EXAM QUESTIONS AND CORRECT ANSWERS WITH

EXAM QUESTIONS AND CORRECT ANSWERS WITH

DETAILED EXPLANATIONS (100% CORRE CT

VERIFIED ANSWERS) GRADED A (NEW!!)

Which of the following gave states the authority to regulate the insurance industry?

• ANSWER-The McCarran-Ferguson Act of 1945

Under the McCarran-Ferguson Act of 1945, insurance is regulated primarily at the state level. The NAIC issues model insurance legislation that individual states are free to adopt if they choose, but the NAIC has no legislative authority in any state.COBRA requires certain employers to provide previously covered individuals (including spouses and dependents) with the same health insurance coverage they received while employed after the occurrence of a qualifying event.

Which of the following statements would be appropriate in explaining the underwriting process? - ANSWER-Underwriting is the process of selecting and classifying risk exposures.

Selecting and classifying risk exposures is the specific purpose of underwriting.The underwriting process is not limited to simple yes or no decisions because the process allows for special rates for risks that are better or worse than average risks.The underwriting process is a key function carried out by an insurance company.Inadequate underwriting may lead to inadequate rates, thus leading the company into unacceptable losses. The process of underwriting attempts to match actual losses with expected losses, supported by adequate premiums. If the process were to eliminate all potential losses, no life insurance would ever be sold. The goal is to avoid having too many bad risks.

Which of the following types of risk are associated with damage caused by an earthquake?

Particular Dynamic 1 / 4

Static Fundamental - ANSWER-Static Fundamental

An earthquake is an example of a static risk and a fundamental risk. Fundamental risks are those that affect a large group of people. Static risks are those that result from factors other than changes in the economy.

Which of the following is a risk-financing technique? - ANSWER-risk retention.Risk retention (financing the risk oneself) and risk transfer (passing the cost of the risk to another, most commonly via insurance) are risk financing techniques. Risk reduction and risk avoidance are risk control techniques, and risk evaluation is neither risk financing nor control.

Once you have identified risk management goals for the client, what is the next step in the risk management process? - ANSWER-gather pertinent data to determine risk exposure.

The steps in the risk management process are to 1) identify and establish risk management goals, 2) gather pertinent data to determine risk exposures, 3) analyze and evaluate the information to identify risk exposures, 4) develop a risk management plan, 5) communicate the recommendations, 6) implement the recommendations, and 7) monitor the recommendations for needed changes.

Which of the following terms best describes the probability of an insured becoming disabled? - ANSWER-morbidity rate.Morbidity rate is the probability of a person becoming disabled.

Which of the following is an example of a moral hazard? - ANSWER-An example of a moral hazard is a driver slamming on his brakes for no reason other than to cause the driver behind him to rear-end his car. A moral hazard occurs when 2 / 4

dishonesty causes a loss or causes the amount of the loss to be overstated on a claim.

Which of the following statements regarding the primary forms of insurance company ownership are CORRECT?

Mutual companies are owned by the employees of the insurance company.Stock companies are owned by stockholders, who are policyowners of the insurance company. - ANSWER-Neither

Mutual companies are owned by policyowners. Stock companies, are owned by stockholders who are not necessarily policyowners.What is adverse selection? - ANSWER-The concept that people who expect to have claims will want insurance more than people who expect to have few or no claims

Adverse selection is the concept that those who are more likely to have claims will want insurance more than someone who may have few, if any, claims. For example, a person who believes he is very likely to develop Alzheimer's disease is more likely to want long-term care insurance than someone who has no such expectation. Insurance companies want to limit the number of high-risk candidates so the pool of insureds is more representative of the population as a whole.

Which of the following are particular risks?

Premature death Disability Unemployment Earthquake - ANSWER-Premature death Disability 3 / 4

Unemployment The risk of premature death, disability, and unemployment directly affect an individual. Particular risks are risks that affect only individuals, such as the possibility of the loss of income or assets because of the inability to earn income (e.g., premature death, dependent old age, sickness, disability, unemployment).The risk of an earthquake is a fundamental risk.

John is driving on the expressway when the motorist in front of him suddenly slows down. The motorist has no operable taillights, and John hits him from the rear. The failure of the motorist to have working taillights would preclude the motorist from collecting damages from John under the law of - ANSWER- contributory negligence.If contributory negligence is established, the motorist most likely cannot collect damages from John. Comparative negligence—a more lenient doctrine than contributory negligence—is used to apportion financial responsibility based on the degree of fault.

Ronnie has been working and saving for a car since he was 13. He recently turned 16, obtained a driver's license, and purchased a car for which he paid cash. He went to his insurance agent's office and purchased the required car insurance. The agent did not notice that he is only 16. In the event of a claim, which option is available to the insurance company? - ANSWER-pay the claim.The company must pay the claim. A voidable contract is a contract where one party has the option of voiding the contract, but the other party is bound. In this case, where a contract is made with a minor, the contract is voidable by the minor, but if it isn't voided, it remains a legal contract. The insurance company cannot void the contract and must pay the claim.

Which of the following definitions best describes vicarious liability? - ANSWER- legal responsibilities extended to someone other than the person who caused the injury.

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