Question 1

Which of the following statements about mutual insurers is true?
A) They are legally organized as partnerships.
B) They have a board of directors which is selected by state insurance departments.
C) They are owned by their stockholders.
D) They may pay dividends to their policyholders.

Accepted Answer

Mutual insurers are owned by their policyholders, not by stockholders. As a result, they may choose to pay dividends to their policyholders when they have excess funds available. Option A is incorrect, as mutual insurers are legal entities that are classified as insurers, not partnerships. Option B is incorrect, as the board of directors is elected by the policyholders and not appointed by state insurance departments. Option C is incorrect, as mutual insurers do not issue stock and are not owned by stockholders.

Question 2

Temporary evidence of insurance until a policy is actually issued is provided by a(n)
A) binder.
B) brokerage agreement.
C) pre-approval form.
D) endorsement.

Accepted Answer

A binder is a temporary proof of coverage that is issued until the actual policy is issued. It is a legal agreement between the insurer and the insured that confirms that the policy will be issued and provides temporary coverage until then. A brokerage agreement is a contract between the insured and the broker. A pre-approval form and endorsement are not related to providing temporary evidence of insurance.

Question 3

A property and casualty insurer in which the salesperson is an employee of the insurer, not an independent contractor, is called a
A) fraternal insurance company.
B) risk retention group.
C) direct writer.
D) captive insurance company.

Accepted Answer

A direct writer is an insurance company that employs sales agents, also known as captive agents, who exclusively sell their company's products. These agents are employees of the insurance company rather than independent contractors.

Question 4

Advantages of the direct response system for marketing life insurance include which of the following?
I.Advertising can be specifically directed to selected markets.
II.Complex products can be easily sold.
A) I only
B) II only
C) both I and II
D) neither I nor II

Accepted Answer

The direct response system allows for targeted advertising to specific markets, making it an efficient and effective way to market life insurance. However, it may not necessarily make complex products easy to sell, as that also depends on the sales pitch and the expertise of the salesperson. Therefore, option II is not a definite advantage of the direct response system.

Question 5

Which of the following statements about personal producing general agents is (are) true?
I.They often have the option of recruiting and training sub-agents.
II.They are independent agents who produce substantial amounts of life insurance with one insurer.
A) I only
B) II only
C) both I and II
D) neither I nor II

Accepted Answer

Both statements about personal producing general agents are true. Personal producing general agents (PPGAs) are independent agents who have strong relationships with one insurer and generate significant amounts of business. They often have the option to recruit and train sub-agents to further increase their production.

Question 6

Which of the following statements about Lloyd's of London is true?
A) Coverage is actually written by syndicates who belong to Lloyd's of London.
B) New individual members or Names who belong to the various syndicates have unlimited legal liability.
C) It operates as an admitted insurer throughout the United States.
D) It allows underwriters to write coverage without meeting stringent financial requirements.

Accepted Answer

The answer of Which of the following statements about Lloyd's...

Question 7

Why are some mutual insurers referred to as "assessment mutuals"?
A) They charge low premiums because the loss exposures of their insureds are thoroughly assessed before a policy is written.
B) They are noted for being very thorough in their assessment of investment opportunities.
C) They are assessed for state premium taxes only if they make a profit.
D) They can assess policyholders if premiums are insufficient to pay losses and expenses.

Accepted Answer

Assessment mutuals can assess policyholders if premiums are insufficient to pay losses and expenses. This means that if the company incurs higher losses than expected or if expenses exceed income, policyholders may be required to pay an additional assessment to cover the shortfall.

Question 8

Under one life insurance marketing system, agents conduct sales interviews at the workplace with the approval of the management of the business. There are few direct costs to the employer, and this marketing system is especially appropriate for low-income and middle-income workers. This life insurance marketing system is called the
A) direct response system.
B) worksite marketing system.
C) independent agency system.
D) personal producing general agency system.

