Chapter 1 QUESTION 0Within the realm of Risk Management, insurance is a technique that is often used. When insurance is used it isprimarily attempting toa. Isolate the cost of losses.b. Prevent the cost of losses.c. Reduce the cost of losses.d. Transfer the cost of losses.ANSWER D

QUESTIONWhen insurance is used to transfer possible losses to the insurer, the vehicle that accomplishes this transfer is thea. Policy.b. Agent.c. Letter of transfer.d. Broker of record letter.ANSWER A

QUESTIONAn insurance policy is a contract that states the rights and duties ofa. The insured and insurer and agent.b. The insured and the insurer.c. The insured and the agent.d. The insured and other third parties.ANSWER B

QUESTION Transferring the costs of losses to an insurer would be unnecessary, if there were noa. Exposures to loss.b. Civil courts.c. Agents.d. Reinsurance.ANSWER A

QUESTIONMaking a profit for the insurance company is a major objective for which one of the following departments?a. Underwriting departmentb. Finance departmentc. Marketing departmentd. Claims departmentANSWER AQUESTIONAn insurance company pays for covered losses and, in effect, distributes the costs of losses among alla. Insurers in a state.b. Insureds.c. Members of society.d. Claimants.ANSWER B

QUESTIONAll of the following statements regarding loss exposures are true, EXCEPT:a. There would be no need to transfer the costs of losses if there were no exposures to loss. b. For a loss exposureto exist, there must be the possibility of a loss.c. It is necessary for a loss to occur for a loss exposure to exist. d. Every home has a fire loss exposure.

ANSWER C QUESTIONThe law of large numbers is a mathematical principle that states that as the number of similar but independentexposure units increases, the relativea. Accuracy of predictions about future outcomes decreases.b. Accuracy of predictions about future outcomes increases.c. Frequency of predictions about future outcomes decreases.d. Frequency of predictions about future outcomes increases.ANSWER B

QUESTIONIn order for the law of large numbers to operate, insurance companies need to insurea. A large number of similar exposure units.b. Exposure units that are widely dispersed.c. Exposure units that have not had losses.d. A large number of unique exposure units.ANSWER A

QUESTIONWhat states that as the number of similar but independent units increases, the relative accuracy of predictionsabout future outcomes based on these exposure units also increases?a. The principle of indemnityb. The principle of reciprocal pricingc. Loss trending and forecastingd. The law of large numbersANSWER D

QUESTIONJohn has worked for Alloto, Inc. for 25 years and is considering retiring within the next two years. John'sretirement is an example ofa. A personnel loss exposure for Alloto, Inc.b. A human loss exposure for Alloto, Inc.c. A liability loss exposure for Alloto, Inc.d. A loss transfer loss exposure for Alloto, Inc.ANSWER A

QUESTIONPam operates a home business that requires her clients to come to her house. The possibility of one of Pam'sclients tripping on a step leading to Pam's house and injuring herself is aa. Property loss exposure.b. Liability loss exposure.c. Personnel loss exposure.d. Human loss exposure.ANSWER B

QUESTIONThe possibility of Chuck's house being damaged by fire isa. A property loss exposure relating to real property.b. A property loss exposure relating to personal property.c. A noninsurable loss exposure.

d. A commercial loss exposure. ANSWER A OBJECTIVE 4QUESTIONAll of the following are characteristics of ideally insurable loss exposures, EX

CEPT:a. Losses that are definite and measurableb. Losses that are accidentalc. Large number of similar exposure unitsd. Large concentration of financial capacityANSWER DQUESTIONWhich one of the following is most likely to have the characteristics of an ideally insurable loss exposure?a. Explosion of an industrial factory steam boilerb. Sun damage to an exterior paint finishc. Physical damage to a lunar land roverd. Termite damage to a homeANSWER A

QUESTIONOne of the major reasons why government insurance programs exist is because the insurance maya. Not be available from private insurers.b. Be too complicated for private insurers to write.c. Not be allowed to be written by private insurers.d. Be a significant source of revenue for the government.ANSWER A

( pp. 1.11-1.12) QUESTIONAll of the following are types of insurance provided by the federal government, EXCEPT:a. Flood insuranceb. Crop insurancec. Tenants insuranced. Social SecurityANSWER C

( p. 1.11) QUESTIONGovernment insurance programs exist becausea. The government has expertise in handling insurance claims.b. The government has the necessary financial resources.c. The government has infrastructure and staff to provide insurance.d. The government has legal representatives in every state of the union.ANSWER B ( p. 1.11)

OBJECTIVE 6QUESTIONThe department in an insurance company that is primarily concerned with determining customer's needs andthen promoting products/services to meet those needs is thea. Customer service department.b. Underwriting department.c. Public relations department.d. Marketing department.ANSWER D

( pp. 1.12-1.13) QUESTIONWhat is the process by which insurers decide which potential customers to insure and what coverage to offerthem?a. Reinsuringb. Marketingc. Prospecting

d. UnderwritingANSWER D

( p. 1.13) OBJECTIVE 7QUESTIONThe primary reason why insurance regulators monitor the financial condition of insurers is to preventa. Poor customer service.b. Unfair competition.c. Increased Premiums.d. Insolvency.ANSWER D

( p. 1.14) QUESTIONAll of the following are ways that state insurance departments regulate and protect consumers, EXCEPT:a. Insurers must maintain a certain ratio of agents to residents in an areab. Insurers must be licensed to write insurance policies in a given statec. Insurers must meet certain tests of financial strengthd. Insurers must comply with laws on marketing, underwriting, and claims practicesANSWER A

( p. 1.14) OBJECTIVE 8QUESTIONIn insurance, the term that means restoring a party who has had a covered loss to the same financial position thatthe party held before the loss occurred isa. Subrogate.b. Recoup.c. Indemnify.d. Rectify.ANSWER C

( p. 1.15) QUESTIONJoan Appleton has purchased a new car, and when registering her vehicle, she is told that she must provideproof of liability insurance. Which one of the following benefits of insurance applies to Joan's situation?a. Support for creditb. Satisfaction of legal requirementsc. Efficient use of resourcesd. Reduction of social burdensANSWER B

( p. 1.17) OBJECTIVE 9 QUESTION One of the costs of insurance is said to be opportunity costs. This means that if capital and labor were not being used in the insurance business, they could be used elsewhere and making other productivecontributions toa. Society.b. The insurance industry.c. The agency system.d. Government.ANSWER A

( p. 1.18) QUESTIONSometimes the existence of insurance encourages losses. The result of this phenomenon is that ita. Increases competition in the industry.

b. Reduces agents' commissions.c. Increases the total cost of insurance.d. Reduces the term of many policies.ANSWER C

( pp. 1.18-1.19) QUESTIONThe direct and indirect costs of insurance include which of the following?a. Premiums paid by insuredsb. Increased lawsuitsc. Operating costs of insurersd. All of the aboveANSWER D

( p. 1.18) OBJECTIVE 10QUESTIONAnother name for liability insurance isa. First party insurance.b. Second party insurance.c. Third party insurance.d. Multiple party insurance.ANSWER C

( pp. 1.21-1.22) QUESTIONAll of the following are types of property insurance, EXCEPT:a. Fire and allied linesb. Crimec. Business incomed. Directors and officersANSWER D

( p. 1.20) QUESTIONWillie's floral shop was damaged by fire and the business was closed for six months. Willie had propertyinsurance to cover the fire damage, but which one of the following types of coverage did he need to cover his lossof net income during the six-month restoration period?a. Crime insuranceb. Fire and allied line insurancec. Business income insuranced. Leasehold insurance

ANSWER C ( p. 1.21) OBJECTIVE 11QUESTIONA small business owner concerned about something happening and not being able to work or earn a living for anextended period of time should purchasea. Personal liability insurance.b. Medical insurance.c. Disability insurance.d. Universal life insurance.ANSWER C

( pp. 1.23-1.24) QUESTIONTerm life insurancea. Provides lifetime protection.b. Accrues a cash value.c. Provides maximum protection for the lowest cost.d. Allows the policyholder to borrow against policy savings.ANSWER C

( p. 1.23) QUESTIONWhole life insurancea. Provides coverage for a specified period such as 5 or 10 years.b. Lapses when the policyholder reaches age 65.c. Is primarily an investment vehicle.d. Accrues a cash value.ANSWER D ( p. 1.23)

OBJECTIVE 12QUESTIONAny condition or situation that presents the possibility of a financial loss to an individual or a family by suchcauses as death, sickness, or injury is referred to as aa. Personal loss exposure.b. Personnel loss exposure.c. Liability loss exposure.d. Medical loss exposure.ANSWER A

( pp. 1.7) QUESTIONTo restore a party who has sustained a loss to the same financial position that party held before the loss occurredis calleda. Reciprocity.b. Reimbursement.c. Insurance.d. Indemnification.ANSWER D

( p. 1.15) QUESTION Life insurance that provides coverage for a specified period with no cash value is called a. Universal life.b. Term insurance.c. Whole life.d. Long-term care insurance.ANSWER B

( p. 1.23) Chapter 2 QUESTION All of the following are types of private insurers, EXCEPT: a. Stock insurersb. Mutual insurersc. Participating insurance consortiumsd. Reciprocal insurance exchanges

ANSWER C ( p. 2.4) QUESTION A mutual insurance company is owned by a. Independent investors.b. Policyholders.c. State insurance departments.d. Mutual funds.

ANSWER B ( p. 2.6) QUESTION Which one of the following describes the characteristics of a mutual insurance company? a. A corporation owned by stockholders that earns profits for the stockholders.b. An unincorporated association that provides reciprocal coverage to subscribers.c. A corporation owned by policyholders that provides insurance to its policyholders.d. An unincorporated association that earns profits for its individual investors.

ANSWER C ( p. 2.6) QUESTION How does a stock insurance insurer differ from a reciprocal insurance exchange? a. Stockholders own a stock company.Subscribers own a reciprocal insurance exchange .b. A stock company provides insurance to its policyholder-owners. A reciprocal insurance provides insurance toinvestors.c. Each is owned by stockholders; however, the reciprocal insurance exchange provides coverage to investors.d. Each is formed to provide profit to investors; however, the stock insurer is managed through a board ofdirectors.

ANSWER A ( pp. 2.4-2.5) QUESTION A reinsurance company a. Is formed to write all or part of the insurance for a parent company.b. Provides insurance for loss exposures that private insurers are unwilling to provide.c. Transfers losses to a primary insurer.d. Accepts loss exposures from a primary insurer.

ANSWER D ( p. 2.9) OBJECTIVE 1QUESTIONOne of the unique characteristics of the Social Security program is that it

a. Is free.b. Requires mandatory participation.c. Is administered by the state governments.d. Is available to all regardless of eligibility.

ANSWER B ( p. 2.10) QUESTION The four types of benefits included in the federal Social Security program are a. Retirement, portfolio protection, disability, and medical benefits.b. Retirement, survivorship, unemployment, and medical benefits.c. Retirement, unemployment, disability, and medical benefits.d. Retirement, survivorship, disability, and medical benefits.

ANSWER D ( p. 2.10) QUESTION Mandatory participation in the Social Security program for those eligible eliminates the need for a. Individual underwriting.b. Premiums.c. Scheduled benefits.d. Occasional increases in benefits.

ANSWER A ( p. 2.10) QUESTIONSome federal government insurance programs provide coverage for loss exposures that private insurers haveavoided largely because of the potential for catastrophic losses. An example of such a program is

a. Workers compensation insurance fundsb. Unemployment insurance programsc. Automobile insurance plansd. The National Flood Insurance Program

ANSWER D ( p. 2.10) OBJECTIVE 2QUESTIONOne of the main reasons why private insurers have largely avoided writing such coverage as flood and cropinsurance is due to the potential for

a. Speculative losses.b. Fraudulent losses.c. Catastrophic losses.d. Difficulty in valuing losses.

ANSWER C ( p. 2.10) QUESTION Private insurers are reluctant to provide coverage for flood and crop losses due to the a. Concentration of exposure units.b. Large number of exposure units.c. Variety of exposure units.d. Dispersion of exposure units.

ANSWER A ( p. 2.10) OBJECTIVE 3QUESTIONIn some states the only source for workers' compensation insurance is through the state. This is an example of a

a. Residual state fund.b. Unilateral state fund.c. Monopolistic state fund.d. Competitive state fund.

ANSWER C ( p. 2.11) QUESTION Unemployment insurance programs are operated by a. Federal government.b. Local governments.c. State governments.d. Private insurers.

ANSWER C ( p. 2.10) QUESTIONPrograms that make workers' compensation insurance available to those who cannot obtain voluntary coveragethrough private insurers is called a

a. Residual market plan.b. Rating bureau plan.c. Revolving market plan.d. Recessive market plan.

