insurance should have financial interest in subject matter of insurance is called

• Principle of utmost good faith

• Principle of subrogation

• Principle of insurable interest

• Principle of indemnity

Claire does not own health insurance. For the past two weeks, she has been experiencing sharp abdominal pain. Given her condition, she would like purchase health insurance. When higher then average risk are insured at average premium, losses are higher than anticipated. What is this problem called?

• A. Speculation

• A. Adverse selection

• A. Morale hazard

Harris Petroleum a fuel storage and delivery business, occasionally has difficulty I n obtaining affordable pollution liability insurance. Jane Elmore, Risk manager of Haris Petroleum decided to form an insurance subsidiary for the purpose of writing pollution liability insurance, as well as other insurance coverage. The insurance subsidiary will be based in Bermuda for regulatory reasons. What is such a subsidiary called?

• A captive insurance company

• A fraternal insurer

• A risk retention group

• A social insurance company

1. What are the criteria for determining Insurable risk? a) Law of Large Numbers b) The loss must be definite and measurable c) The loss must not be catastrophic

• A) C only

• B) B & C

• C) A B & C

• D) None of above

Subjective risk arises due to

• Probability of an undesirable outcome

• Vagaries of nature

• Uncertainty in the minds of individuals regarding the outcome

Abraham 30 years and married, works for a firm which provide him with medical cover. He already has his own home and savings of 42 lacs which are well invested. In next 20 Years he will be able to save up enough to fund his retirement and his children education. which of the following might be the most important insurance for him?

• Medical Cover

• Temporary Total disability cover

• Property Insurance

• Life Cover

Rather then purchasing computers and software, ABC Company entered into a lease agreement with computer solutions company (CSC). Under term of lease, CSC provides computers and software and is responsible for damage to the computer and software. ABC uses the lease to shift responsibility for hardware and software losses to CSC. ABC’s use of the illustration which method of dealing with risk?

• Non insurance transfer

• Risk avoidance

• Risk retention

• Insurance transfer

Derive the policy cost per thousand with the following data; policy cost per thousand conversion is 0.001. Interest rate selected equivalent to the after tax rate of return is 10% Dividend or Bonus is Rs. 13000 Death Benefit is Rs. 20,00,000 Annual premium is Rs 23000. Cash surrender value at the end of current policy year is Rs 600000. Cash surrender value at the end of the previous policy year is Rs 570000

• A) Rs 25.04

• B) 28.07

• C) 30.10

• D) 31.15

All of the following methods used to pay retained losses except

• Insurance

• Borrowed funds

• Funded reserve

• Current net income

The risk management departments of some companies have developed interactive websites incorporating search capabilities. These websites are designed for limited, internal use. Such websites are called

• Risk Maps

• Risk Management intranets

• Enterprise Risk Management Plans

• Risk Management Information Systems

Actual cash value, replacement value, depretiation are taken into consideration to

• Manage risk

• Calculate rate of premium

• Measure potential loss

• Assess severity of loss

Franklin is concerned that if he damages someone else property or injures someone, he will have to pay large damage award. What kind of insurance can franklin purchase to protect himself from such claims?

• A. Ocean marine insurance

• A. Social Insurance

• A. Liability Insurance

• A. Fidelity bonds

Which of the following statements are true with respect to identifying potential loss exposure? 1.      A physical inspection of the company plants and operations can help to identify major loss exposure. 2.      Historical claims data can help to identify major loss exposures.

• Both 1 & 2

• Neither 1 & 2

• 2 Only

• 1 Only

Your client has bought life insurance and medical insurance, but has not bought a cover for permanent disability. His argument is that he is paying too much by way of premium for risks that he believes are farfetched and not likely to afftect him. What would you advise the client?

• A) A financial planner can persuade the client to consider the losses from permanent disability and highlight the risks to the client and recommend an appropriate policy for him.

• B) If a client is not willing to bear the costs of premium, it can be assumed that he is willing to bear the costs of risk retention.

• C) If losses that would occur to the client in the event of permanent disability are higher than what he can bear, the client is better off buying insurance. The costs of insuring against losses, which have lower probability of happening, will in any case be lower.

• D) The amount of insurance a person will buy depends on his perception of risks and their impact on him. It would not be possible to persuade this client to buy more insurance.

All the following statements describe the operation of life annuity except

• A) Because of interest factor, an annuitant is assured of receiving back more than he or she paid in

• B) The annuitant is assured tha he or she cannot outlive the length of time of annuity payments

• C) The emphasis is on the liquidation of the fund as opposed to its growth

• D) The older the annuitant is when he or she receives the first annuity payment. The greater will be the amount for each payment.

Client has need to provide for the child's education cost which envisages that 4 annual payments of Rs. 20000 in current money terms would be needed beginning 15 years from now. Assuming level of inflation rated at 5% p.a. & that the fund earns 8% p.a. throught, calculate PV to be placed on the liability when carrying out a needs analysis.

• Rs. 24000

• Rs. 50000

• Rs. 49000

• Rs. 23000

Suppose project is set to Rs. 25 lacs. some work that must be accomplished has not been identified in initial planning. Most appropriate source of funds to cover this is

• Management reserves

• Contingency reserves

• Slush Fund reserve

• Sinking Fund reserve

Insurable interest can exist between a Member of Parliament and his (unrelated) party workers.

• True

• False

• Data insufficient

Kyle opened up a sporting goods store. After a fire damaged the store, Kyle was forced to close the business for four weeks while repairs were completed. The loss of profits that could have been earned if the business had remained open is best described as a(n)

• Direst loss

• Peril

• Indirect (consiquential) loss

• Hazard

Which of the following statements is (are) true with respect to hazarads?

1. Many physical hazards can be reduced through loss control measures
2. Moral hazards is more serious than morale hazard.