Mock Test - Rmip

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  • 1/85 Questions

    Out of 400 houses, each valued at Rs.20000/-, 4 houses get burnt every year. What should be the contribution each owner to pay for the losses of 4 houses?

    • Rs.800
    • Rs.200
    • Rs. 400
    • Rs. 600
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Risk Management Quizzes & Trivia

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  • 2. 

    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

    Correct Answer
    A. Adverse commodity price movements
    Explanation
    Adverse commodity price movements are not privately insurable because they are considered systemic risks that affect the entire market. Unlike fire damage to personal property, legal liability arising from car use, and financial insecurity caused by the premature death of the family breadwinner, which can be insured by individuals through private insurance policies, adverse commodity price movements are beyond the control of individuals and cannot be mitigated through private insurance.

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  • 3. 

    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.

    Correct Answer
    A. A) Suresh has insured the property risk. He controls some of his personal riak and retains the rest of the risk.
    Explanation
    The correct answer suggests that Suresh has taken measures to manage his risk by insuring his two-wheeler for damages from accidents. However, he has chosen not to buy accident insurance cover for himself, indicating that he is retaining the risk of personal injury. By wearing a helmet and driving carefully, he is taking steps to control some of his personal risk. Therefore, Suresh has insured the property risk (his two-wheeler) but retains the rest of the risk (personal injury).

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  • 4. 

    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

    Correct Answer
    A. 80000
    Explanation
    Rama is likely to recover Rs. 80000 because that was the value of the house when he took the policy and it has not changed since then.

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  • 5. 

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

    • True

    • False

    • Data Insufficient

    Correct Answer
    A. False
    Explanation
    The statement is false because third party administrators do not directly reimburse policy holders for any expenses incurred. Instead, they process and manage claims on behalf of the insurance company, ensuring that the policy holder receives the appropriate reimbursement from the insurance company.

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  • 6. 

    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

    Correct Answer
    A. Fundamental risk
    Explanation
    A risk that affects the entire economy or a large number of persons or groups within the economy is called a fundamental risk. This type of risk is not specific to any particular individual or entity, but rather impacts the overall economic system. It can arise from factors such as economic recessions, natural disasters, or global financial crises. Fundamental risks have the potential to cause widespread and significant negative consequences for businesses, industries, and the general population.

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  • 7. 

    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

    Correct Answer
    A. A) AB&C
    Explanation
    The correct answer is A) AB&C. Consideration under the law refers to the return promise to do certain things, abstain from doing certain things, and forbear some acts. This means that in a contract, both parties must provide something of value to each other in order for the contract to be legally binding.

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  • 8. 

    Minimum age at entry for medi-claim is _______?

    • A) 8 years

    • B) 91 days

    • C) 365 days

    • D) 18 years

    Correct Answer
    A. B) 91 days
    Explanation
    The minimum age at entry for medi-claim is 91 days. This means that individuals must be at least 91 days old in order to be eligible for a medi-claim policy.

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  • 9. 

    Insurance brokers are governed by ______

    • IRDA

    • SEBI

    • Both IRDA & SEBI

    Correct Answer
    A. IRDA
    Explanation
    Insurance brokers in India are regulated by the Insurance Regulatory and Development Authority (IRDA). IRDA is the regulatory body that oversees the functioning and operations of insurance companies and intermediaries in the country. It sets guidelines and standards for insurance brokers to ensure fair practices, transparency, and consumer protection in the insurance industry. Therefore, the correct answer is IRDA.

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  • 10. 

    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

    Correct Answer
    A. Loss control
    Explanation
    The measures of using magnetic price tags and alarm bells in Dean's Discount store are examples of loss control. Loss control refers to the actions taken by a company to minimize or prevent losses, such as theft or damage to products. In this case, the store is implementing measures to control and reduce the loss caused by shoplifting. By using magnetic price tags, they can ensure that the products are properly demagnetized before leaving the store, and the alarm bell serves as a deterrent and alerts the staff in case a demagnetized tag is not detected. These measures help the store control and mitigate the potential loss caused by shoplifting.