ANSWER A ( p. 2.11) OBJECTIVE 4QUESTIONThe National Association of Insurance Commissioners (NAIC) has identified a problem that affects all states.Unscrupulous auto body shops are:

Hiring thieves to steal cars, cross state lines, and deliver the stolen vehicles to the shopsInsuring the vehicles and later claiming they are stolenChanging the vehicle identification number (serial number)Reselling the vehicles

The NAIC would like to address these issues uniformly across the United States by introducing tough laws to punish the body shops for claim fraud, but the NAIC members recognize that there are significant differences from one state to the next. How can the NAIC address the problem? a. Develop a Model Bill for the proposed solution and distribute it to the states for possible enactment.b. Require each state insurance commissioner to draft a proposed solution to the problem tailored to his or herstate.c. Draft a federal bill and lobby for legislative action to address the problem

uniformly.d. Circulate a petition among all state legislators to join in a countrywide campaign to pass tough laws in eachstate.

ANSWER A ( pp. 2.13-2.14) QUESTIONThe National Association of Insurance Commissioners (NAIC) created a uniform financial statement for propertyand liability insurance companies. The purpose of the uniform statement is to

a. Ensure that state insurance departments not mistake these companies for life insurers.b. Provide accounting expertise for those state insurance departments that do not have staff actuaries.c. Simplify the state insurance department's task of comparing the financial reports of many different insurers.d. Capture the essential criteria required for rate regulation.

ANSWER C ( pp. 2.13-2.14) OBJECTIVE 5QUESTIONThe figure that is multiplied by the exposure unit(s) for insurance coverage is called the

a. Premium base.b. Expense factor.c. Modifier.d. Rate.

ANSWER D ( pp. 2.14-2.15) QUESTION The formula for determining an insurance premium is a. Rate x Number of exposure units = Premium.b. Rate % Number of exposure units = Premium.c. Loss costs x Inflation factor = Premium.d. Loss costs % Inflation factor = Premium.

ANSWER A ( pp. 2.14-2.15) QUESTION The individuals who are responsible for developing insurance rates are called a. Raters.b. Underwriters.c. Actuaries.d. Statisticians.

ANSWER C ( p. 2.15) OBJECTIVE 6QUESTIONState insurance departments regulate insurance rates to protect consumers against rates that are all of thefollowing, EXCEPT:

a. Excessiveb. Inadequatec. Class specificd. Unfairly discriminatory

ANSWER C ( p. 2.15) QUESTION Why would insurance regulators have a goal of assuring that the premiums charged by insurers are adequate? a. To maintain insurer solvencyb. To eliminate the potential of a monopolyc. To protect consumers from high insurance ratesd. To promote equity among insurers

ANSWER A ( pp. 2.15-2.16) QUESTION

An automobile insurance policyholder has complained that her insurance premium is higher than her neighbor'spremium. Both the policyholder and her neighbor have insurance with the same company, and they haveidentical vehicles.

The policyholder feels that she is the subject of unfair discrimination. As the policyholder's agent, you know thepolicyholder has been responsible for several small auto accidents. The policyholder has mentioned that herneighbor has had no accidents or violations in the last three years.

You must explain to the policyholder the objective of rate regulation ensuring that rates are not unfairly discriminatory, as it applies in her case. Which one of the following is an accurate explanation? a. Insureds with similar characteristics are usually placed in the same class and charged the same rate unlesssocial equity required modification in that rate structure. This has probably occurred in your situation.b. Insureds with similar characteristics are placed in the same class and charged the same rate. However, youraccidents have probably placed you in a different classification. Your premium is based on the loss experience forpolicyholders in your classification.c. Your neighbor has probably received a credit based on the length of time he has had his policy with thecompany. This is not unfairly discriminatory because it is available to all policyholders over time.d. Your neighbor has been placed in a preferred category of policyholders, which gives him rights and privilegesthat you do not have. Your neighbor has been given a rate reduction based on excess profits that have beenreturned to policyholders.

ANSWER B ( pp. 2.15-2.16) QUESTIONA ratemaking concept in which rates are based on calculated loss experience and insureds with similarcharacteristics are placed in the same rating class is called

a. Unfair discrimination.b. Premium differential.c. Actuarial equity.d. Social equity.

ANSWER C ( p. 2.16) QUESTIONThe type of insurance rating law that requires rate approval by the state insurance department before the ratescan be used is

a. Flex rating law.b. Open competition law.c. File-and-use law.d. Prior-approval law.

ANSWER D ( p. 2.17) OBJECTIVE 7QUESTIONMost insurers would probably favor which one of the following rating laws?

a. Prior-approvalb. Flex

c. Use-and-filed. Open competition

ANSWER D ( p. 2.17) QUESTION Under a flex rating law, prior approval is required only if the new rates a. Are a specified percentage above or below previously filed rates.b. Are a specified percentage above previously filed rates.c. Are a specified percentage above or below competitors' rates.d. Are a specified percentage above statewide average filed rates.

ANSWER A ( p. 2.17) QUESTION Sometimes the state insurance department establishes rates that all insurers must adhere to. This is referred to as a. Compulsory insurance.b. State-mandated rates.c. Modified prior approval.d. Closed competition.

ANSWER B ( p. 2.17) OBJECTIVE 8QUESTIONOne of the methods used by regulators to ensure insurance company solvency is through the InsuranceRegulatory Information System (IRIS), which is

a. The licensing system required for insurance companies that transact business in a state. b. The licensing process for alien insurers that are incorporated in another country. c. A periodic examination conducted by a team of state examiners, working at the insurer's home office to reviewactivities including claims, underwriting, marketing, and accounting procedures.d. A system that gathers data from insurers' financial statements and develops financial ratios to determine aninsurer's overall financial condition.

ANSWER D ( p. 2.19) OBJECTIVE 9QUESTIONSome communities in the United States celebrate holidays with firecrackers. Firecracker vendors erect stands inthe parking lot of shopping centers before the holidays. One shopping center owner sponsoring a firecrackervendor's booth found that his insurance did not cover the exposure. He found that none of the insurers licensedto do business in the state sold insurance coverage for the exposures.

How can the shopping center owner obtain appropriate coverage for the exposure from the firecracker vendor's booth? a. By obtaining coverage through the excess and surplus lines market.b. By pooling the risk with other shopping center owners with similar exposures.c. Through a proportionate sharing arrangement with multiple insurers.d. From alien insurers in countries that also celebrate holidays with firecrackers.

ANSWER A ( pp. 2.21-2.22) QUESTION States regulate the excess and surplus lines market by a. Establishing a monitoring board comprised of all insurers licensed to do business in the state.b. Examining the market conduct practices of the unlicensed insurers.c. Licensing the excess and surplus lines brokers that transact business with the unlicensed insurers.d. Approving the policy forms and rates used by the unlicensed insurers.

ANSWER C ( p. 2.23) OBJECTIVE 10

QUESTIONA contractual agreement that transfers all or some of the potential loss exposures from one insurer to another iscalled

a. Coinsurance.b. Reinsurance.c. Third-party insurance.d. Excess insurance.

ANSWER B ( p. 2.9) QUESTION The National Association of Insurance Commissioners (NAIC) was established to encourage a. Coordination and cooperation.b. Competition and cooperation.c. Coordination and research.d. Competition and uniformity.

ANSWER A ( p. 2.13) QUESTIONSome classes of business present unusual or unique exposures or requires unusually broad coverage. Thisnontraditional market is known as

a. Excess and supplementary lines.b. Primary and excess linesc. Excess and surplus lines.d. Primary and residual lines.

ANSWER C ( p. 2.21) Chapter 3 ---------------------------------------------------------------------------- Please refer the following 'Case Study' with appropriate Questions and Answers: ----------------------------------------------------------------------------CASE: Mammoth Insurance CoMid-State Painting Company owns vans, trucks, and cars that carry workers,supplies, and equipment to worksites. On November 1, Mammoth InsuranceCompany issued a business auto policy with a one-year period to Mid-StatePainting Company. The premium for the policy is $24,000.

----------------------------------------------------------------------------CASE: Hometown InsurerThe financial report for Hometown Insurer contains the following information:

Earned premiums $4,000,000Written premiums $5,000,000Investment income $1,000,000Incurred Losses $3,000,000Incurred underwriting expense $2,000,000

----------------------------------------------------------------------------OBJECTIVE 0QUESTIONWhat was the written premium for Mid-State Painting Company's business auto policy as of December 31?

a. $4,000b. $6,000c. $20,000d. $24,000

ANSWER D ( pp. 3.3-3.4) QUESTION What was the unearned premium for Mid-State Pai

nting Company's business auto policy as of December 31? a. $4,000b. $6,000c. $20,000d. $24,000

ANSWER C ( pp. 3.3-3.4) OBJECTIVE 1QUESTIONBrown Insurance Company has the following expenses:

Licenses, taxes, and fees $70,000Claim staff salaries $100,000Agents' commissions $200,000Advertising costs $50,000Rent and utilities $60,000

What is the amount of Brown Insurance Company's acquisition expenses? a. $250,000b. $300,000c. $350,000d. $450,000

ANSWER A ( p. 3.8) QUESTION Amounts designated by insurers to pay claims for losses that have already occurred are called a. Acquisition expenses.b. Loss adjustment expenses.c. Loss reserves.d. Unearned premium reserves.

ANSWER C ( p. 3.7) QUESTIONWhich one of the following types of financial statements shows the financial position of an insurance company atany particular time?

a. Income statementb. Balance sheetc. Sales reportd. Cash flow report

ANSWER B ( p. 3.14) OBJECTIVE 2QUESTIONThe formula for determining an insurer's net underwriting gain or loss is

a. Earned premiums - (losses and underwriting expenses.)b. Written premiums - (losses and underwriting expenses.)c. Earned premiums % (losses and underwriting expenses.)d. Written premiums % (losses and underwriting expenses.)

ANSWER A ( p. 3.9) QUESTION Compared to net underwriting gain, an insurer's overall gain or loss from operations gives a a. Distorted picture of an insurer's profitability.b. Less complete picture of an insurer's profitability.c. More complete picture of an insurer's profitability.d. More conservative picture of an insurer's profitability.

ANSWER C ( p. 3.9) QUESTIONThe owners of an insurance company are entitled to the net income after all expenses are paid. Sometimes this ispaid as a dividend. The amount that is left after all dividends are paid becomes an addition to the insurer' s

a. Surplus.b. Non-admitted assets.c. Reinsurance recoverable account.d. Dividend account.

ANSWER A ( p. 3.9) QUESTION The creation of two categories of assets, admitted and nonadmitted-reflects the a. Creative nature of insurance accounting.b. Conservative nature of insurance accounting.c. Consistent nature of insurance accounting.d. Collaborative nature of insurance accounting.

ANSWER B ( p. 3.11) OBJECTIVE 3QUESTIONAdmitted assets are types of property that regulators allow insurers to show as assets on their financialstatements because they are

a. Very stable in value.b. Never subject to decreases in value.c. Generally increasing in value.d. Easily converted to cash.

ANSWER D ( p. 3.11) QUESTION World Insurance Company has the following assets: Cash $ 50,000Stocks $ 400,000Bonds $ 200,000Real Estate $ 500,000Furniture and office equipment $ 70,000Premium balance due in less than 90 days $ 20,000Premium overdue more than 90 days $ 10,000

What is the amount of World's total admitted assets? a. $450,000b. $650,000c. $1,170,000d. $1,250,000

ANSWER C ( p. 3.11) OBJECTIVE 4QUESTIONLoss reserves are often the largest liability on an insurer's balance sheet. The loss reserve include

a. All loss amounts paid that year.b. Claim expenses paid for that year.c. Unpaid loss amounts for claims not yet settled.d. All claims paid, excluding expenses not yet settled.

ANSWER C ( p. 3.12) QUESTION The financial report for Apex Insurers contains the following information: Admitted assets $500,000Unadmitted assets $400,000Liabilities $300,000

What is the amount of Apex Insurers' policyholders surplus? a. $100,000b. $200,000c. $400,000d. $600,000

ANSWER B ( p. 3.12) OBJECTIVE 5QUESTION

The balance sheet shows an insurer's financial position

a. At a particular point in time.b. For a particular period of time.c. Based upon revenues versus expenses.d. Based upon assets minus expenses.

ANSWER A ( p. 3.14) QUESTION A insurer's balance sheet can best be described as a. A relationship between revenue and liabilities.b. An estimate of its financial position.c. A summary of premiums written.d. A snapshot of its financial position.

ANSWER D ( p. 3.14) QUESTION An insurer's income statement shows amounts for all of the following for a particular period, EXCEPT: a. Earned premiumsb. Policyholders surplusc. Incurred lossesd. Underwriting expenses

ANSWER B ( p. 3.15) OBJECTIVE 6 QUESTION A insurer's income statement can best be described as a financial statement that shows a. Relationship between revenue and liabilities.b. Relationship between assets and income.c. Relationship between revenues, expenses, and net income.d. Relationship between revenues and incurred losses.

ANSWER C ( p. 3.15) QUESTIONIf an insurer's admitted assets stayed the same but its liabilities increased significantly, its policyholders' surpluswould

a. Stay the same.b. Increase.c. Decreased. Can' t determine.

