Life & Health Insurance Quiz Questions

The stated amount or percent of liquid assets that an insurer must have on hand that will satisfy future obligations to its policyholders is called

reserves

What year was the McCarran-Ferguson Act enacted?

1945 - made it clear that continued regulation of the insurance by the states was in the public’s best interest.

An insurance applicant MUST be informed of an investigation regarding his/her reputation and character according to the:

Fair Credit Reporting Act (1970)

Dividends payable to a policyowner are

declared by the insurance company

What describes a participating insurance policy?

Policyowners are entitled to receive dividends - deriving from the company’s divisible surplus.

A business becoming incorporated is an example of risk

transfer

What type of risk involves the potential for loss AND the possibility for gain?

speculative

What is defined as a cause of a loss?

peril

What best describes risk transfer?

Shifting the financial risk of loss to another party through a contract

Risk ___ is the process of analyzing exposures that create risk and designing programs to handle them.

management

What type of risk involves the potential loss with no possibility for gain?

pure risk

True or false: as the number of insured units increases, the number of losses decreases

false

A condition that increases the possibility of financial loss is called a

hazard

According to the law of large numbers, how would losses be affected if the number of similar insured units increases?

Predictability of losses will be improved

An insurable risk requires

that the chance of loss must be calculable

What consists of an offer, acceptance, and consideration?

contract

Insurance policies are considered aleatory contracts because

performance is conditioned upon a future occurrence - there is an element of chance and potential for unequal exchange of value/consideration for both parties

A policy of adhesion can only be modified by whom?

the insurance company

At what point does an informal agreement become a binding contract?

When consideration is provided by one of the parties to the contract - consideration must be given in order to make a contract legally binding

Insurance contracts are known as ____ because certain future conditions or acts must occur before any claims can be paid.

conditional

The Consideration clause of an insurance contract includes:

the schedule and amount of premium payments

What best describes a warranty?

Statement guaranteed to be true

What is not considered to be typical characteristics describing the nature of an insurance contract?

Bilateral

When third-party ownership is involved, applicants who also happen to be the stated primary beneficiary are required to have:

insurable interest in the proposed insured

Which provision allows the policyowner to change a term life policy to a permanent one without providing proof of good health?

conversion

A ____ term life policy is normally used when covering an insured’s mortgage balance.

decreasing

What policy is characterized by a flexible premium and death benefit and allows the policyowner control of the investment aspect of the plan?

variable universal life

How does a typical Variable Life Policy investment account grow?

through mutual funds, stocks, bonds

How long does the coverage normally remain on a limited-pay life policy?

age 100

The combination of Whole Life and _____ Term insurance is referred to as a Family Income Policy.

Decreasing

Life insurance immediately creates an estate upon the death of an insured. What policy is characterized by a guaranteed minimum death benefit?

variable life

A 15-year mortgage is best protected by what kind of life policy?

15-year decreasing term

The most important factor to consider when determining whether to convert term insurance at the insured’s attained age or the insured’s original age is:

the cost

Y purchased $100k worth of permanent protection on himself and $50k worth of 10-year Term coverage for his wife on the same policy. Which policy did Y purchase?

Whole Life policy with an Other Insured Rider

A life policy that contains a monthly mortality charge as well as self-directed investment choices is called

Variable Universal Life policy

Under a Graded Premium Whole Life policy,

the premium increases each year during the early years of the contract and remains the same after that time

What is considered an element of a Variable Life Policy?

underlying equity investment

D needs life insurance that provides coverage for only a limited amount of time while also paying the lowest possible premium. What kind of policy is needed?

Level term

What is true about the premium payment schedule for whole life policies?

premiums are payable throughout the insured’s lifetime/coverage lasts until death of the insured

K buys a policy where the premium stays fixed for the first 5 years. The premium then increases in year 6 and stays level thereafter, all the while the death benefit remains the same. What kind of policy is this?

Modified Whole Life

What type of policy would offer a 40-year old the quickest accumulation of cash value?

20-pay life

Variable Whole Life Insurance can be described as:

both an insurance and securities product

A ____ _____ Life policy combines investment choices with a form of Term coverage.

Variable Universal

What type of Term Life policy most likely contains a Renewability feature?

10 Year Convertible Term