Accepted Answer

The description matches the worksite marketing system, where agents conduct sales interviews at the workplace with the approval of the management of the business, mostly targeting low-income and middle-income workers. The other options do not relate to this specific marketing system.

Question 9

David is a successful independent insurance agent. Recently, one of the life insurance companies with whom he places business offered him a special financial arrangement. If David meets sales targets, he will receive large bonuses. He will also be able to recruit and train sub-agents and receive an over-riding commission based on the amount of life insurance the sub-agents sell. Based on this description, David is a(n)
A) insurance broker.
B) personal-producing general agent.
C) direct writer.
D) multiple life exclusive agent.

Accepted Answer

David is an independent insurance agent who is able to recruit and train sub-agents to sell life insurance, in addition to receiving bonuses based on his own sales targets. This makes him a personal-producing general agent.

Question 10

Which of the following is a characteristic of a typical mass merchandising plan?
A) higher commission scales for agents and higher administrative expenses
B) payment of premiums through payroll deduction
C) group rather than individual underwriting
D) contributions by the employer to the cost of coverage

Accepted Answer

The answer of Which of the following is a characteristic...

Question 11

Which of the following statements about the exclusive agency system for marketing property and liability insurance is true?
A) Exclusive agents typically have complete ownership of policy expirations.
B) A higher commission rate is usually paid on exclusive agents' renewal business than on new business.
C) Exclusive agents represent several different insurance companies.
D) New exclusive agents may start as employees and after a training period become independent contractors.

Accepted Answer

New exclusive agents may start as employees and after a training period become independent contractors. This statement is true. The exclusive agency system usually starts with a training period during which new agents work as employees. They may become independent contractors after proving their ability to sell insurance policies. The other options are not true: A) Exclusive agents do not own policy expirations; these belong to the insurance companies. B) The commission rate is usually higher on new business than on renewals. C) Exclusive agents represent only one insurance company.

Question 12

Which of the following statements about insurance brokers is (are) true?
I.They legally represent the insured rather than the insurance company.
II.They are prohibited from being licensed as agents.
A) I only
B) II only
C) both I and II
D) neither I nor II

Accepted Answer

Insurance brokers legally represent the insured, not the insurance company. However, they are not prohibited from being licensed as agents. Therefore, statement II is false.

Question 13

Neil needs insurance that is unavailable in the state where he lives. To obtain insurance from a nonadmitted insurer, Neil should contact a
A) surplus lines broker.
B) nonadmitted agent.
C) general agency broker.
D) direct writer.

Accepted Answer

To obtain insurance from a nonadmitted insurer, Neil should contact a surplus lines broker. Surplus lines brokers are licensed to place coverage with nonadmitted insurers, which are not licensed in the state where Neil lives. Nonadmitted agents and general agency brokers are not necessarily licensed to place coverage with nonadmitted insurers, while direct writers only sell coverage from their own company and do not work with nonadmitted insurers.

Question 14

Which of the following statements is true about fraternal insurers?
A) They are legally organized as stock insurers.
B) They specialize in writing life and health insurance.
C) They are taxed more heavily than other types of insurers because of discriminatory marketing practices.
D) They account for the majority of life insurance in force in the United States.

Accepted Answer

Fraternal insurers specialize in writing life and health insurance, often focusing on serving members of a fraternal organization or society. They are not primarily organized as stock insurers, do not face heavier taxes due to discriminatory marketing practices, and do not account for the majority of life insurance in force in the United States.

Question 15

Which of the following statements about stock insurers is true?
A) They issue assessable policies.
B) They are not permitted to write property and liability insurance.
C) Stockholders bear any losses and share in any profits.
D) They are owned by their policyholders.

Accepted Answer

Stock insurers are owned by shareholders who trade their ownership shares in the form of stock. As a result, stockholders bear any losses and share in any profits. They are different from mutual insurers (which are owned by policyholders) and have no authority to issue assessments. Stock insurers are allowed to write different types of insurance policies including property and liability insurance.