ANSWER C ( p. 3.12) QUESTIONINS Insurer's earned premiums are $1,800,000 for the year. Its losses and expenses are $1,730,000. What type offinancial performance did INS Insurer experience for the year?

a. A net operating gain of $70,000b. A net underwriting gain of $70,000c. A net operating loss of $1,730,000d. A net operating gain of $1,800,000

ANSWER B ( p. 3.15) QUESTION All of the following parties are likely to monitor an insurer's financial performance, EXCEPT: a. Regulatorsb. Agentsc. Claimantsd. Shareholders

ANSWER C ( p. 3.13) OBJECTIVE 7QUESTIONWhat is Hometown Insurer's loss ratio?

a. 20% b. 30%c. 50%d. 75%

ANSWER D ( p. 3.16) QUESTION What is Hometown Insurer's expense ratio? a. 20%b. 40%c. 50%d. 75%

ANSWER B ( p. 3.16) QUESTION What is Hometown Insurer's combined ratio? a. 75% b. 95%c. 105%d. 115%

ANSWER D ( p. 3.17) QUESTION What is Hometown Insurer's investment income ratio? a. 10%b. 20%c. 25%d. 50%

ANSWER C ( p. 3.18) QUESTION What is Hometown Insurer's overall operating ratio? a. 75%b. 90%c. 105%d. 115%

ANSWER B ( p. 3.18) QUESTION A decrease in incurred losses will generally cause a decrease in all of the following, EXCEPT: a. Combined ratiob. Expense ratioc. Overall ratiod. Loss ratio

ANSWER B ( pp. 3.16-3.17) OBJECTIVE 8QUESTIONThe capacity ratio compares an insurer's written premiums to its

a. Total liabilities.b. Admitted assets.c. Policyholders' surplus.d. Earned premiums.

ANSWER C ( p. 3.20) QUESTIONOld Faithful Insurer has written premiums of $1,400,000 and policyholders' surplus of $400,000. What does thecapacity ratio indicate about Old Faithful Insurer?

a. Financial weaknessb. Financial strengthc. Operating strengthd. Operating weakness

ANSWER A ( p. 3.20) OBJECTIVE 9QUESTIONThe liability that represents insurance premiums that are prepaid for service that the insurer has not yet renderedis the

a. Written premium reserve.b. Estimated premium reserve.c. Projected premium reserve.d. Unearned premium reserve.

ANSWER D ( p. 3.12) QUESTION Comparing an insurer's incurred losses to its earned premiums will determine its a. Loss ratio.b. Expense ratio.c. Operating ratio.d. Combined ratio.

ANSWER A ( p. 3.16) INS 21 Questions Answers Materials Dumps Chapter 4 QUESTION Principals often authorize another party to act on their behalf. This relationship is called a. Broker.b. Fiduciary.c. Agency.d. Attorney in fact.

ANSWER C ( p. 4.3) QUESTION When an agency relationship is created between a principal and the agent, it requires a high degree of a. Trust.b. Patience.c. Oversight.d. Creativity.

ANSWER A ( p. 4.3) QUESTION When an insurer appoints an agent to act its behalf, the agent's scope of authority is spelled out in the a. Broker of record letter.b. Insurance contract.c. Agency contract.d. Letter of intent.

ANSWER C ( p. 4.4) QUESTION All of the following are true about the insurance agency relationship, EXCEPT: a. The agency agreement is a written agreement between the insurer and an agent b. The agency agreement gives the agent the right to represent the insurer and sell insurance on the insurer'sbehalfc. The principal is the party the agent authorizes to bind coveraged. The agent is the party authorized by the principal to act on the principal's behalf

ANSWER C ( p. 4.3) QUESTION Which one of the following statements is true regarding the agency contract? a. The agent is the principal in the agency contract relationship.b. An agency contract is also known as an agency endowment.c. Insurance agency contracts usually have a fixed expiration date.d. The agency contract states the scope of the agency's authority to conduct business for the insurer.

ANSWER D ( p. 4.4) OBJECTIVE 1QUESTIONIn an insurance agency relationship, the agent's fundamental responsibility is to act for the benefit of the

a. Insured.b. Insurer.c. Broker.d. Policyholder.

ANSWER B ( p. 4.4) QUESTION The primary duty of a principal to its agent is to a. Pay the agent for services performed.b. Generate sales leads for the agent.c. Hire and train sales people.d. Be obedient.

ANSWER A ( p. 4.5) QUESTION From an insured's point of view, relative to the concept of agency, little distinction exists between the a. Broker and the claimant.b. Insurance agent and the insurance department.c. Broker and the insurer.d. Insurance agent and the insurer.

ANSWER D ( p. 4.5) QUESTION The laws of agency impose all of the following specific duties on agents, EXCEPT: a. Profitabilityb. Obediencec. Loyaltyd. Accounting

ANSWER A ( pp. 4.4-4.5) QUESTION The laws of agency impose all of the following specific duties on all agents, EXCEPT: a. Prudenceb. Accountingc. Loyaltyd. Relaying information

ANSWER A ( pp. 4.4-4.5) QUESTION Which one of the following is the principal's primary duty to the agent? a. To pay the agent for services performedb. To act as the agent's legal representativec. To educate and train the agentd. To act on behalf of the agent in court proceedings

ANSWER A ( p. 4.5) OBJECTIVE 2QUESTIONThe authority that the principal specifically grants to the agent is contained in the agency contract. This authorityis known as

a. Implied authority.b. Apparent authority.c. Express authorityd. Contractual authority.

ANSWER C ( p. 4.6) QUESTIONThe scope of an agent's authority can go beyond the terms of the agency contract and may include authority toperform other tasks necessary to accomplish the purpose of the agency relationship. This authority is referred to

as a. Implied authority.b. Apparent authority.c. Express authorityd. Contractual authority.

ANSWER A ( p. 4.7) QUESTIONAn agent may at times act on behalf of the principal in ways that the principal did not intend, and a third partyreasonably believes that the agent has sufficient authority. This authority is known as

a. Implied authority.b. Apparent authority.c. Express authorityd. Contractual authority.

ANSWER B ( p. 4.7) QUESTION The authority that the principal specifically grants the agent is called a. Implied authority.b. Express authority.c. Apparent authority.d. Conditional authority

ANSWER B ( pp. 4.6-4.7) QUESTIONWhen an insurance company appoints an insurance agent to serve as its representative, what specifies the scopeof authority given to the agent in this relationship?

a. Implied authorityb. Binding authorityc. A unilateral contractd. An agency contract

ANSWER D ( pp. 4.6-4.7) QUESTION Authority that the insurance company specifically grants to an agent is called a. Binding authorityb. Express authorityc. Implied authorityd. Apparent authority

ANSWER B ( pp. 4.6-4.7) OBJECTIVE 3QUESTIONOne of the main distinguishing features between independent agency systems and other marketing systems isthe ownership of

a. The company expiration list.b. Insurance company stock.c. The sales prospecting list.d. The agency expiration list.

ANSWER D ( p. 4.9) QUESTION An independent business owner or firm that sells insurance by representing customers rather than insurers is a. An insurance broker.b. A managing general agency.c. An exclusive agent.d. A direct writer.

ANSWER A ( p. 4.10) QUESTIONIf a consumer or policyholder had a preference for dealing with sales representatives who are employees of theinsurer, which marketing system would they choose?

a. Insurance brokerb. Managing general agencyc. Exclusive agentd. Direct writer

ANSWER D ( p. 4.11) QUESTIONAn independent business owner or firm that sells insurance by representing customers rather than insurancecompanies is which one of the following?

a. An independent adjusterb. An underwriterc. An insurance brokerd. An insurance carrier

ANSWER C ( p. 4.10) OBJECTIVE 4QUESTIONSometimes an agent may be eligible for a commission based on its premium volume and profitability. This typeof compensation is called

a. A contingent commission.b. A sales commission.c. An indirect commission.d. An annual commission.

ANSWER A ( p. 4.15) QUESTIONSometimes a policy is cancelled or non-renewed even though the agent was paid its commission. In thesesituations the agent will be requested to return the

a. Earned commission.b. Unearned commission.c. Contingent commission.d. Estimated commission.

ANSWER B ( p. 4.14) QUESTION At the end of the year, agencies that have carefully selected business throughout the year can earn a sizeable a. Contingent commission.b. Sales commission.c. Indirect commission.d. Annual commission.

ANSWER A ( p. 4.15) QUESTIONFor an independent agency or an exclusive agency, the percentage of the premium that goes to the agency or tothe producer for new policies sold or existing policies renewed is the

a. Contingent commissionb. Profit sharingc. Salaryd. Sales commission

ANSWER D ( pp. 4.14-4.15) QUESTION An independent agent received his monthly commissions for the new policies he has sold. Even though he wrote twenty new policies that month, his commission was low. Which one of the following explains why this could occur? a. Commissions are not fully earned at the time of a sale. Other policies written by the agent might have beencancelled with the unearned portion of the commission returned to the insurance company.b. The agent failed to provide the level of service required by the insurance company. The insurance commissionwas reduced as an incentive for better performance.c. The agent did not meet the premium volume and profitability levels that were specified in his contract;therefore, his commission was reduced.d. The agent is a salaried employee of the insurance company and receives only contingent commissions.

ANSWER A ( pp. 4.14-4.15) QUESTIONThe managers of an independent agency are hoping to earn contingent commissions from several insurers at theend of the year. What should the agency managers attempt to do to earn contingen

t commissions?

a. Reduce the number of homeowners policies written for houses in urban areas compared to the homeownerspolicies written for houses in rural areas.b. Reduce the number of employees required to acquire and service the policies in the agency.c. Increase the premium volume and profitability level of the agency's business with those insurers.d. Increase the level of customer service provided to policyholders and claimants.

ANSWER C ( pp. 4.15-4.16) OBJECTIVE 5QUESTIONWith respect to advertising, programs that emphasize the names of both the insurer and the agent are typicallythe

a. Agents' Trade Association.b. Exclusive agency system.c. Direct writing system.d. Independent agency system.

ANSWER B ( p. 4.16) QUESTION Advertising by independent agencies promotes a. Brand recognition of the companies represented.b. The agency rather than the insurers it represents.c. Symbols used to increase recognition of the insurers represented.d. Attention to the prices of the policies offered.

ANSWER B ( pp. 4.15-4.16) OBJECTIVE 6QUESTIONAn insurer using independent agents typically will employ which one of the following to supervise itsproducers?

a. Marketing representativeb. Underwriterc. Captive agentd. Vice president of marketing

ANSWER A ( p. 4.17) QUESTIONAn insurer employee who works in the insurer's office in an underwriting position but also travels to visit agentsand sometimes clients is called a

a. Production underwriter.b. Special underwriter.c. Agency underwriter.d. Underwriting manager.

ANSWER A ( p. 4.17) QUESTIONLarge insurers who conduct business nationally or over a widespread geographic area will often establish officesclose to producers' offices. Those larger offices that provide underwriting claims and support are usually called

a. Brokers' offices.b. Branch offices.c. Home offices.

d. Specialty offices.

ANSWER B ( p. 4.17) QUESTIONInsurance companies attempt to motivate producers to sell the types of business the companies want to acquire.Which one of the following would motivate producers to sell the desired type of business?

a. Reduce commissions if sales goals are not achieved.b. Hold sales contests to encourage the type of sales activity.c. Provide additional staff to help with the processing.d. Offer subscriptions to educational services for the producers.

ANSWER B ( p. 4.18) OBJECTIVE 7 QUESTION To function legally as an insurance agent, a producer must a. Be a college graduate.b. Be licensed by the state.c. Work for an insurance company.d. Have a valid drivers' license.

ANSWER B ( p. 4.19) QUESTION Once a state agent's license has been issued, the agent must seek to be appointed by one or more a. Insurers.b. Brokers.c. Trade associations.d. Insurance departments.

ANSWER A ( p. 4.19) QUESTIONMost states require that producers complete a specified number of hours of educational study related toinsurance in order to renew their license. This is called the

a. Annual education requirement.b. State education requirement.c. Insurance education requirement.d. Continuing education requirement.

ANSWER D ( p. 4.19) OBJECTIVE 8QUESTIONMany states have adopted laws that specify certain prohibited business practices that apply to insurance agents.These laws are known as

a. Unfair insurer practices act laws.b. Unfair producers' practices act laws.c. Unfair trade practices act laws.d. Unfair agents practices act laws.

ANSWER C ( p. 4.19) QUESTIONOffering a cash payment or something of value to an applicant as an inducement to buy or maintain insurance iscalled

a. Rebating. b. Misrepresentation.c. Tie-in.d. Twisting.

ANSWER A ( p. 4.20) QUESTIONIt is an unfair trade practice for a lender to require that a borrower purchase insurance from the lender or from

any insurance producer recommended by the lender. This practice is called

a. Misrepresentation.b. Twisting.c. A tie-in sale.d. Rebating.

