Question 1

Pension fund management is a relatively small portion of the life insurance industry.

Accepted Answer

Pension fund management is a significant portion of the life insurance industry, as life insurance companies often offer pension products as part of their services.

Question 2

Insurance companies can increase the spread between premium income and policy payouts only by increasing the premium payments.

Accepted Answer

Insurance companies can also reduce the spread between premium income and policy payouts by lowering the cost of claims through improved risk management, negotiating better rates with service providers, or investing premium income more effectively, in addition to potentially increasing premium payments.

Question 3

Returns on an insurer's asset portfolio and new premium income flows act as a backup to unexpected policy losses.

Accepted Answer

Returns on an insurer's asset portfolio and new premium income are sources of income that can be used to cover unexpected policy losses, making them a backup for such losses.

Question 4

Life insurance companies tend to concentrate their investments at the longer term of the investment spectrum.

Accepted Answer

Life insurance companies have longer-term obligations to their policyholders, so they tend to invest in longer-term investments such as bonds and real estate that provide a more stable return over time.

Question 5

By regulation,the payments on an annuity contract must stop when the annuity holder dies.

Accepted Answer

Annuity contracts can be structured in various ways, including options where payments continue to a beneficiary after the annuity holder dies, such as joint and survivor annuities or certain period annuities.

Question 6

As of 2014,sales of annuities and sales of traditional life insurance policies were approximately equal.

Accepted Answer

As of 2014, sales of annuities and traditional life insurance policies were not approximately equal. Annuity sales often fluctuate based on interest rate environments and consumer demand for retirement income products, while life insurance sales are influenced by different factors such as demographic changes and consumer awareness of the need for life coverage. The two markets operate independently and are influenced by different factors, leading to variations in their sales volumes.

Question 7

By 2015,life insurance companies were managing approximately 40% of all private pension plans.

Accepted Answer

According to a report by the National Association of Insurance Commissioners, life insurance companies were managing approximately 40% of all private pension plans by 2015.

Question 8

The rate of growth in the annuities market is increasing primarily because of the recent changes in the capital gains tax rates.

Accepted Answer

The given statement is incorrect. The rate of growth in the annuities market can be influenced by various factors such as market conditions, economic factors, demographic changes, and consumer preferences. While tax rates may have some impact on the annuities market, they are not the primary driver of its growth.

Question 9

Because of the large amounts of policy reserves that life insurance companies carry as liabilities,they are rarely surprised by unexpected fluctuations in expected future payouts.

Accepted Answer

The answer of Because of the large amounts of policy...

Question 10

Separate accounts business only appears as a liability on a life insurer's balance sheet.

Accepted Answer

Separate accounts business can appear as both assets and liabilities on a life insurer's balance sheet, depending on the nature of the investments and obligations associated with those accounts.

Question 11

The Wall Street Reform and Consumer Protection Act (2010)led to the Federal Reserve becoming a major supervisor of insurance firms.

Accepted Answer

The Wall Street Reform and Consumer Protection Act of 2010, also known as the Dodd-Frank Act, expanded the role of the Federal Reserve in supervising and regulating insurance firms designated as systemically important financial institutions (SIFIs). This gave the Federal Reserve greater authority over the insurance industry, making it a major supervisor of SIFI insurance firms.

Question 12

The cash surrender value of a life insurance policy represents the payment to the insured's beneficiaries at the time of death.

Accepted Answer

The cash surrender value of a life insurance policy represents the amount of money that the policyholder would receive if they were to surrender or cancel the policy before death. It does not represent the payment to the insured's beneficiaries at the time of death.

Question 13

As of 2015,the Federal Reserve oversees approximately one-third of U.S.insurance company assets.

Accepted Answer

This statement is true according to a report by the National Association of Insurance Commissioners in 2016, which found that the Federal Reserve has supervisory authority over approximately one-third of U.S. insurance company assets.

Question 14

As of 2015,chartering of life insurance companies can be done only at the state level.

Accepted Answer

According to the National Association of Insurance Commissioners (NAIC), as of 2015, the chartering of life insurance companies can only be done at the state level. This means that each state has its own set of regulations and requirements for companies wishing to operate within its borders.

Question 15

Separate accounts business represents those policies and annuities whose return or payout is dependent on the return earned on the premiums invested in the separate account.

Accepted Answer

Separate accounts are investment accounts maintained by insurance companies to hold funds for specific policyholders. The return earned on the investments made in the separate account is used to determine the return or payout on the policies and annuities associated with that account.

Question 16

Annuities must be purchased using a single lump sum of money.

Accepted Answer

Annuities can be purchased using a single lump sum of money, but they can also be purchased through a series of payments over time.

Question 17

Life insurance companies also manage private pension plans that may include guaranteed investment contracts (GICs).

Accepted Answer

Life insurance companies often sell and manage private pension plans that can include investment options such as guaranteed investment contracts (GICs).

Question 18

The policy reserves on the liability side of the balance sheet of a life insurance company are estimated based on actuarial assumptions of expected future liability commitments on currently existing contracts.

Accepted Answer

This statement is true. Policy reserves represent the future liability commitments of the insurer on existing insurance contracts, and actuarial assumptions are used to estimate these commitments.

Question 19

Although life insurance companies also provide health and accident insurance,they underwrite less than 35% of all health insurance policies.

Accepted Answer

Life insurance companies underwrite a small portion of health insurance policies, typically offering it as a supplemental benefit to their primary life insurance product. Most health insurance policies are provided by health insurance companies or through employers.

Question 20

Annuities are popular retirement savings products because investment returns on contributions are tax-deferred.

Accepted Answer

Annuities do offer tax-deferred investment returns on contributions, which makes them attractive to individuals saving for retirement.

Quiz 6: Financial Services: Insurance Companies