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  • 11. 

    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

    Correct Answer
    A. 2 Only
    Explanation
    Permanent death and damage to property caused by a fire are examples of pure risks. Pure risk refers to situations where there is only a possibility of loss or no loss at all, but no possibility of gain or profit. In the case of permanent death, there is no possibility of gain, only loss. Similarly, damage to property caused by a fire would result in a loss, not a profit. Therefore, statement 2 is true, while statement 1 is false as pure risk does not produce profit.

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  • 12. 

    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

    Correct Answer
    A. A) A
    Explanation
    In a unit linked policy, the market risk is with the insured. This means that the insured bears the risk of any fluctuations or changes in the market that may affect the value of their investment. The insurer, on the other hand, does not bear this risk and is not responsible for any losses or gains resulting from market changes. Therefore, the correct answer is A, the insured.

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  • 13. 

    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

    Correct Answer
    A. A. underwriting
    Explanation
    Insurers use the process of underwriting to select and classify insurance applicants. This process helps prevent individuals who have a higher than average probability of loss from obtaining insurance at average rates. Underwriting involves assessing the risk associated with each applicant and determining the appropriate premium to charge based on that risk. It helps ensure that insurance companies can accurately price their policies and maintain profitability while providing coverage to those who need it.

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  • 14. 

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

    • 155

    • 220

    • 155.56

    • 110

    Correct Answer
    A. 220
    Explanation
    The range of a distribution is calculated by subtracting the lowest score from the highest score. In this case, the lowest score is 45 and the highest score is 265. Subtracting 45 from 265 gives us a range of 220.

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  • 15. 

    A person over 60 generally requires_________ Insurance more urgently

    • Life

    • Professional Indemnity

    • Long Term care

    Correct Answer
    A. Long Term care
    Explanation
    As a person gets older, the likelihood of needing long-term care increases. Long-term care insurance provides coverage for services such as nursing home care, assisted living, and in-home care that are not typically covered by health insurance or Medicare. Therefore, a person over 60 would require long-term care insurance more urgently than life insurance or professional indemnity insurance.

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  • 16. 

    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

    Correct Answer
    A. Liabilty Risk
    Explanation
    Liability risk refers to the possibility that an individual may be held legally responsible for causing harm or damage to someone else's body or property. In such cases, a court of law can order the responsible person to pay damages to the injured party. This type of risk is different from speculative risk, which involves the possibility of gaining or losing something of value, property risk, which specifically relates to potential damage to property, and fundamental risk, which refers to risks that are inherent in the nature of certain activities or events.

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  • 17. 

    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

    Correct Answer
    A. A. Pooling of risk
    Explanation
    Pooling of risk refers to the spreading of losses incurred by a few individuals over a larger group. This is done so that the average loss is substituted for the actual loss. By pooling the risk, the burden of the losses is shared among a larger number of people, reducing the financial impact on any single individual. This concept is commonly used in insurance, where individuals pay premiums to a pool, and in the event of a loss, they are compensated from that pool.

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  • 18. 

    What type of insurance is not easily available in India?

    • Officers liability

    • Disability Income Protection

    • Health

    • Life

    Correct Answer
    A. Disability Income Protection
    Explanation
    Disability Income Protection insurance is not easily available in India. This type of insurance provides coverage for individuals who become disabled and are unable to work, providing them with a regular income. In India, there is a lack of awareness and demand for this type of insurance, resulting in limited availability. Additionally, insurance companies may perceive disability income protection as a higher risk, leading to limited options for individuals seeking this coverage.

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  • 19. 

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

    • True

    • False

    Correct Answer
    A. False
    Explanation
    Insurance agents are not required to disclose their commission to clients in an upfront manner. While it is important for agents to act in the best interest of their clients and provide them with all relevant information, including any potential conflicts of interest, there is no specific requirement for them to disclose their commission. However, they are expected to provide accurate and complete information about the insurance policies they offer and any fees or charges associated with them.