ANSWER C ( p. 4.20) QUESTIONAn insurance agent wrote insurance policies for a number of military service veterans who were satisfied withthe coverage they received and the price they paid for the coverage. Subsequently, the agent ran an ad in a localnewspaper stating that the insurance policies offered by his agency are "Veteran Approved Insurance."

Why would this be considered misrepresentation or false advertising? a. The statement misrepresents the benefits, conditions, or terms of the insurance policies.b. The statement uses a name or title for the insurance policies that misrepresents the true nature of the policies.c. The statement indicates that sales are tied to other benefits.d. The statement makes an illegal reference to a government entity in an insurance sale.

ANSWER B ( p. 4.20) QUESTIONRipTide Insurance Company has formed an alliance with Local Bank and U-Betcha Used Car Sales. When U-Betcha sells a car, the sales person directsthe customer to Local Bank for the loan and RipTide for insurance. If the customer transacts business with allthree organizations, the customer will receive reduced auto rates.

Would this be considered to be an unfair trade practice by RipTide? a. Yes, it is an unfair trade practice to tie the purchase of insurance to some other sale or financial arrangement.b. Yes, offering a preferred rate to a customer as described is considered to be rebating.c. No, businesses interact in this way as a regular practice.d. No, this is not deceptive or unfair to the applicants or insureds.

ANSWER A ( p. 4.20) CASE STUDY 2 : GhostWriter PublishGhostWriter Publishing Company publishes romance novels. They purchase manuscripts from freelancenovelists, edit that material, print the texts, and bind the books.

GhostWriter owns the building where its employees perform all of its publication operations. GhostWriter uses book-binding glue that is flammable and toxic, so employees try to take care in opening windows when they are in the binding step of the operation. GhostWriter has been unwilling to install a sprinkler system or appropriate ventilation system due to the associated costs. So far, opening the windows has been effective, and none of the employees has become ill from the fumes. GhostWriter's employees dump any unused book-binding glue in a 50-gallon drum behind the building. TheEnvironmental Protection Agency determined that the drum has been leaking for years, and the toxins in theglue have run into the ground. They have ordered GhostWriter to perform a clean-up. GhostWriter submitted aclaim to its insurer for the expenses associated with the clean-up. Recent court

decisions have eroded the originalexclusions in the insurer's policy language that would eliminate pollution losses. The insurer will be required topay for the pollution loss.

In the last year, profits have been down for GhostWriter. One evening, the fire department responded to a firereported at GhostWriter's building. They were able to extinguish the three small fires that started simultaneouslyin the building. GhostWriter's owners said they had received anonymous threats that someone would "burnthem down." GhostWriter's owners were suspected of involvement, but nothing could be proven.

---------------------------------------------------------------------------- OBJECTIVE 0QUESTIONIt has been argued that if insurance companies would simplify the selection process and accept almost allapplicants that costs would be dramatically reduced for the consumer. Insurance companies say that this wouldnot be the case because there would be an increase in

a. Diverse selection.b. Inverse selection.c. Adverse selection.d. Reverse selection.

ANSWER C ( p. 5.4) QUESTIONInsurers screen applicants to determine which ones they desire to insure. If insurers do not properly selectpolicyholders

a. Their profits will be excessive in comparison to the premiums collected.b. Some insureds might be allowed to purchase insurance at prices that do not adequately reflect their lossexposures.c. They will have an excessive number of new policies, and their expenses related to writing the new policies willbe excessive.d. The entire group of policyholders written will be substandard.

ANSWER B ( pp. 5.3-5.4) QUESTION As insurers select insureds they attempt to avoid adverse selection. Adverse selection occurs when a. Applicants purchase insurance with the intent of submitting fraudulent claims.b. An insurer does not select a cross-section of applicants that range from low to high probability of loss.c. Competitors select the better applications, leaving the remainder to the insurer.d. People with the greatest probability of loss are the ones most likely to purchase insurance.

ANSWER D ( p. 5.4) OBJECTIVE 1QUESTIONMaxfield is considering expanding its policy writings to other types of insurance and different geographic areas.How could this activity help Maxfield protect its available capacity?

a. By meeting regulatory requirements to provide coverage to a wide range of pol

icyholders, the insurer will beless likely to engage in unfair discrimination.b. By reducing the chances that the company's overall results will be affected by a large number of losses fromone loss event.c. The insurer will reduce its reinsurance premiums by reducing its exposure to any one catastrophic event.d. Diversification will allow the insurer to create a more visible image in the market, attracting more potentialapplicants from which it can select.

ANSWER B ( pp. 5.4-5.6) QUESTIONWhich one of the following is an example of how Maxfield can optimize its available resources in order to protectits available capacity?

a. Maxfield chooses not to solicit applications for automobile insurance.b. Maxfield shops its reinsurance contracts for better pricing and coverage.c. Maxfield outsources its claims handling functions.d. Maxfield's management staff takes classes to learn how to provide reasonable accommodations for physicallychallenged employees.

ANSWER A ( pp. 5.4-5.6) QUESTIONMaxfield Mutual's executive staff is considering lowering its standards in the selection of policyholders. In thisway, Maxfield can maintain the same rate level, but add more policyholders that have slightly higher exposuresto loss. What is the likely result of this decision?

a. Maxfield might be accused of unfair discrimination.b. Maxfield must reduce the amount of reinsurance it purchases.c. Maxfield must spread its risks at the same time to be profitable.d. Maxfield's premiums will not be commensurate with the exposures.

ANSWER D ( pp. 5.4-5.6) QUESTIONThe amount of business an insurer is able to write based on a comparison of the insurer's written premium to thesize of its policyholders' surplus is

a. Capacityb. Adverse selectionc. Risk selectiond. Combined ratio

ANSWER A ( pp. 5.4-5.6) OBJECTIVE 2QUESTIONWhich of the following types of insurance rates would be appropriate for the type of insurance and lossexposures that Maxfield Mutual writes?

a. Merit ratesb. Individual ratesc. Class ratesd. Judgement rates

ANSWER C ( pp. 5.7-5.8) QUESTION 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.

ANSWER A ( pp. 5.7-5.8) QUESTION In insurance terminology, which of the following refers to a book of business? a. All policies sold by an insurance company or agencyb. All policies in a particular territoryc. All policies providing a particular type of insuranced. All the above

ANSWER D ( p. 5.9) OBJECTIVE 3QUESTIONOne of the responsibilities of underwriting management is to arrange reinsurance. One type of reinsurance isarranged to automatically reinsure a portion of all eligible risks of the primary insurer. This arrangement is called

a. Treaty reinsuranceb. Temporary reinsurancec. Facultative reinsuranced. Facilitative reinsurance

ANSWER A ( p. 5.10) QUESTION How do underwriting guidelines help an insurer achieve its objectives? a. By establishing the criteria required for treaty reinsurance to applyb. By creating a channel for communication for the insurer's vision, mission, and objectivesc. By providing a uniform set of rules that guide underwriters toward consistent decisionsd. By maintaining a consistently applied set of behavioral measurements against which an individual'sperformance will be measured

ANSWER C ( pp. 5.11-5.12) OBJECTIVE 4QUESTIONWhen the underwriter read the inspection report from his loss control department about a risk that was recentlysubmitted, it indicates that the management team seemed to be indifferent about the inspector'srecommendations. The underwriter's primary concern is probably the

a. Moral hazard.b. Physical hazard.c. Legal hazard.d. Attitudinal hazard.

ANSWER D ( p. 5.15) QUESTION How does an expert system assist underwriters in the underwriting process? a. It automatically assembles the necessary information to underwrite an application.b. It helps ensure that no necessary information is overlooked.c. It provides management reports to ensure underwriters' compliance with guidelines.d. It monitors the results of the decisions made and suggests changes in underwriting guidelines

ANSWER B ( p. 5.13) QUESTIONSome 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.

ANSWER C ( p. 5.13) OBJECTIVE 5QUESTIONAn underwriter is reviewing an application for a start-up business that is planning on opening in about onemonth. Overall the underwriter is impressed with the account but would like to obtain more information on theowners of the business, especially their experience. Which one of the following sources of underwritinginformation would be most helpful to the underwriter in this situation?

a. Claim filesb. Premium audit reportsc. Consumer investigative reportd. Applicant or insured's records

ANSWER D ( pp. 5.13-5.14) QUESTIONAn underwriter is reviewing an application for a business that is just being created. The business willmanufacture a product that the owner herself just invented. Which one of the following sources of informationwould probably be most helpful to the underwriter?

a. Claim filesb. Premium audit reportsc. Consumer investigative reportd. Previous carrier

ANSWER C ( pp. 5.13-5.14) QUESTIONA new underwriter is reviewing an application for a business that is just being created. He's not comfortable thathe fully understands the nature of the product and the business involved. Which one of the following sources ofinformation should he use to increase his comfort level?

a. Claim filesb. Premium audit reportc. Consumer investigative reportd. Producer

ANSWER D ( pp. 5.13-5.14) QUESTIONAll of the following are sources of information underwriters use as they gather information for underwriting,EXCEPT:

a. Producersb. Government recordsc. Inspection reports

d. Educational records ANSWER D ( pp. 5.13-5.14) OBJECTIVE 6QUESTION

Which one of the following represents a physical hazard in the GhostWriter Publishing case?

a. The suspicious fireb. The ownership of the buildingc. The book-binding glued. The 50-gallon drum

ANSWER C ( pp. 5-15-5.16) QUESTION Which one of the following represents a morale hazard in the GhostWriter Publishing case? a. Failure to install sprinklers and ventilationb. Use of the gluec. The suspicious fired. The lack of profits

ANSWER A ( pp. 5.15-5.16) QUESTION Which one of the following represents a legal hazard in the GhostWriter Publishing case? a. The treatment of the employeesb. The toxic pollutionc. The inability to provide GhostWriter's involvement in the fired. The court interpretation of the policy language

ANSWER D ( pp. 5.15-5.16) OBJECTIVE 7QUESTIONIn evaluating an application, an underwriter has three options: accept without modification, reject, and acceptwith modification. Which one of the following is most correct?

a. Accepting with modification requires the greatest amount of creativity.b. Rejecting the application requires the greatest amount of creativity.c. Accepting without modification requires the greatest amount of creativity.d. Accepting with modification requires the least amount of creativity.

ANSWER A ( pp. 5.16-5.17) QUESTION When courts mandate coverage broader than the insurers intended in its policies, this is referred to as a a. Moral hazard.b. Legal hazard.c. Judicial hazard.d. Regulatory hazard.

ANSWER B ( p. 5.16) QUESTIONWhy would an underwriter modify the rate charged for the coverage provided when evaluating an applicationfor insurance?

a. Because treaty reinsurance in unavailable for the exposures indicatedb. To address the moral hazards the underwriter identified during investigationc. To better match the rate to the characteristics of the riskd. Because the applicant is not acceptable for coverage

ANSWER C ( pp. 5.5.16-5.17) QUESTIONWhich one of the following underwriting options requires the greatest amount of underwriting creativity on thepart of the underwriter?

a. Accepting the application with modificationsb. Accepting the application without modificationsc. Processing the application without using an expert or knowledge-based systemd. Rejecting the application

ANSWER A ( pp. 5.16-5.17) OBJECTIVE 8

QUESTIONIn evaluating an application, an underwriter thinks that the class of business is not one that the company wishesto write, but he would need to physically inspect it to be certain. He also realizes that the business is located in anundesirable 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.

ANSWER B ( pp. 5.16-5.17) QUESTION How do states prohibit unfair discrimination by insurers? a. By reviewing each policy cancellation or nonrenewal and the justification for the insurer's actionb. By maintaining a channel for policyholder complaintsc. By identifying it as an unfair trade practice in state insurance lawsd. By examining insurers' mission statements and objectives

ANSWER C ( pp. 5.19-5.20) QUESTION Why do states require that insurers notify the insured before a policy is to be canceled or nonrenewed? a. To provide the state an opportunity to investigate the reason for the cancellation or nonrenewalb. To give the policyholder an opportunity to replace the coveragec. To eliminate the possibility of an insurer canceling all policies covering a category of business or in ageographic aread. To reduce the opportunity for an insurer to red line

ANSWER B ( pp. 5.19-5.20) OBJECTIVE 9QUESTIONIn evaluating an application, an underwriter realizes that the amount of insurance required is more than thecompany is willing/able to provide. If the underwriter decides to issue the policy for the requested limits, shewill probably need to secure

a. Treaty reinsurance.b. Increased surplus.c. Facultative reinsurance.d. Coinsurance.

ANSWER C ( p. 5.11) QUESTIONIf an insurance company's policyholders' surplus has decreased, this will adversely impact how much businessthey are able to write. When this situation happens it results in a reduction in

a. Capacity.b. Retention.c. Adverse selection.d. Profits.

