Deck 22: Insurance and Pensions

Question 1

Which of the following is consulted in determining what premium should be paid on a policy?

A)Agent
B)Underwriter
C)Claims adjuster
D)Actuary

Answer 1

D

Question 2

Rachel's homeowner's policy specifically covers damage from earthquakes. It is a(n)__________ policy.

A)open-peril
B)named-peril
C)casualty
D)liability

Answer 2

B

Question 3

__________ life insurance generally offers policyholders a choice of mutual funds in which to invest the cash value.

A)Whole
B)Universal
C)Term
D)Variable

Answer 3

D

Question 4

From an insurance company's point of view, which of these are the best examples of occurrences or activities that show pure risk?

A)Playing in a poker game or investing in the stock market
B)Driving a car or keeping valuable items in the basement of your house
C)Working in a physically risky occupation or buying bonds
D)Skydiving or investing in gold

Question 5

Which of the following people would assess the damage to your vehicle if you were in a car accident?

A)Actuary
B)Claims adjuster
C)Underwriter
D)Agent

Question 6

Why were credit default swaps initially considered low risk?

A)Interest rates were low, which lowered the associated risk.
B)Credit default swaps were backed by the federal government.
C)Credit default swaps were backed by mortgage-backed securities.
D)Insurance companies could easily cover any losses, as they were backed mostly by bonds.

Question 7

Malpractice insurance is an example of

A)open-peril insurance.
B)named-peril insurance.
C)liability insurance.
D)an annuity.

Question 8

__________ account for the largest portion of life insurance company total reserves.

A)Equities
B)Life insurance reserves
C)Annuity contract reserves
D)Bonds

Question 9

Which of the following is NOT a duty of the Federal Insurance Office?

A)Monitor access to insurance by underserved populations
B)Monitor the health of the insurance industry
C)Identify regulatory gaps and systemic risk
D)Regulate the insurance industry

Question 10

Which of these shows moral hazard in providing health insurance?

A)Failing to mention your child's asthma, in hopes of getting care more completely covered by insurance
B)Hiding the fact that you smoke in order to get less expensive insurance
C)Eating whatever you like, with the thought that cholesterol-lowering drugs will take care of any adverse effects
D)Refusing to get health insurance, even if that means paying a fine or fee of some type

Question 11

With whole life insurance, the insured can borrow against the

A)face value.
B)cash value.
C)death benefit.
D)annuity.

Question 12

According to the World Bank, in 2012, which country spent a higher percentage of its GDP on health care?

A)Canada
B)United Kingdom
C)Germany
D)United States

Question 13

Increasing premiums after a claim is one way insurance companies reduce what kind of risk?

A)Adverse selection
B)Pure risk
C)Moral hazard
D)Speculative risk

Question 14

Angelic is approaching retirement and is in good health. If she is afraid of outliving her financial resources, she should purchase

A)whole life insurance.
B)an annuity.
C)term life insurance.
D)mutual funds.

Question 15

__________ life insurance does not build any cash value.

A)Whole
B)Term
C)Universal
D)Variable

Question 16

Paulo has property insurance that specifically excludes damage from flooding. What kind of policy does Paulo have?

A)Casualty
B)Named-peril
C)Open-peril
D)Liability

Question 17

Which of the following protects insurance policyholders and beneficiaries if an insurance company becomes insolvent?

A)Underwriter
B)Federal Insurance Office
C)McCarran - Ferguson Act of 1945
D)Insurance guarantee fund

Question 18

Which of these is an argument against health insurance using co-payments, typically known as co-pays?

A)Co-payments are insufficient and health care insurance is still beyond the financial reach of most people.
B)Co-payments are relatively small in comparison to actual health costs, so people are insensitive to the true cost of their own health care.
C)Doctors in this system are discouraged from ordering much-needed medical tests and treatments.
D)Many people are still tempted to go without insurance, or to have minimal health insurance.

Question 19

Which of these shows adverse selection in providing health insurance?

A)Insurance companies have incentives to avoid insuring those who have chronic health issues.
B)Health premiums need to be higher for those who are more likely to suffer from chronic illness.
C)The people who are most likely to suffer with poor health complications are the most likely to seek out health insurance.
D)People are more likely to be careless with their own health if they have health insurance.

Question 20

When purchasing life insurance, who would you expect to have the highest premium?

A)College student
B)Middle age smoker
C)Middle age athlete
D)Newborn baby

Question 21

How did the drop in the birth rate cause problems for Social Security, and how would raising the benefits age help save the system?

Question 22

In terms of insurance, what is moral hazard and what do insurance companies do to try to offset it?

Question 23

Amy is switching employers and can take the full balance of her defined contribution plan with her, including all employer contributions. Amy is

A)fully funded.
B)fully vested.
C)underfunded.
D)unionized.

Question 24

Why is Social Security having trouble working as a pay-as-you-go system?

A)The birth rate in the United States, with few exceptions, has been dropping since 1964.
B)Baby boomers are retiring early and living longer.
C)Generation Y or Millennials do not make enough money to pay into the system.
D)Elderly wealthy people are collecting Social Security when they do not need it.

Question 25

In a __________ plan, the employee usually makes some investment decisions for funding the pension, often choosing from a collection of mutual funds, rather than having a full range of options.

A)vested
B)defined benefits
C)defined contribution
D)fully funded

Question 26

How do co-pays distort incentives in the market for health care?

Question 27

Over the last decade or more, along with fewer defined pension plans being offered, many defined benefit pension plans are underfunded. That is, these plans simply will not have enough funds to make good on all the promises they made to employees.

Question 28

The co-pay is the amount of a loss that the insured must pay out of his/her own resources before an insurer pays for expenses related to the covered loss.

Question 29

It is illegal for an employer to underfund a pension.

Question 30

How did subprime mortgage defaults affect the insurance market?

A)Insurance companies suddenly owned lots of almost worthless houses.
B)Insurance companies that issued credit default swaps no longer had the reserves they needed to pay claims.
C)Banks lost money, but insurance companies were unaffected.
D)Policyholders saw their premiums increase to cover the losses.

Question 31

The Social Security system is in trouble for which of the following reasons?

A)It is no longer receiving adequate federal funding.
B)The baby-boom generation is likely to bankrupt the system completely.
C)The pay-as-you-go plan has been inadequate since the 1960s and has never been updated.
D)There will be fewer workers than retirees.

Question 32

Which of the following statements best describes the current funding of Social Security and Medicare?

A)Employers pay twice as much into Social Security and Medicare than employees do.
B)Employers pay somewhat more into Social Security and Medicare than employees do.
C)Employers and employees both pay the same amount into Social Security and Medicare.
D)Employers pay somewhat less into Social Security and Medicare compared to employees.

Question 33

Many companies now offer only defined contribution plans, either with or without any financial input on the part of the company.

Question 34

Which of the following has NOT been suggested as way to save Social Security?

A)Raise the partial and full benefits age.
B)Eliminate the Social Security cap.
C)Continue to gradually raise the retirement age for full benefits to 79.
D)Apply a "needs test."

Question 35

Which of the following is most likely to be able to meet its future obligations?

A)Fully funded pension
B)Underfunded pension
C)Vested plan
D)Rollover plan