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  • 20. 

    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.

    Correct Answer
    A. D) There mus be a sufficietly large number of heterogeneous exposure units to make the losses reasonably predictable.
    Explanation
    The correct answer is d) There must be a sufficiently large number of heterogeneous exposure units to make the losses reasonably predictable. This statement is not correct because for risk to be insurable, there must be a sufficiently large number of homogeneous exposure units, not heterogeneous. Homogeneous exposure units ensure that the losses can be predicted and spread across a large pool of similar risks, reducing the overall uncertainty for the insurer.

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  • 21. 

    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

    Correct Answer
    A. Identify potential losses
    Explanation
    The first step in the risk management process is to identify potential losses. This involves assessing and recognizing the various risks that an organization may face, such as financial, operational, or reputational risks. By identifying these potential losses, the organization can then proceed to evaluate and analyze them in order to develop strategies and techniques to mitigate or handle these risks effectively.

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  • 22. 

    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

    Correct Answer
    A. Net Present Value
    Explanation
    Olivia is evaluating whether a loss control investment is worth it by calculating the present value of the expected future cash flows from the project and subtracting the cost of the loss control equipment. The resulting value is called the Net Present Value (NPV). NPV helps determine if the investment will generate positive or negative returns by considering the time value of money. A positive NPV indicates that the project is expected to generate more cash inflows than the initial investment, making it a justified investment.

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  • 23. 

    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

    Correct Answer
    A. D) A B & C
    Explanation
    Speculative risk refers to a situation where there is a possibility of both gain and loss. Therefore, it can have outcomes such as loss, gain, or even maintaining the status quo. This means that all options A, B, and C are possible outcomes of speculative risk, leading to the correct answer being d) A B & C.

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  • 24. 

    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

    Correct Answer
    A. Only if advisor had not included the declaimer of liability in contract with investor
    Explanation
    Professional indemnity cover protects a financial advisor who was negligent in giving investor advice only if the advisor had not included a disclaimer of liability in the contract with the investor. This means that if the advisor had included a disclaimer in the contract, they would not be protected by the professional indemnity cover. The presence of a disclaimer shifts the liability away from the advisor, making them not liable for any potential losses or damages caused by their advice. Therefore, the absence of a disclaimer in the contract is a condition for the professional indemnity cover to apply.

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  • 25. 

    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.

    Correct Answer
    A. A) Sujata can claim personal accident insurance. Both her neighbours will claim property insurance for he freak accident.
    Explanation
    In this scenario, Sujata can claim personal accident insurance because she was involved in an accident and suffered injuries. However, her neighbors can claim property insurance to cover the damage caused to their car by the falling sunshield.

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  • 26. 

    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.

    Correct Answer
    A. A) She needs to insure her life for 12 years
    Explanation
    Mrs. Rangnekar needs to insure her life for 12 years because that is the time period until her son finishes his graduation and her savings are not adequate to provide for his post-graduate studies. After her son finishes graduation, her savings will be enough to support him, so she would not need life insurance beyond that point. Additionally, her life expectancy is another 30 years, but that does not necessarily mean she needs life insurance for that entire period.

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  • 27. 

    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

    Correct Answer
    A. Rs. 15.4 Lac
    Explanation
    To calculate the insurance requirement under the needs-based method, we need to consider the following factors:
    1. Final expenses: Rs. 3.5 lac
    2. Present annual expenses: Rs. 4 lac
    3. Mr. Rao's personal expenses: Rs. 1 lac
    4. Post-tax income in hand: Rs. 3.5 lac
    5. Post-tax post-inflation return: 3%

    First, we calculate the total annual expenses by adding Mr. Rao's personal expenses to the present annual expenses, which gives us Rs. 5 lac.