ANSWER A ( p. 5.4) Chapter 6 QUESTIONAn insured suffers a serious loss, such as the destruction of his or her house, and hires someone to represent hisor her interests. The person hired is

a. A staff adjuster.

b. A producer.c. A public adjuster.d. An independent adjuster.

ANSWER C ( pp. 6.7-6.8) QUESTIONSometimes an insurer does not have enough policyholders in a given region to justify hiring its own claimrepresentatives. In these situations, the insurer is likely to use

a. An independent adjuster.b. A third party administrator.c. A public adjuster.d. A regional adjuster.

ANSWER A ( pp. 6.6-6.7) QUESTIONSometimes an insurer will provide authority to some of its agents to settle and pay certain types of claims up to aspecified limit. When this occurs it is called

a. Binding authority.b. Settlement authority.c. Temporary authority.d. Producer authority.

ANSWER B ( p. 6.7) QUESTION Generally, an inside claim representative a. Meets with parties involved with the lossb. Handles claims by phone or mail from the insurer's officec. Visits the scene of the loss to investigate damagesd. Offers claim settlement service for a fee to insurers

ANSWER B ( p. 6.5) QUESTION Mary's car collides with two other cars, and several people are injured. The accident occurs near her insurer's branch office location. What type claim representative will Mary's insurer generally use to handle this claim? a. Independent adjusterb. Public adjusterc. Inside claim representatived. Outside claim representative

ANSWER D ( p. 6.6) QUESTION All of the following describe an independent adjuster, EXCEPT: a. Self-employedb. Contracted by an insurerc. Employee of an insurerd. Employee of an adjusting firm

ANSWER C ( pp. 6.6-6.7) QUESTIONJim notifies ABC Insurer of an accident with an ABC insured in a state in which ABC does not do business. Whattype of claim staff will ABC Insurer generally use to investigate this claim?

a. Inside claim representativeb. Outside claim representativec. Independent adjusterd. Independent agent

ANSWER C ( pp. 6.6-6.7) QUESTIONABC Widget Company pays for all its property losses up to $3 million and purchased insurance for losses over$3 million. What is this plan called?

a. Coinsuranceb. Reinsurancec. Self-insuranced. Umbrella insurance

ANSWER C ( p. 6.8) QUESTIONXYZ Company has established a self-insurance plan to treat its loss exposures. Other than its internal staff, whatresources would XYZ Company generally use to settle claims?

a. Independent adjusters b. Public adjustersc. Third party administratorsd. Outside claim representatives

ANSWER C ( pp. 6.8-6.9) OBJECTIVE 1QUESTIONDespite the unique challenges and variations from case to case, the last step in the claim handling process isusually

a. Determine cause of loss.b. Determine the amount of damages.c. Verify coverages.d. Negotiate and settle.

ANSWER D ( p. 6.9) QUESTIONIf an insured's house burns down to the ground due to lightening, the most difficult part of the claim handlingprocess will probably be

a. Determining the cause of loss.b. Verifying coverage.c. Determining the amount of damages.d. Determining insurable interest.

ANSWER C ( p. 6.13) QUESTIONIn an auto accident where serious bodily injuries are involved, the most difficult part of the claim handlingprocess will probably be

a. Verifying coverage.b. Determining cause of lossc. Negotiating and settling the claim.d. Determining insurable interest.

ANSWER C ( p. 6.9) OBJECTIVE 2QUESTIONIn property insurance claims, there is sometimes a question of whether coverage exists or not. In these situationsthe insurer will send a reservation of rights letter. The purpose of this letter is to advise the insured that

a. A coverage problem may exist. b. The claim will be handled by an independent adjuster. c. The policy may not be renewed due to loss frequency. d. The claim is in excess of their deductible. ANSWER A ( p. 6.10) QUESTION A person or entity that would suffer a financial loss if their property were damaged has a. A contractual interest.b. A discretionary interest.c. A renewable interest.

d. An insurable interest.

ANSWER D ( p. 6.10) QUESTIONIf an insured submits a claim for a seven-year-old refrigerator that was damaged due to lightening, the adjusterwill probably factor in an allowance for wear and tear. This is called

a. Replacement cost.b. Depreciation.c. Stated amount.d. Agreed amount.

ANSWER B ( p. 6.14) QUESTION If an insured wants to receive "new for old" in the event of a property loss, he or she would purchase a. Actual Cash Value (ACV).b. Replacement cost.c. Agreed value.d. Market value.

ANSWER B ( p. 6.14) QUESTIONJohn has an unendorsed homeowner's policy. John's two-year-old bicycle is stolen. The bicycle's purchase pricewas $800, and depreciation is estimated at $450. What is the bicycle's actual cash value?

a. $225b. $350c. $450d. $800

ANSWER B ( p. 6.14) QUESTION Subrogation is the insurer's right to a. Recover its claim payment from the party responsibleb. Drop a claim in exchange for an agreed amount of moneyc. Estimate the value of the damaged propertyd. Transfer coverage to a third party

ANSWER A ( p. 6.17) OBJECTIVE 3QUESTIONIn liability claims the claimant is referred to as the

a. Third party.b. Second party.c. First party.d. Primary party.

ANSWER A ( p. 6.17) QUESTION With a liability claim, damages awarded for pain and suffering incurred by the claimant are referred to as a. Punitive damages.b. Special damages.c. Secondary damages.d. General damages.

ANSWER D ( p. 6.20) QUESTION What is an example of general damages? a. Hospital expensesb. Lost wagesc. Prescriptionsd. Disfigurement

ANSWER D ( p. 6.20) QUESTION A liability loss has the following damages: Medical expenses $10,000Damages for disfigurement $50,000

Damages for pain and suffering $100,000

What is the amount of special damages? a. $10,000b. $50,000c. $100,000d. $160,000

ANSWER A ( p. 6.20) QUESTION A liability loss has the following damages: Medical expenses $10,000Damages for disfigurement $50,000Damages for pain and suffering $100,000

What is the amount of general damages? a. $60,000b. $110,000c. $150,000d. $160,000

ANSWER C ( p. 6.20) OBJECTIVE 4QUESTIONProperty insurers are subject to the possibility of many claims occurring from a single event often straining theirresources. This is called

a. An accident.b. An occurrence.c. A catastrophe.d. A simulation.

ANSWER C ( p. 6.21) QUESTIONIn order to expedite claim handling during a catastrophe, an insurer will consider modifying all of the followingprocedures, EXCEPT:

a. Temporarily increasing claim handling authority for producers b. Making advance payments to policyholders c. Using abbreviated claim handling procedures d. Suspending the use of independent adjusting firms ANSWER D ( p. 6.23) OBJECTIVE 5QUESTIONOne of the greatest challenges in dealing with a catastrophe is in the area of staffing. Which one of the followingis an unlikely response to this challenge?

a. Identify and train staff from other areas to assist.b. Establish relationships with independent adjusters to help manage overflow.c. Purchase catastrophe reinsurance.d. Bring in catastrophe teams of claims representatives from other regions.

ANSWER C ( p. 6.22) QUESTION The person hired by an insured to represent the insured in handling a claim is called a a. First party adjuster.b. Outside claim adjuster.c. Independent adjuster.d. Public adjuster.

ANSWER D ( p. 6.6) QUESTIONThe insurer's right to recover and sell or otherwise dispose of insured property on which the insurer has paid atotal loss is called

a. Fiduciary rights.b. Salvage rights.

c. Constructive rights.d. Catastrophe rights.

ANSWER B ( pp. 6.3-6.27) QUESTION A loss reserve determined by the claim adjuster that is assigned to an individual claim is called a a. Case reserve.b. Bulk reserve.c. Third party reserve.d. Deferred reserve.

ANSWER A ( pp. 6.20-6.24) Chapter 6 QUESTIONAn insured suffers a serious loss, such as the destruction of his or her house, and hires someone to represent hisor her interests. The person hired is

a. A staff adjuster.b. A producer.c. A public adjuster.d. An independent adjuster.

ANSWER C ( pp. 6.7-6.8) QUESTIONSometimes an insurer does not have enough policyholders in a given region to justify hiring its own claimrepresentatives. In these situations, the insurer is likely to use

a. An independent adjuster.b. A third party administrator.c. A public adjuster.d. A regional adjuster.

ANSWER A ( pp. 6.6-6.7) QUESTIONSometimes an insurer will provide authority to some of its agents to settle and pay certain types of claims up to aspecified limit. When this occurs it is called

a. Binding authority.b. Settlement authority.c. Temporary authority.d. Producer authority.

ANSWER B ( p. 6.7) QUESTION Generally, an inside claim representative a. Meets with parties involved with the lossb. Handles claims by phone or mail from the insurer's officec. Visits the scene of the loss to investigate damagesd. Offers claim settlement service for a fee to insurers

ANSWER B ( p. 6.5) QUESTIONMary's car collides with two other cars, and several people are injured. The accident occurs near her insurer'sbranch office location. What type claim representative will Mary's insurer generally use to handle this claim?

a. Independent adjusterb. Public adjusterc. Inside claim representatived. Outside claim representative

ANSWER D ( p. 6.6) QUESTION All of the following describe an independent adjuster, EXCEPT: a. Self-employed

b. Contracted by an insurerc. Employee of an insurerd. Employee of an adjusting firm

ANSWER C ( pp. 6.6-6.7) QUESTIONJim notifies ABC Insurer of an accident with an ABC insured in a state in which ABC does not do business. Whattype of claim staff will ABC Insurer generally use to investigate this claim?

a. Inside claim representativeb. Outside claim representativec. Independent adjusterd. Independent agent

ANSWER C ( pp. 6.6-6.7) QUESTIONABC Widget Company pays for all its property losses up to $3 million and purchased insurance for losses over$3 million. What is this plan called?

a. Coinsuranceb. Reinsurancec. Self-insuranced. Umbrella insurance

ANSWER C ( p. 6.8) QUESTIONXYZ Company has established a self-insurance plan to treat its loss exposures. Other than its internal staff, whatresources would XYZ Company generally use to settle claims?

a. Independent adjustersb. Public adjustersc. Third party administratorsd. Outside claim representatives

ANSWER C ( pp. 6.8-6.9) OBJECTIVE 1QUESTIONDespite the unique challenges and variations from case to case, the last step in the claim handling process isusually

a. Determine cause of loss.b. Determine the amount of damages.c. Verify coverages.d. Negotiate and settle.

ANSWER D ( p. 6.9) QUESTIONIf an insured's house burns down to the ground due to lightening, the most difficult part of the claim handlingprocess will probably be

a. Determining the cause of loss.b. Verifying coverage.c. Determining the amount of damages.d. Determining insurable interest.

ANSWER C ( p. 6.13) QUESTIONIn an auto accident where serious bodily injuries are involved, the most difficult part of the claim handlingprocess will probably be

a. Verifying coverage.b. Determining cause of lossc. Negotiating and settling the claim.d. Determining insurable interest.

ANSWER C ( p. 6.9) OBJECTIVE 2 QUESTIONIn property insurance claims, there is sometimes a question of whether coverage exists or not. In these situationsthe insurer will send a reservation of rights letter. The purpose of this letter is to advise the insured that

a. A coverage problem may exist.b. The claim will be handled by an independent adjuster.c. The policy may not be renewed due to loss frequency.d. The claim is in excess of their deductible.

ANSWER A ( p. 6.10) QUESTION A person or entity that would suffer a financial loss if their property were damaged has a. A contractual interest.b. A discretionary interest.c. A renewable interest.d. An insurable interest.

ANSWER D ( p. 6.10) QUESTIONIf an insured submits a claim for a seven-year-old refrigerator that was damaged due to lightening, the adjusterwill probably factor in an allowance for wear and tear. This is called

a. Replacement cost.b. Depreciation.c. Stated amount.d. Agreed amount.

ANSWER B ( p. 6.14) QUESTION If an insured wants to receive "new for old" in the event of a property loss, he or she would purchase a. Actual Cash Value (ACV).b. Replacement cost.c. Agreed value.d. Market value.

ANSWER B ( p. 6.14) QUESTIONJohn has an unendorsed homeowner's policy. John's two-year-old bicycle is stolen. The bicycle's purchase pricewas $800, and depreciation is estimated at $450. What is the bicycle's actual cash value?

a. $225b. $350c. $450d. $800

ANSWER B ( p. 6.14) QUESTION Subrogation is the insurer's right to a. Recover its claim payment from the party responsibleb. Drop a claim in exchange for an agreed amount of moneyc. Estimate the value of the damaged propertyd. Transfer coverage to a third party

ANSWER A ( p. 6.17) OBJECTIVE 3QUESTION

In liability claims the claimant is referred to as the

a. Third party.b. Second party.c. First party.d. Primary party.

ANSWER A ( p. 6.17) QUESTION With a liability claim, damages awarded for pain and suffering incurred by the claimant are referred to as a. Punitive damages.b. Special damages.c. Secondary damages.d. General damages.

