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 […]
In addition to marketing life insurance, life insurers typically sell which of the following products? I. Retirement annuities II. Disability income insurance A) I only B) II only C) both I and II D) neither I nor II ANSWER Answer: C
According to the law of large numbers, what happens as the number of exposure units increases? A) Actual results will increasingly differ from probable results. B) Actual results will more closely approach probable results. C) Nondiversifiable risk will decrease. D) Objective risk will increase. ANSWER Answer: B
Which of the following statements regarding insurance and gambling is (are) true? I. Insurance is used to handle existing pure risks, while gambling creates a new speculative risk. II. Insurance usually involves risk avoidance, while gambling typically involves only risk reduction. A) I only B) II only C) both I and II D) neither I […]
According to the law of large numbers, what should happen as an insurer increases the number of units insured? A) The amount the insurer expects to pay in claims should decrease. B) Underwriting expenses should decrease. C) Actual results will more closely approach expected results. D) The insurer’s profitability should become more variable. […]
Inland marine insurance provides coverage for A) goods being shipped on land. B) premature death of members of the armed forces. C) goods being shipped on ocean-going vessels. D) liability exposures of nonprofit organizations. ANSWER Answer: A
Which of the following is implied by the pooling of losses? A) sharing of losses by an entire group B) inability to predict losses with any degree of accuracy C) substitution of actual loss for average loss D) increase of objective risk ANSWER Answer: A
Which of the following is a form of casualty insurance? A) fire insurance B) general liability insurance C) inland marine insurance D) ocean marine insurance ANSWER Answer: B
The requirement that losses should be accidental and unintentional in order to be insurable results in which of the following? I. Decrease in moral hazard II. More accurate prediction of future losses A) I only B) II only C) both I and II D) neither I nor II ANSWER Answer: C
Which of the following is classified as casualty insurance? A) workers compensation insurance B) fire insurance C) marine insurance D) life insurance ANSWER Answer: A