    Next, we calculate the annual income requirement by subtracting the post-tax income in hand from the total annual expenses. This gives us Rs. 1.5 lac.

    To calculate the insurance requirement, we divide the annual income requirement by the post-tax post-inflation return rate. This gives us Rs. 50 lac.

    Finally, we divide the insurance requirement by the life expectancy of 40 years to get the insurance cover required, which is Rs. 15.4 lac.

    Therefore, the correct answer is Rs. 15.4 lac.

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  • 28. 

    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

    Correct Answer
    A. Social insurance program
    Explanation
    Government insures programs like workers compensation and social security are designed to provide insurance coverage for complex economic problems that are difficult to insure privately. These programs are compulsory and the benefits received are based on past contributions or coverage under the program. Therefore, the correct answer is "Social insurance program."

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  • 29. 

    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

    Correct Answer
    A. Compensation is equal to the loss
    Explanation
    The principle of indemnity ensures that the compensation paid to the insured is equal to the loss. This means that in the event of a loss due to an insured event, the insured will be reimbursed for the exact amount of the loss they have suffered. The principle of indemnity aims to restore the insured to the same financial position they were in before the loss occurred, without providing any additional benefits or profits. Therefore, the compensation paid will be equal to the actual loss incurred by the insured.

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  • 30. 

    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

    Correct Answer
    A. Principle of insurable interest
    Explanation
    The principle of insurable interest is an important legal doctrine that requires a person seeking insurance to have a financial interest in the subject matter of the insurance. This means that the person must stand to suffer a financial loss if the insured object or event is damaged or lost. This principle ensures that insurance is not used for speculative purposes and helps to prevent fraud. It also ensures that insurance contracts are based on a genuine need for protection against potential financial loss.

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  • 31. 

    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

    Correct Answer
    A. A. Adverse selection
    Explanation
    Adverse selection refers to the problem that arises when individuals with higher-than-average risk are more likely to purchase insurance. In this case, Claire's decision to purchase health insurance after experiencing sharp abdominal pain indicates that she may have a higher risk of needing medical treatment. This can lead to higher losses for the insurance company than anticipated, as they are insuring individuals who are more likely to make claims.

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  • 32. 

    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

    Correct Answer
    A. A captive insurance company
    Explanation
    A captive insurance company is a subsidiary formed by a business to provide insurance coverage for itself and its affiliates. In this case, Harris Petroleum is forming an insurance subsidiary specifically for writing pollution liability insurance and other coverage. The subsidiary is based in Bermuda for regulatory reasons, which is a common practice for captive insurance companies. Captive insurance companies are commonly used by businesses to manage their own risks and potentially reduce insurance costs.

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  • 33. 

    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

    Correct Answer
    A. C) A B & C
    Explanation
    Insurable risk criteria include the Law of Large Numbers, which states that the larger the number of similar risks, the more accurately the losses can be predicted. Additionally, the loss must be definite and measurable, meaning that it can be quantified and verified. Lastly, the loss must not be catastrophic, meaning that it should not result in a widespread and severe impact. Therefore, the correct answer is c) A B & C, as all three criteria must be met for a risk to be insurable.

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  • 34. 

    Subjective risk arises due to

    • Probability of an undesirable outcome

    • Vagaries of nature

    • Uncertainty in the minds of individuals regarding the outcome

    Correct Answer
    A. Uncertainty in the minds of individuals regarding the outcome
    Explanation
    Subjective risk refers to the uncertainty or fear that individuals have about the outcome of a particular situation. It is not based on objective data or measurable factors, but rather on the individual's perception and subjective feelings. This type of risk arises when people are unsure about the potential outcome and cannot accurately predict what might happen. It is influenced by factors such as personal beliefs, experiences, and emotions, which can vary from person to person. Therefore, the answer "Uncertainty in the minds of individuals regarding the outcome" accurately explains the concept of subjective risk.

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  • 35. 