ANSWER D ( p. 6.20) QUESTION What is an example of general damages? a. Hospital expensesb. Lost wagesc. Prescriptionsd. Disfigurement

ANSWER D ( p. 6.20) QUESTION A liability loss has the following damages: Medical expenses $10,000Damages for disfigurement $50,000Damages for pain and suffering $100,000

What is the amount of special damages? a. $10,000b. $50,000c. $100,000d. $160,000

ANSWER A ( p. 6.20) QUESTION A liability loss has the following damages: Medical expenses $10,000Damages for disfigurement $50,000Damages for pain and suffering $100,000

What is the amount of general damages? a. $60,000b. $110,000c. $150,000d. $160,000

ANSWER C ( p. 6.20) OBJECTIVE 4QUESTIONProperty insurers are subject to the possibility of many claims occurring from a single event often straining theirresources. This is called

a. An accident.b. An occurrence.c. A catastrophe.d. A simulation.

ANSWER C ( p. 6.21) QUESTION In order to expedite claim handling during a catastrophe, an insurer will consider modifying all of the following procedures, EXCEPT: a. Temporarily increasing claim handling authority for producersb. Making advance payments to policyholdersc. Using abbreviated claim handling proceduresd. Suspending the use of independent adjusting firms

ANSWER D ( p. 6.23) OBJECTIVE 5

QUESTIONOne of the greatest challenges in dealing with a catastrophe is in the area of staffing. Which one of the followingis an unlikely response to this challenge?

a. Identify and train staff from other areas to assist.b. Establish relationships with independent adjusters to help manage overflow.c. Purchase catastrophe reinsurance.d. Bring in catastrophe teams of claims representatives from other regions.

ANSWER C ( p. 6.22) QUESTION The person hired by an insured to represent the insured in handling a claim is called a a. First party adjuster.b. Outside claim adjuster.c. Independent adjuster.d. Public adjuster.

ANSWER D ( p. 6.6) QUESTIONThe insurer's right to recover and sell or otherwise dispose of insured property on which the insurer has paid atotal loss is called

a. Fiduciary rights.b. Salvage rights.c. Constructive rights.d. Catastrophe rights.

ANSWER B ( pp. 6.3-6.27) QUESTION A loss reserve determined by the claim adjuster that is assigned to an individual claim is called a a. Case reserve. b. Bulk reserve.c. Third party reserve.d. Deferred reserve.

ANSWER A ( pp. 6.20-6.24) Chapter 8 ---------------------------------------------------------------------------- Please refer the following 'Case Study' with appropriate Questions and Answers: ----------------------------------------------------------------------------CASE: Printer's ThumbThe Printer's Thumb is a store specializing in printing and photocopying for local businesses. The Printer'sThumb's customers depend on fast and accurate service for their printing needs. The Printer's Thumb hasdeveloped a positive reputation by providing that service. The Printer's Thumb occupies a building it owns;Ultimate Lender holds the mortgage to the building. All of the equipment used for printing and photocopyingwas purchased with cash and is located in the building. The building and its contents are covered by a propertyinsurance "special form coverage" policy.

One evening after working hours, lightning struck the building resulting in a fire in the electrical wiring. Papers that had accumulated in the trash ignited and substantial fire damage resulted. Damage resulted to the building, contents, and a customer's original documents and files that were waiting to be copied. Until repairs could be made, the Printer's Thumb rented a temporary office in an available space in a local mall. The manager of The Printer's Thumb did not want to lose the customers that he had worked so hard to develop by shutting down servicing while repairs were made. All of The Printer's Thumb's customers have agreed to continue business at the new location. ---------------------------------------------------------------------------- OBJECTIVE 0

QUESTIONThere are two basic types of property: real property and personal property. Wall-to-wall carpeting is typicallyconsidered to be an example of real property because it

a. Tends to depreciate in value.b. Is permanently installed.c. Is readily visible.d. Is easy to value.

ANSWER B ( p. 8.5) QUESTION Property insurance policies use the term "personal property" to refer to the a. Contents of a building.b. Equipment used to maintain the building.c. Company's copyrights and trademarks.

d. Buildings not attached to the main building. ANSWER A ( p. 8.5) QUESTIONMany businesses have refrigeration equipment, production equipment, steam boilers, and air conditioningsystems. These are all examples of

a. Property in transit.b. Personal property.c. Mobile equipment.d. Boilers and machinery.

ANSWER D ( p. 8.7) OBJECTIVE 1QUESTIONHow will the claim representative assigned to The Printer's Thumb loss determine whether the peril is coveredby the property policy?

a. If the peril is not specifically excluded by the policy, coverage is provided.b. If the peril is listed and described in the policy, coverage is provided.c. If the manager of The Printer's Thumb can prove that the loss was caused by a covered peril, coverage isprovided.d. If the manager of The Printer's Thumb can prove that he was not responsible for the loss, coverage is provided.

ANSWER A ( pp. 8.7-8.8) QUESTIONMany property insurance policies list the covered causes of loss they intend to cover. These policies arecommonly known as

a. Special form.b. Open perils.c. Named perils.d. Broad form.

ANSWER C ( p. 8.7) QUESTIONAn important difference between named perils and special form coverage involves the burden of proof. In aspecial form policy, if a loss occurs to covered property it is initially assumed that coverage applies. If there is aquestion regarding coverage, the burden of proof will be on the

a. Insured.

b. Mortgagee.c. Insurer.d. Claimant.

ANSWER C ( p. 8.8) QUESTIONWith a named perils policy, for coverage to apply, it must be proven that the loss was caused by a covered causeof loss. The burden to prove this is on the

a. Insured.b. Mortgagee.c. Insurer.d. Claimant.

ANSWER A ( p. 8.8) OBJECTIVE 2QUESTIONWhen property is lost or damaged, the value of the property is decreased. In addition to direct damage to theproperty there could be additional loss to the business known as

a. Lost income.b. Deferred income.c. Historical income.d. Residual income.

ANSWER A ( p. 8.9) QUESTIONIn order to determine the potential lost income to a business after a fire, an analysis must be conducted todetermine projected income compared to post-lost income. This is referred to as a

a. "What for" analysis.b. "If only" analysis.c. "What if" analysis.d. "Why me" analysis.

ANSWER C ( p. 8.9) OBJECTIVE 3QUESTIONWhat was the Printer's Thumb's relationship to the customer whose original documents and files were destroyedin the fire as they were waiting to be copied?

a. The customer was an unsecured lender.b. The Printer's Thumb was a user of property.c. The Printer's Thumb was a bailee.d. The customer was a bailee.

ANSWER C ( p. 8.11) QUESTION The party most affected when property is lost, damaged, or destroyed is usually the a. User of the property.b. Secured lender.c. Owner of the property.d. Holder of the property.

ANSWER C ( p. 8.11) QUESTIONJim's Computer Repair will often take customers' computers into the shop for repairs and service. While Jim hasthe customer's computer in his possession he is in the role of

a. A bailee.

b. A bailor.c. A secured lender.d. An agent.

ANSWER A ( p. 8.11) QUESTIONIn addition to protecting the owner, property insurance policies generally protect the secured lender's interest inthe financed property by

a. Issuing a mortgagee interest only policy.b. Sending them a letter of intent.c. Issuing a separate policy.d. Naming them on the owner's policy.

ANSWER D ( p. 8.11) OBJECTIVE 4QUESTIONSometimes property is not in a fixed location, but rather moves from location to location. In order to protect thistype of property one would need to purchase a

a. Dwelling policy.b. Floater policy.c. Flex policy.d. Consequential policy.

ANSWER B ( p. 8.12) QUESTION Because personal property can be moved more easily than buildings, it is usually a. Exposed to more perils.b. Exposed to fewer perils.c. Not Exposed to many perils.d. Not exposed to insurable perils.

ANSWER A ( p. 8.14) OBJECTIVE 5QUESTIONFor the loss that occurred at The Printer's Thumb building, what was the proximate cause of loss?

a. The lightningb. The firec. The electrical wiringd. The trash accumulation

ANSWER A ( pp. 8.16-8.17) QUESTION Water damage to a building following a windstorm is often not covered by a property policy unless a. The windstorm is confirmed by the weather service.b. The policy is written with named perils.c. The policy is written with special coverage.d. Wind caused an opening in the structure through which water entered.

ANSWER D ( p. 8.17) QUESTION The taking of property from a person by someone who has caused or threatened to cause personal harm is a. Burglary.b. Robbery.c. Theft.d. Dishonesty.

ANSWER B ( pp. 8.21-8.22) QUESTIONIf you were a property owner and wanted the broadest coverage available to protect your building you wouldpurchase

a. Basic form coverage.b. Broader form coverage.c. Broad form coverage.d. Special form coverage.

ANSWER D ( p. 8.16) QUESTIONIt was a cool fall night and Jean decided to get a fire going in the fireplace. It took a while, but she soon had aroaring blaze going. The next day when she was cleaning out the ashes she realized that a log with unique handcarvings was inadvertently placed in the fireplace and was destroyed. If Jean submitted a claim to her insurer forthe value of this special log, the insurer would more than likely discuss with her the concept of a

a. Fireplace fire.b. Fortuitous fire.c. Friendly fire.d. Foreseeable fire.

ANSWER C ( p. 8.16) QUESTION The event that sets in motion an uninterrupted chain of events contributing to a loss is called a. Preventable cause.b. Proximate cause.c. Projected cause.d. Preliminary cause.

ANSWER B ( p. 8.17) OBJECTIVE 6QUESTIONCatastrophe perils, such as war, are generally excluded from property insurance policies because the risk isconsidered to be uninsurable since

a. The losses could be prevented.b. The premiums required to cover the exposure would be unaffordable by most families and businesses.c. Most families and businesses do not face the loss exposure.d. The funds of the entire insurance industry might be inadequate to pay for all the claims

ANSWER D ( pp. 8.22-8.23) QUESTIONProperty insurance policies typically exclude loss from maintenance perils. Such losses are generally uninsurablebecause

a. Covering such losses would result in a moral hazard.b. They are either certain to occur, over time, or are avoidable.c. Maintenance policies are written only through excess and surplus lines.d. It is difficult (if not impossible) to identify the date of loss and therefore the policy or insurer providingcoverage.

ANSWER B ( p. 8.23) QUESTIONAlmost all property insurance policies exclude coverage for losses from catastrophes, such as war and nuclearhazard, because

a. There might not be enough claim adjusters.b. It is against public policy to cover these events.

c. Funds might not be adequate to pay all claims.d. It is illegal to cover these events.

ANSWER C ( pp. 8.22-8.23) QUESTIONWear and tear, rust, marring, and scratching are examples of maintenance perils which are usually excluded inproperty insurance policies. They are excluded because

a. There might not be enough claim adjusters.b. It is against public policy to cover these events.c. They are certain to occur.d. It is illegal to cover these events.

ANSWER C ( p. 8.23) QUESTIONInsurance is primarily designed for definite and accidental losses. Because of this, most policies will excludecoverage for what is known as

a. Named perils.b. Maintenance perils.c. Broad perils.d. Specified perils.

ANSWER B ( p. 8.23) OBJECTIVE 7QUESTIONThe financial expenses incurred by The Printer's Thumb to rent the office space at the mall is which form offinancial consequence that might be covered by their property insurance policy?

a. A direct lossb. Lost incomec. Extra expensed. Optional rental reimbursement

ANSWER C ( pp. 8.24-8.25) QUESTIONBea's Restaurant suffered a very serious fire due to a lightening strike, and the structure had to be torn down.The damage to the building is an example of a

a. Indirect loss.b. Direct loss.c. Time element loss.d. Consequential loss.

ANSWER B ( p. 8.24) QUESTIONExpenses that a business incurs to reduce the length of a business interruption or to enable a business to continuesome operations after the property has been damaged are called

a. Deferred expenses.b. Extra expenses.c. Supplementary expenses.d. Emergency expenses.

ANSWER B ( p. 8.24) QUESTION Lost income and extra expenses resulting from direct loss to property can be insured. Such losses are often called a. Potential element losses.b. Future element losses.

c. Additional element losses.d. Time element losses.

ANSWER D ( p. 8.24) OBJECTIVE 8QUESTIONWhich one of the following describes the rights granted to a mortgagee versus the rights granted to a loss payeeunder a property insurance policy?

a. A mortgagee and a loss payee have the same rights. The two clauses simply differentiate loans for real andpersonal property.b. In the event of a loss, the mortgagee is paid first, the named insured second, and any loss payee is third.c. The terms are used interchangeably depending on the insurance contract.d. A mortgagee is granted some rights that are greater than those granted to the named insured; however, theloss payee has the same rights as the named insured.

ANSWER D ( pp. 8.26-8.27) QUESTIONThe person whose name(s) appear on the declarations page of an insurance policy and has the broadest coverageis referred to as the

a. Insured.b. Named insured.c. Additional insured.d. Other insured.

ANSWER B ( p. 8.25) QUESTIONWhen a policy provides coverage for personal property and there is a secured lender, the secured lender will belisted on the policy as a

a. Loss payee. b. Mortgagee. c. Bailee.

d. Named insured. ANSWER A ( p. 8.27) OBJECTIVE 9QUESTIONA lender has an insurable interest in property until the

a. Policy is cancelled.b. Loan is paid in full.c. Loan is partially paid.d. Policy is paid in full.

