Question 1

Which of the following terms are associated with insurance companies?

Accepted Answer

All the terms mentioned are associated with insurance companies. Premiums are the amounts paid by policyholders for coverage. Insurance companies are risk bearers as they assume the risk from policyholders. The underwriting process is used by insurers to evaluate and price that risk.

Question 2

Which of the following is true regarding the income of an insurance company?

Accepted Answer

Insurance companies earn income from both premiums and investments. The investment returns accumulate until needed to pay claims, but profit is not simply the sum of premiums and investment returns, as expenses and claims must be deducted.

Question 3

A stock insurance company:

Accepted Answer

C

Question 4

"Any occ" disability insurance:

Accepted Answer

"Any occ" disability insurance covers the inability to work in any occupation, not just one's own, and is typically written for blue-collar workers who may not have specialized skills that would allow them to work in a different occupation if they become disabled.

Question 5

Pension plan sponsors often purchase which of the following as a pension investment?

Accepted Answer

Pension plan sponsors often purchase Guaranteed Investment Contracts (GICs) as a pension investment because GICs provide a guaranteed rate of return over a fixed period, making them a stable investment choice for the funding of pension liabilities.

Question 6

An annuity is often described as:

Accepted Answer

An annuity is essentially a financial product that provides a stream of payments over time and is often used for retirement savings. It is described as a mutual fund in an insurance wrapper because it combines investment features (similar to those of mutual funds) with insurance features, offering both the opportunity for investment growth and certain guarantees or protections.

Question 7

Companies that provide insurance for both life and health and property and casualty are called:

Accepted Answer

Multi-line insurance companies offer a range of insurance products, including both life and health insurance as well as property and casualty insurance, making them capable of serving diverse insurance needs.

Question 8

According to the McCarran Ferguson Act of 1954, the insurance industry is regulated by:

Accepted Answer

The McCarran Ferguson Act of 1945 (not 1954) primarily allows states to regulate the insurance industry, although it does not completely exempt the industry from federal oversight.

Question 9

Insurance companies have increasingly sold products that have a significant investment component in addition to their insurance component. Major investment oriented products include:

Accepted Answer

The answer of Insurance companies have increasingly sold products that...

Question 10

The timing and magnitude of the payments for an insurance company is much more uncertain because of:

Accepted Answer

The uncertainty in the timing and magnitude of payments for an insurance company primarily stems from the fact that these payments are contingent on uncertain future events, such as accidents or natural disasters, which are unpredictable in nature.

Question 11

STAT surplus:

Accepted Answer

The answer of STAT surplus:
...

Question 12

One reason given for the accelerated demutualization of insurance companies is the:

Accepted Answer

The Gramm-Leach-Bliley Act, also known as the Financial Services Modernization Act of 1999, allowed for the consolidation of financial services companies, including insurance companies. This act is often cited as a reason for the accelerated demutualization of insurance companies because it allowed them to access new sources of capital and compete more effectively in a broader financial services market.

Question 13

Insurance companies are really a composite of several companies, which include:

Accepted Answer

Insurance companies operate in a complex environment that encompasses manufacturing (designing insurance products), investment (managing premiums collected for future claims), and distribution (marketing and selling insurance products). Thus, they are a composite of all these components.

Question 14

According to the reinsurance transaction, the "reinsurer" is:

Accepted Answer

The reinsurer is the insurance company that accepts the risk transferred from another insurance company. In a reinsurance transaction, the reinsurer agrees to indemnify the ceding company (the insurer transferring the risk) for the agreed-upon portion of the claims on the policies it reinsures.

Question 15

A form of insurance that has no cash value if the insured party does not die within the set policy period is called:

Accepted Answer

Term insurance is designed to offer life insurance protection for a specific period of time. If the insured person does not die within this period, the policy does not pay out and has no cash value.

Question 16

The two fundamentally different types of life insurance are term insurance and:

Accepted Answer

All the options listed (Permanent life insurance, Cash-value life insurance, Investment-type life insurance, Whole life insurance) are fundamentally types or characteristics of life insurance that contrast with term insurance, falling under the broader category of permanent or whole life insurance, which includes aspects of cash value and investment.

Question 17

Regarding the taxation of life insurance:

Accepted Answer

The inside buildup of cash value in life insurance policies is generally not taxed as income or capital gains, and the death benefit received by the beneficiary is usually not subject to income tax. However, the death benefit can be subject to estate tax if the deceased owns the policy at the time of death, making option C incorrect.

Question 18

An insurance product that is not guaranteed by the insurance company's general account is:

Accepted Answer

Variable life insurance policies are linked to the performance of a market or other investment vehicles rather than being guaranteed by the insurance company's general account, making them subject to investment risks.

Question 19

An insurance company is defined by the type of risk insured against.

Accepted Answer

An insurance company is often categorized based on the type of risk it covers, such as life, health, property, or liability insurance.

Question 20

Insurance policies are legally binding policies for which the policyholder pays insurance premiums.

Accepted Answer

Insurance policies are contracts between the insurer and the policyholder where the policyholder pays premiums in exchange for the insurer's promise to cover certain losses, making them legally binding.

Quiz 4: Insurance Companies