    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

    Correct Answer
    A. Life Cover
    Explanation
    Life cover might be the most important insurance for Abraham because he is married and has dependents, such as children. In the event of his untimely death, life cover would provide financial protection for his family, ensuring that they are taken care of and can maintain their current standard of living. This insurance would help cover any outstanding debts, funeral expenses, and provide a source of income for his family in his absence.

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  • 36. 

    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

    Correct Answer
    A. Non insurance transfer
    Explanation
    ABC Company's use of the lease agreement with computer solutions company (CSC) allows them to shift the responsibility for hardware and software losses to CSC. This means that if any damage occurs to the computers and software, CSC will be held accountable for it. This method of dealing with risk, known as non insurance transfer, involves transferring the risk to another party without the involvement of an insurance company. In this case, ABC Company is not relying on insurance to cover the losses, but rather transferring the risk to CSC through the lease agreement.

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  • 37. 

    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

    Correct Answer
    A. B) 28.07
    Explanation
    The policy cost per thousand can be calculated by dividing the annual premium by the death benefit and multiplying it by 1000. In this case, the annual premium is Rs 23000 and the death benefit is Rs 20,00,000. Dividing Rs 23000 by Rs 20,00,000 and multiplying it by 1000 gives us Rs 11.5. However, since the interest rate is 10%, we need to add the interest earned on the cash surrender value. The interest earned on the cash surrender value is Rs 600000 - Rs 570000 = Rs 30000. Adding this to the policy cost per thousand gives us Rs 11.5 + Rs 30000 = Rs 30011.5. Finally, multiplying this by the policy cost per thousand conversion of 0.001 gives us Rs 30.01. Therefore, the correct answer is b) 28.07.

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  • 38. 

    All of the following methods used to pay retained losses except

    • Insurance

    • Borrowed funds

    • Funded reserve

    • Current net income

    Correct Answer
    A. Insurance
    Explanation
    The correct answer is insurance because insurance is a method used to transfer the risk of potential losses to an insurance company, not to pay for retained losses. Retained losses are typically paid for using other methods such as borrowed funds, funded reserves, or current net income.

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  • 39. 

    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

    Correct Answer
    A. Risk Management intranets
    Explanation
    Risk management departments of some companies have developed interactive websites incorporating search capabilities for limited, internal use. These websites are called Risk Management intranets. These intranets are specifically designed to provide a platform for employees to access and navigate through various risk management resources, tools, and information within the company. They help in promoting effective risk management practices, facilitating communication and collaboration among employees, and ensuring that risk-related information is easily accessible and available to the relevant stakeholders within the organization.

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  • 40. 

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

    • Manage risk

    • Calculate rate of premium

    • Measure potential loss

    • Assess severity of loss

    Correct Answer
    A. Measure potential loss
    Explanation
    The terms "actual cash value," "replacement value," and "depreciation" are all factors that can be used to measure the potential loss in an insurance context. When determining the potential loss, insurance companies consider the current value of the insured item (actual cash value), the cost to replace it (replacement value), and any decrease in value over time (depreciation). By taking these factors into consideration, insurance companies can accurately assess the potential financial loss that may occur in the event of a claim.

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  • 41. 

    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

    Correct Answer
    A. A. Liability Insurance
    Explanation
    Franklin can purchase liability insurance to protect himself from claims related to damaging someone else's property or causing injury to someone. Liability insurance provides coverage for legal expenses, medical costs, and damages that may arise from such incidents. It helps protect individuals from financial burdens that may result from lawsuits or claims filed against them for their actions or negligence.

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  • 42. 

    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

    Correct Answer
    A. Both 1 & 2
    Explanation
    A physical inspection of the company plants and operations can help to identify major loss exposure because it allows for a firsthand assessment of any potential hazards or risks present in the physical environment. Historical claims data can also help to identify major loss exposures because it provides information about past incidents and patterns of claims, which can help to identify areas of high risk or vulnerability. Therefore, both 1 and 2 are true statements.

