According to the law of large numbers, what should happen as an insurance company increases the number of loss exposures that it insures? A) Fewer losses should be expected to occur. B) The amount of premiums needed to cover losses should decrease. C) The volatility of the insurance company’s underwriting results should increase. D) The […]
All of the following are benefits to society that result from insurance EXCEPT A) less worry and fear. B) elimination of moral hazard. C) indemnification for loss. D) loss prevention. ANSWER Answer: B
An insurance company that sells earthquake insurance in an area where earthquakes are possible has subjected itself to the risk of insolvency if a severe earthquake occurs. An insurer can safely sell earthquake insurance in this area if it shifts the risk of catastrophic loss to another insurer. The shifting of insured risk from one […]
Which of the following statements regarding private insurance and government insurance is (are) true? I. Private insurance programs include life and health insurance and property and liability insurance. II. Social insurance programs are government insurance programs that are voluntary and financed entirely by contributions from covered employers. A) I only B) II only C) both […]
LMN Insurance sells homeowners insurance. The LMN homeowners policy combines property and casualty insurance in the same contract. Insurance policies combining property and casualty coverage in the same contract are called A) mono-line policies. B) multi-year policies. C) multiple-line policies. D) manuscript policies. ANSWER Answer: C
ABC Appliance offers a warranty requiring an annual fee. The warranty may be purchased at the time of sale or at any time within the first year after the appliance was purchased. The warranty fee after the date of purchase is twice the time-of-purchase fee. When asked why the fee was higher after the date […]
Insurance companies collect premiums in advance. Since the premiums collected are not needed to pay losses and expenses immediately, the funds can be loaned to business firms. Because of this fact, insurance benefits society by A) enhancing credit. B) providing a source of investment funds. C) indemnifying losses. D) providing an incentive for loss prevention. […]
XYZ Insurance Company writes coverage for most perils which can damage property. XYZ, however, does not write flood insurance on property located in flood plains. Which requirement of an ideally insurable risk might be violated if XYZ wrote flood insurance on property located in flood plains? A) There must be a large number of similar […]
Gina would like to buy a house. She will pay 10 percent of the cost of the house as a down payment and borrow the other 90 percent from a mortgage lender. The home will serve as collateral for the loan. The lender will not make the loan to Gina unless the home is insured. […]
ABC Insurance Company calculated the amount that it expected to pay in claims for each policy sold. Rather than selling the insurance for the amount it expected to pay in claims, ABC added an allowance to cover the cost of doing business, including commissions, taxes, and acquisition expenses. This allowance is called a(n) A) policyowner […]