ANSWER B ( p. 8.26) QUESTIONWhen an insured borrows money to purchase a car, the insured is required to add the bank to the auto policy asaa. Lessee.

b. Mortgagee.c. Loss Payee.d. Named insured.

ANSWER C ( p. 8.27) OBJECTIVE 10QUESTIONWhat purpose do insurance-to-value provisions serve in property insurance policies?

a. They discourage insurance fraud by ensuring that the property is worth the va

lue requested in the policylimits.b. They encourage insureds to purchase an amount of insurance that is equal to, or close to, the value of thecovered property.c. They establish the maximum amount the insurance company will pay for any loss.d. They establish the options available to the insurance company in settling the loss.

ANSWER B ( pp. 8.29-8.30) QUESTIONAn insurance-to-value provision in property insurance policies that reduces the amount the insurer will pay for acovered loss that occurs to property that is underinsured is

a. A coinsurance clause. b. A deductible.c. A policy limit.d. The replacement value.

ANSWER A ( p. 8.30) QUESTIONInsurers generally have the option to repair, replace, or pay the value of lost or damaged property. They willusually go with the option that will

a. Reduce their costs.b. Increase the insured's recovery.c. Reduce the insured's costs.d. Be the quickest.

ANSWER A ( p. 8.29) QUESTIONA portion of a covered property loss that is subtracted from the amount the insurer would otherwise be obligatedto pay is the

a. Amount of the loan still outstanding.b. Pro-rata premium.c. Reinsurance.d. Deductible.

ANSWER D ( p. 8.29) QUESTION Many property insurance policies impose a penalty if the property is underinsured. This provision is known as a. Reinsurance.b. Coinsurance.c. The deductible.d. Other insurance clause.

ANSWER B ( p. 8.30) OBJECTIVE 11QUESTIONUnder a property insurance policy, a fire that leaves its intended place is known as a(n)

a. Hostile fire. b. Angry fire.c. Uncontrolled fire.d. Wild fire.

ANSWER A ( p. 8.16) QUESTION Willful and malicious damage to or destruction of property is known as a. War.b. Vandalism.c. Burglary.

d. Robbery.

ANSWER B ( p. 8.19) INS 21 Questions Answers Materials Dumps Chapter 9 QUESTIONThe law that consists of the body of principles and rules established over time by courts on a case-by-case basis iscalled

a. Administrative law.b. Constitutional law.c. Common law.d. Regulatory law.

ANSWER C ( p. 9.5) QUESTION Laws made by formal enactments of legislative bodies are referred to as a. Statutory law.b. Common law.c. Case law.d. Constitutional law.

ANSWER A ( p. 9.5) QUESTION The source of all of our fundamental rights, such as freedom of speech, freedom of religion, etc., is found in a. Common law.b. Constitutional law.c. Statutory law.

d. Court decisions. ANSWER B ( p. 9.4) QUESTION The body of principles and rules established over time by courts on a case-by-case basis is known as a. Statutory law.b. Informal law.c. Common law.d. State law.

ANSWER C ( p. 9.5) QUESTIONIf an insurance company were presented with a very serious auto accident, what type of law would determinewho was at fault?

a. Criminal lawb. Constitutional lawc. Common lawd. Statutory law

ANSWER C ( p. 9.5) OBJECTIVE 1QUESTIONWrongful acts that society deems harmful to the public welfare are addressed by

a. Criminal law.b. Common law.c. Contract law.d. Constitutional law.

ANSWER A ( p. 9.6) QUESTION Contract law deals with contracts and settles contract disputes and is a branch of a. Common law.b. Civil lawc. Criminal law

d. Constitutional law. ANSWER B ( p. 9.6) QUESTIONJohn was involved in a serious accident that included injuries to the other party, and charged with driving whileintoxicated. The actions that are likely to be brought against John are

a. Statutory and common.b. Civil and common.c. Constitutional and criminal.d. Civil and criminal.

ANSWER D ( p. 9.7) OBJECTIVE 2QUESTIONWhen John was driving his car, he was inattentive and was unable to stop in time to avoid hitting a car stoppedat a traffic light. He damaged the stopped car he collided with. What is the basis for John's liability?

a. Negligenceb. Absolute liabilityc. Statutory liabilityd. No-fault statutes

ANSWER A ( pp. 9.8-9.9) QUESTION A tort is a. The legal right of recovery for damage or injury.b. A failure to act in a reasonably prudent manner.c. Any wrongful act other than a crime or breach of contract.d. An unbroken chain of events that causes injury or damage.

ANSWER C ( p. 9.8) QUESTIONSean drove his vehicle even though his doctor advised him not to drive because the medication he was takingcaused drowsiness. Unfortunately, Sean was involved in an accident causing serious injury to himself and others.In this situation, Sean committed a

a. Criminal act. b. Breach of contract. c. Tort. d. Intentional tort. ANSWER C ( p. 9.8) QUESTION Although largely modified or restated in statues, tort law is still based mainly on a. Constitutional law.b. Common law.c. Contract law.d. Statutory law.

ANSWER B ( p. 9.8) QUESTIONMany states have enacted automobile "no-fault" laws. This ensures adequate compensation for injuries withoutlengthy disputes over who's at fault. These laws are an example of

a. Statutory liability.b. Common Law.c. Tort law.d. Contract law.

ANSWER A ( p. 9.12) OBJECTIVE 3QUESTIONAll of the following are the elements of negligence, EXCEPT:

a. Duty owed to anotherb. Breach of duty owedc. Injury or damaged. Minimum threshold of loss

ANSWER D ( pp. 9.8-9.9) QUESTION A man told a pedestrian that he would break her arm if she did not give him her purse. This is an example of a. False arrest.

b. Invasion of privacy.c. Assault.

d. Battery. ANSWER C ( p. 9.10) QUESTIONIn speaking with John, Mark said that Peter embezzled $500,000 from their employer. If this statement is false, itis an example of

a. Slander.b. Libel.c. Breach of warranty.d. Misdemeanor.

ANSWER A ( p. 9.10) QUESTIONThe liability that someone could incur because of an inherently dangerous activity like building demolition iscalled

a. Nonretractable liability.b. Nontransferable.c. Strict liability.c. Compulsory liability.

ANSWER C ( p. 9.11) QUESTIONIn order to determine if someone was negligent there are four elements that needs to be considered. Negligencewill be proven if

a. Any of the four elements exist.b. All of the elements exist.c. Most of the elements exist.d. Some of the elements exist.

ANSWER B ( pp. 9.8-9.8) QUESTIONA building owner is responsible for keeping the premises safe and free of any situation that may cause injury to acustomer. Which one of the following elements of negligence does this address?

a. Duty owedb. Breach of dutyc. Damagesd. Unbroken chain of events

ANSWER A ( pp. 9.8-9.9) QUESTION With regard to negligence, no recovery can be made unless someone a. Has a witness.b. Suffers injury or damage.c. Has a contract.d. Breaks the chain of events.

ANSWER B ( p. 9.9) OBJECTIVE 4QUESTIONIn the event that a lawsuit against an insured is found to be groundless, the insurer will still end up paying

a. Special damages.b. General damages.c. Defense costs.d. Compensatory damages.

ANSWER C ( p. 9.14) QUESTION An award of compensatory damages is the amount of money that has been judged to equal a. All of the damages incurred.b. Punitive damages only.c. Special damages only.d. Special and general damages.

ANSWER D ( p. 9.13) OBJECTIVE 5QUESTIONAnyone who owns or occupies property has a

a. Products liability loss exposure.b. Professional liability loss exposure.c. Premises liability loss exposure.

d. Pollution liability loss exposure. ANSWER C ( p. 9.15) QUESTIONA licensed electrician completes the job of rewiring a house and returns to his shop. With regard to thecompleted work, the electrician has a

a. Completed operations loss exposure.b. Premises liability loss exposure.c. Business operations loss exposure.d. Professional liability loss exposure.

ANSWER A ( p. 9.15) QUESTIONCounty Janitorial Service is contracted local bars and taverns to clean their restrooms on a daily basis. County'sgreatest liability exposure is probably

a. Liquor liability.b. Professional liability.c. Advertising liability.d. Completed operations.

ANSWER D ( p. 9.15) OBJECTIVE 6QUESTIONIron Works, Inc. is insured under a commercial liability policy listing several names on the declarations page.The declarations lists Bart Danner, Paul Binder, and Iron Works, Inc. A policy provision would generally identifywhich of the following as the insured(s) with whom the insurer has legal contact?

a. Bart Dannerb. Paul Binderc. Iron Works, Inc.d. All of the above

ANSWER A ( p. 9.18) QUESTION A liability policy generally gives the broadest protection to the a. Mortgagee. b. Loss payee. c. Additional insured. d. Named insured. ANSWER D ( p. 9.18) QUESTIONMany liability policies provide the spouse of the named insured with the same coverage that is provided to thenamed insured if both

a. Have been married more than five years.b. Live in the same household.c. Have not been married before.

d. Do not have children under the age of 21.

ANSWER B ( p. 9.18) OBJECTIVE 7QUESTIONPup's Pet Shop advertised and sold homemade dog treats that caused a customer's dog to have a serious allergicreaction and die. This is an example of

a. Bodily injury.b. Advertising injury.c. Property damage.d. Personal injury.

ANSWER C ( p. 9.20) QUESTION An injury arising from an intentional tort such as libel, slander, or invasion of privacy is called a. Individual injury.b. Bodily injury.c. Property damage.d. Personal injury.

ANSWER D ( p. 9.20) QUESTION Within the context of a CGL policy, claims for injury, sickness, disease, and resulting death are usually considered to be a. Bodily injury.b. Personal injury.c. Professional injury.d. Individual injury.

ANSWER A ( pp. 9.19-9.20) OBJECTIVE 8QUESTIONBroad pollution coverage is not typically included in liability policies primarily as an attempt to

a. Eliminate duplicate coverage.b. Avoid covering uninsurable losses.c. Keep premiums reasonable.d. Avoid insuring losses that could be prevented.

ANSWER C ( p. 9.22) OBJECTIVE 9QUESTIONMany liability policies cover medical payments for injured persons, regardless of

a. Where the incident took place.b. When the injuries occurred.c. The amount of damages.d. Fault.

ANSWER D ( p. 9.25) QUESTION Hospital bills, physician's fees, lost income, and rehabilitation expenses are all examples of a. Statutory damages.b. Special damages.c. General damages.d. Punitive damages.

ANSWER B ( pp. 9.22-9.23) OBJECTIVE 10 QUESTIONAssuming the retroactive date is the same as the policy inception date of a claims-made liability policy, whichone of the following is true for coverage to apply?

a. Coverage will never apply when the retroactive date is the same as the policy inception date.

b. Bodily injury or property damage must occur during the policy period or anytime before policy inception.c. Claims must be submitted during the policy period.d. Claims can be submitted anytime during or after the policy period.

ANSWER C ( pp. 9.26-9.27) QUESTIONLiability coverage that covers an accident that occurs during the policy period, regardless of when the claim issubmitted to the insurer is which one of the following types of coverages?

a. Claims made coverageb. Occurrence basis coveragec. Retroactive coveraged. Perpetual coverage

ANSWER B ( p. 9.26) QUESTIONUnder a liability policy that provides occurrence basis coverage, if a covered accident occurs during the policyperiod, the claim will be covered, regardless of when the claim is

a. Submitted.b. Settled.c. Paid.d. Closed.

ANSWER A ( p. 9.26) QUESTION From the insurer's perspective occurrence basis coverage means that liability claims may surface long after a. An insured has died. b. A policy has expired. c. A policy was written. d. A claim is made. ANSWER B ( p. 9.26) QUESTION The date in a claims-made policy on or after injury or damage must occur in order to be covered is known as the a. Retroactive date.b. Reoccurrence date.c. Expiration date.d. Elapsed date.

ANSWER A ( p. 9.27) OBJECTIVE 11QUESTIONThe aggregate limit in a liability policy is the maximum amount an insurer will pay for all covered losses duringthe

a. Calendar year.b. Policy period.c. Retroactive period.d. Fiscal year.

ANSWER B ( p. 9.27) QUESTIONUnder a liability policy, the maximum amount an insurer will pay for both bodily injury and property damagearising from a single occurrence is known as the

a. Aggregate limit.b. Split limit.c. Occurrence limit.d. Defined limit.

ANSWER C ( p. 9.27) QUESTION Defense costs in a liability policy are usually payable a. In addition to the policy limits.b. In addition to the premiums paid.c. If there is money left after compensatory damages are paid.

d. If there is money left after punitive damages are paid.

ANSWER A ( p. 9.29) OBJECTIVE 12 QUESTION A wrongful act, other than a crime, committed by one party against another is a a. Contract.b. Tort.c. Breach.d. Civil crime.