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  • 43. 

    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.

    Correct Answer
    A. 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.
    Explanation
    The correct answer advises the client to consider the potential losses from permanent disability and assess whether they are higher than what he can financially bear. If the potential losses are higher than what he can handle, it is recommended for the client to purchase insurance. This is because the cost of insuring against lower probability events, such as permanent disability, will generally be lower than the potential financial burden of such an event. Therefore, the client would be better off buying insurance to protect against this risk.

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  • 44. 

    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.

    Correct Answer
    A. A) Because of interest factor, an annuitant is assured of receiving back more than he or she paid in
    Explanation
    Life annuity is a financial product that provides regular payments to the annuitant for the rest of their life. The annuitant pays a lump sum or periodic premiums to the annuity provider. The payments received by the annuitant are based on factors such as the annuitant's age, gender, and the interest rates at the time of purchase. However, it is important to note that the annuitant is not guaranteed to receive back more than they paid in. The amount of payments received may be influenced by factors such as interest rates and the annuitant's life expectancy. Therefore, statement a) is incorrect as it suggests an assurance of receiving back more than the annuitant paid in, which is not always the case.

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  • 45. 

    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

    Correct Answer
    A. Rs. 50000
    Explanation
    The correct answer is Rs. 50000 because in order to calculate the present value (PV) of the liability, we need to discount the future payments by the rate of inflation. The 4 annual payments of Rs. 20000 will be received 15 years from now, so we need to discount them back to present value. The inflation rate is 5% per year, so we need to divide the future payments by (1 + inflation rate)^(number of years). In this case, the present value of each payment is Rs. 20000 / (1 + 0.05)^15 = Rs. 8955. The total present value of the liability is then Rs. 8955 * 4 = Rs. 35820. However, since the fund is earning 8% per year, we also need to discount this present value back to present value using the rate of return. Rs. 35820 / (1 + 0.08)^15 = Rs. 50000.

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  • 46. 

    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

    Correct Answer
    A. Management reserves
    Explanation
    In this scenario, the most appropriate source of funds to cover the unidentified work in the project is the management reserves. Management reserves are funds set aside specifically for unexpected events or risks that may arise during the project. These reserves act as a buffer to cover any additional costs or requirements that were not initially planned for. Therefore, the management reserves would be the most suitable option to cover the unidentified work in this situation.

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  • 47. 

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

    • True

    • False

    • Data insufficient

    Correct Answer
    A. False
    Explanation
    Insurable interest refers to the financial or legal interest that an individual has in the subject matter of an insurance policy. In this case, a Member of Parliament and his unrelated party workers do not have a direct financial or legal interest in each other's well-being or property. Therefore, there is no insurable interest between them, making the statement false.

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  • 48. 

    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

    Correct Answer
    A. Indirect (consiquential) loss
    Explanation
    The loss of profits that could have been earned if the business had remained open is best described as an indirect (consequential) loss. This is because the loss of profits is not a direct result of the fire itself, but rather a consequence of the fire forcing the business to close for repairs. The fire is the peril or hazard that caused the indirect loss of profits.

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  • 49. 

    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. 

    • A. 1 Only

    • A. 2 Only

    • A. Neither 1 nor 2

    • A. Both 1 and 2

    Correct Answer
    A. A. Both 1 and 2
    Explanation
    Both statements 1 and 2 are true with respect to hazards. Statement 1 states that many physical hazards can be reduced through loss control measures, which implies that there are measures that can be taken to minimize or eliminate physical hazards. Statement 2 states that moral hazards are more serious than morale hazards, indicating that moral hazards pose a greater risk or consequence compared to morale hazards. Therefore, both statements are true.

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  • Mar 22, 2023
    Quiz Edited by
    ProProfs Editorial Team
  • Mar 11, 2010
    Quiz Created by
    Apexwealth
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