Question 16

Which of the following statements about reciprocal exchanges is (are) true?
I.Reciprocal exchanges usually specialize in health insurance.
II.Reciprocal exchanges are unincorporated mutual insurance companies.
A) I only
B) II only
C) both I and II
D) neither I nor II

Accepted Answer

Reciprocal exchanges are indeed unincorporated mutual insurance companies, but they do not usually specialize in health insurance. Therefore, only statement II is true.

Question 17

All of the following statements about the independent agency system are true EXCEPT
A) Agents are often authorized to adjust small claims.
B) Agents are compensated on the basis of commissions.
C) The insurer rather than the agent owns the renewal rights to the business.
D) The agent is an independent business person who represents several insurers.

Accepted Answer

In the independent agency system, the agent owns the renewal rights to the business, not the insurer. The other statements are all true.

Question 18

The corporate structure of mutual insurers has changed in recent years. All of the following are examples of significant changes EXCEPT
A) demutualization of some insurers.
B) sharp increase in the number of mutual insurance companies.
C) increase in company mergers.
D) formation of mutual holding companies.

Accepted Answer

There has not been a sharp increase in the number of mutual insurance companies in recent years. In fact, there has been a trend towards demutualization and the formation of mutual holding companies. Mergers have also been a significant change in the corporate structure of mutual insurers.

Question 19

Which of the following statements about the sale of property and liability insurance through the direct response system is (are) true?
I.Selling expenses are higher because market segmentation tends to be less precise than with other marketing methods.
II.It is the most appropriate system for selling complex products.
A) I only
B) II only
C) both I and II
D) neither I nor II

Accepted Answer

The direct response system typically involves lower selling expenses due to the absence of agents or brokers, and it is generally not considered the most appropriate system for selling complex products due to the lack of personalized advice and assistance.

Question 20

Which of the following statements about life insurance marketing systems is true?
A) Insurance brokers are not permitted to sell life insurance.
B) Some exclusive agents who market property and liability insurance also sell life insurance.
C) Independent insurance agents are not permitted to market life insurance.
D) Financial institutions such as banks are not permitted to market life insurance.

Accepted Answer

Some exclusive agents who market property and liability insurance are also licensed to sell life insurance. This allows for cross-selling and convenience for customers who may want to purchase both types of insurance from the same agent. The other answer choices are incorrect as insurance brokers, independent agents, and financial institutions are commonly involved in the marketing of life insurance.

Quiz 5: Types of Insurers and Marketing Systems

Which of the following statements about mutual insurers is true?

Temporary evidence of insurance until a policy is actually issued is provided by a(n)

A property and casualty insurer in which the salesperson is an employee of the insurer, not an independent contractor, is called a

Advantages of the direct response system for marketing life insurance include which of the following? I.Advertising can be specifically directed to selected markets. II.Complex products can be easily sold.

Which of the following statements about personal producing general agents is (are) true? I.They often have the option of recruiting and training sub-agents. II.They are independent agents who produce substantial amounts of life insurance with one insurer.

Which of the following statements about Lloyd's of London is true?

Why are some mutual insurers referred to as "assessment mutuals"?

Which of the following is a characteristic of a typical mass merchandising plan?

Which of the following statements about the exclusive agency system for marketing property and liability insurance is true?

Which of the following statements about insurance brokers is (are) true? I.They legally represent the insured rather than the insurance company. II.They are prohibited from being licensed as agents.

Neil needs insurance that is unavailable in the state where he lives. To obtain insurance from a nonadmitted insurer, Neil should contact a

Which of the following statements is true about fraternal insurers?

Which of the following statements about stock insurers is true?

Which of the following statements about reciprocal exchanges is (are) true? I.Reciprocal exchanges usually specialize in health insurance. II.Reciprocal exchanges are unincorporated mutual insurance companies.

All of the following statements about the independent agency system are true EXCEPT

The corporate structure of mutual insurers has changed in recent years. All of the following are examples of significant changes EXCEPT

Which of the following statements about life insurance marketing systems is true?