ANSWER B ( p. 9.8) QUESTIONA contractual provision that obligates one party to assume the financial consequences of legal liability foranother party is

a. A statute.b. A hold-harmless agreement.c. An example of strict liability.d. A warranty.

ANSWER B ( p. 9.11) QUESTION Interest that may accrue on damages before a judgment has been rendered is a. Retroactive interest.b. Collateral interest.c. Postjudgment interest.d. Prejudgment interest.

ANSWER D ( p. 9.25) INS 21 Questions Answers Materials Dumps Chapter 10 ---------------------------------------------------------------------------- Please refer the following 'Case Study' with appropriate Questions and Answers: ----------------------------------------------------------------------------CASE STUDY 1 : Jane DockerJane owns a ten-year-old compact car that she uses to drive to work each day. Jane drives 20 miles into the cityand parks her car on a street near her office.

Jane's son, Joe, is 15-years-old, and he will obtain his driver's license this summer when he becomes 16. Joe has already expressed an interest in buying his own vehicle or driving Jane's compact car. Jane is concerned about the cost of owning a vehicle, buying the insurance, and the risk of parking the vehicle on the street. If Joe buys his own vehicle, she knows that her expenses and her concerns will increase. Jane is considering risk management alternatives to help her reduce expenses and risks. ----------------------------------------------------------------------------CASE STUDY 2 : Frank & JanFrank and Jan are each twenty-five years old, and they have purchased their first home together. It required all oftheir savings and some money from their parents to make their down payment. The house needs repairs thatthey will do themselves and with the help of friends. The first project will be to seal the lead paint that is on theinterior of the house and remove flaking lead paint that is on the exterior of the house.

d Frank and Jan are also aware that a buried heating-oil tank in the yard is leaking slowly, but they have decided that replacing that tank must wait until they have the funds in a year or two. ---------------------------------------------------------------------------- OBJECTIVE 0QUESTIONRisk management concepts in one form or another apply

a. Only to large companies.

b. Only to international companies.c. To all companies but not families.d. To all companies and families.

ANSWER D ( pp. 10.3-10.4) QUESTION The first step in the risk management process is to a. Implement the selected technique.b. Select the appropriate technique.c. Identify loss exposures.d. Monitor results.

ANSWER C ( p. 10.4) QUESTION The last step in the risk management process is to a. Implement the selected technique.b. Select the appropriate technique.c. Identify loss exposures.d. Monitor results.

ANSWER D ( p. 10.4) OBJECTIVE 1QUESTIONGrocers' Warehouse is a newly created business that will open next month. It will include a retail operation aswell as 500,000 square feet of warehouse space, loading docks, etc. Which one of the following methods ofidentifying loss exposures would be least applicable in this situation?

a. Physical inspectionb. Loss exposure surveyc. Loss historiesd. Interviews with management

ANSWER C ( pp. 10.6-10.7) QUESTIONLoss exposure surveys or checklists are comprehensive and apply to almost any organization. The survey's majorweakness is that

a. They are expensive.b. They may omit an important exposure.c. They have to be custom designed for each business.d. They take too long to complete.

ANSWER B ( p. 10.5) QUESTIONLoss histories can offer great insight into an organization's loss exposures. The problem with depending tooheavily on this one source is that some past events might

a. Not have been recorded.b. Have been insured.c. Still be unresolved.d. Not have been insured.

ANSWER A ( pp. 10.6-10.7) OBJECTIVE 2QUESTIONA risk manager in an industrial plant is trying to determine where she needs to spend most of her time inreducing the number of accidents. The plant has a history of work-related injuries, and she wants to make surethat is reduced. What should the risk manager measure to determine where she should expend her efforts?

a. The number of workers in each area

b. The flow chart bottlenecksc. The loss frequencyd. The loss severity

ANSWER C ( p. 10.7) QUESTION Why is it easier to gauge the potential severity of property losses than of liability losses? a. Property loss exposures are confined to the building and contents. Liability losses can encompass thesurrounding grounds of the business.b. Property loss exposures have a documented annual frequency and severity that can be determined as anaverage according to the type of business. Liability loss exposures cannot be determined with this level ofaccuracy.c. Property loss exposures have a calculable frequency. The frequency of liability loss exposures cannot bedetermined with accuracy.d. Property loss exposures have a calculable severity. The severity of liability loss exposures is much harder todetermine.

ANSWER D ( p. 10.7) QUESTION The dollar amount of damage that results or might result from a loss exposure is the a. Loss severity.b. Loss frequency.c. Loss prevention.d. Loss reduction.

ANSWER A ( p. 10.7) QUESTION Analyzing the potential frequency and severity of a loss exposure enables the risk manager to a. Retain loss exposures.b. Avoid loss exposures.c. Prioritize loss exposures.d. Transfer loss exposures.

ANSWER C ( p. 10.7) QUESTION The monetary amount of damage that results from a loss is known as a. The deductible.b. Loss severity.c. Loss Frequency.

d. The retention. ANSWER B ( p. 10.7) QUESTIONGauging the severity of property losses is easier than gauging the severity of liability losses because propertylosses

a. Tend to be insured.b. Have an infinite valuec. Tend to happen more frequently.d. Are easier to calculate.

ANSWER D ( p. 10.7) OBJECTIVE 3QUESTIONIf Jane sells her vehicle and begins using public transportation, which one of the following risk managementtechniques will she be applying to her situation?

a. Avoidanceb. Loss controlc. Noninsurance transferd. Retention

ANSWER A ( p. 10.8) QUESTION

Jane is concerned that Joe might be hurt in her compact car if he is involved in an accident. She has readconsumer reports indicating that people occupying trucks and sports utility vehicles suffer less injuries whentheir vehicles are involved in accidents. If Jane trades her compact car in for a sports utility vehicle, which one ofthe following risk management techniques will she be applying?

a. Avoidanceb. Loss preventionc. Loss reductiond. Noninsurance transfer

ANSWER C ( p. 10.9) QUESTIONWhile she is at work, Jane has begun parking in a lot that has an attendant to reduce the chance of her vehiclebeing damaged while it is parked on the street. Which one of the following risk management techniques is Janeapplying?

a. Avoidance b. Loss preventionc. Noninsurance transferd. Retention

ANSWER B ( p. 10.9) QUESTION The technique that is used to decrease the frequency and/or severity of losses is a. Risk control.b. Risk financing.c. Retention.d. Transfer.

ANSWER A ( p. 10.8) QUESTIONSome businesses require key executives to fly on different flights. In case there would be an accident this wouldavoid wiping out the entire management team. This is an example of which one of the following risk controltechniques?

a. Avoidanceb. Loss preventionc. Separationd. Duplication

ANSWER C ( p. 10.9) QUESTIONWaking up on a cold February morning, Amy discovers the roads are icy and snow covered. Concerned aboutdriving to work and possibly having an accident she decides to take the day off. Amy's decision is an example ofwhich one of the following risk management techniques?

a. Loss preventionb. Loss reductionc. Avoidanced. Separation

ANSWER C ( p. 10.8) OBJECTIVE 4QUESTIONJane has decided to apply a retention risk management technique to reduce her insurance premium. She isdeleting the physical damage coverage (collision and other-than-collision) on he

r car. Her car is currently worth

$3,000. She will be able to save $250 every six months. Based on informal guidelines for selecting risk management techniques, is this a good decision? a. Yes, Jane will save $500 per year.b. Yes, if Jane can afford to lose $3,000.c. No, because the plan does not include loss control.d. No, this type of coverage is required in most states.

ANSWER B ( pp. 10.10-10.11) QUESTIONAlan Peachtree owns a hobby shop, which he runs from a small garage-like structure that is not attached to hishome. Alan, in deciding not to purchase property coverage on the building, has set aside funds to pay forpossible property damage losses. What risk management technique, if any, is Alan using?

a. Avoidanceb. Non-Insurance transferc. Retentiond. Loss control

ANSWER C ( p. 10.10) QUESTION For loss exposures with high frequency and low severity, the two best risk management alternatives are retention and a. Loss control.b. Insurance.c. Avoidance.d. Transfer.

ANSWER A ( p. 10.14) QUESTION Exposures with the potential of low frequency but high severity should generally be insured because they are a. Highly predictable.b. Less expensive.c. Highly unpredictable.d. More expensive.

ANSWER C ( p. 10.13) OBJECTIVE 5 QUESTION In smaller organizations and in households, the person making risk management decisions is often the person a. Least qualified.b. Settling the claims.c. Implementing the program.d. Causing the losses.

ANSWER C ( p. 10.15) QUESTION Larger organizations often have a written risk management statement outlining procedures and authority for a. Implementing risk management techniques.b. Eliminating risk management techniques.c. Excluding risk management techniques.d. Identifying risk management techniques.

ANSWER A ( p. 10.15) OBJECTIVE 6QUESTIONHow might the monitoring and revising step in the risk management process be simply described?

a. Check to make sure the decisions made are still valid, and make changes as needed.b. Create a new workflow and identify new bottlenecks that have occurred.c. Make sure insurance is not being used as a substitute for loss control.

d. Identify noninsurance transfers through hold harmless agreements.

ANSWER A ( p. 10.16) QUESTION Monitoring a risk management program is an a. Occasional activity.b. Annual activity.c. Ongoing activity.d. Once and done activity.

ANSWER C ( p. 10.16) QUESTION In order to monitor and modify the risk management program, the risk manager must periodically a. Identify and analyze new and existing loss exposures.b. Purchase insurance.c. Rewrite the risk management mission.d. Change insurance companies.

ANSWER A ( p. 10.16) OBJECTIVE 7QUESTIONWhat is a benefit that a business can receive by applying sound risk management?

a. It will meet state and federal safety regulations.b. It will have a better opportunity to achieve business goals.c. It will not have to worry about losses.d. It will be able to attract and retain talented employees and managers.

ANSWER B ( pp. 10.17-10.18) QUESTION What will Jane be able to gain as a benefit by applying sound risk management to her transportation situation? a. No future increases in her insurance premium.b. A loss free futurec. Economic growthd. Greater peace of mind

ANSWER D ( pp. 10.17-10.18) QUESTIONBusinesses, individuals, and families that practice sound risk management can benefit society by doing all of thefollowing, EXCEPT:

a. Increasing interest in leisure activitiesb. Reducing the overall number of lossesc. Controlling medical expenses through reduced injuriesd. Stimulating economic growth

ANSWER A ( p. 10.18) QUESTION One of the benefits to a business of retaining a loss exposure instead of insuring it is a. A reduction in expenses.b. A greater peace of mind.c. Access to the insurer's loss control services.d. Increase in expenses.

ANSWER A ( p. 10.17) OBJECTIVE 8QUESTIONWhat is an effective way for Frank and Jan to begin identifying the liability loss exposures associated with theirnew home?

a. Hire a professional risk managerb. Determine the value of the home and contentsc. Purchase a homeowners insurance policyd. Inspect the home to look for items and activities that might cause injury or damage

ANSWER D ( pp. 10.19-10.21) QUESTION

Frank and Jan researched lead paint hazards and abatement techniques on the Internet. They discovered that thebest action they can take inside the house is to remove loose paint chips and dust, replace the windows, and sealthe walls with a paint designed for that purpose.

What risk management technique does this activity involve? a. Avoidanceb. Loss controlc. Retentiond. Noninsurance transfer

ANSWER B ( pp. 10.19-10.21) QUESTIONFrank and Jan have discovered that the pollution that is resulting from the fuel oil leaking into the soil is notcovered by their homeowners insurance policy. They fear that the oil might seep into the water table andcontaminate their neighbors' well water. Illness and damage that might result would be very expensive. Frankand Jan can purchase an endorsement that will provide coverage for this pollution exposure. The endorsementwould cost $50 per year.

Is this an effective risk management selection for Frank and Jan until they can replace the tank? a. Yes, they should do this indefinitely and not replace the tank.b. Yes, they are exchanging a large exposure for a little premium.c. No, they are spending a lot of money for little protection.d. No, each neighbor will have insurance to cover any damage to their wells.

ANSWER B ( pp. 10.19-10.21) QUESTIONJeff recently started a consulting business. One of his concerns is that he will be sued for giving erroneous adviceto a client. What would be the best risk management technique for Jeff's use in this situation?

a. Retentionb. Avoidancec. Insuranced. Duplication

ANSWER C ( pp. 10.19-10.20) OBJECTIVE 9QUESTIONThe process of managing exposures to accidental losses is known as

a. Insurance.b. Risk management.c. Retention.d. Avoidance.

ANSWER B ( p. 10.3) QUESTION The risk control technique that seeks to lower the severity of losses is a. Loss prevention.b. Risk financing.c. Loss reduction.d. Duplication.

ANSWER C ( p. 10.9) QUESTION When a household or organization decides to keep all or part of a loss exposure this is known as a. Insurance.b. Retention.c. Reduction.d. Separation.

ANSWER B ( p. 10.10) Ads by Google.