Question 1

The passage of the Financial Modernization Act of 1999 accelerated the convergence of ________.

Accepted Answer

The Financial Modernization Act of 1999, also known as the Gramm-Leach-Bliley Act, allowed banks, insurance companies, and securities firms to merge and offer their respective products under one roof. This led to the convergence of insurance, investment, and pension products, as these entities could now offer all of these services to their customers.

Question 2

In regards to the Gramm-Leach-Bliley Act (GLB), which of the below statements is FALSE?

Accepted Answer

The GLB did not specifically address control over sources of corporate funding, so this statement is false. The other three statements are true: the GLB repealed anti-affiliation restrictions, is associated with increased demutualization of insurance companies, and has facilitated affiliations between commercial banks, investment banks, and insurance companies.

Question 3

In 1933, Congress passed the Glass-Steagall Act. The act separated ________.

Accepted Answer

The Glass-Steagall Act separated commercial banking (taking deposits and making loans) from investment banking (underwriting and dealing in securities). Insurance was not directly affected by the act.

Question 4

There are many differences among the various types of insurance policies. Which of the below is NOT one of these differences?

Accepted Answer

This statement is incorrect as all types of insurance policies have a potential payoff or benefit paid out to the policyholder or their beneficiaries.

Question 5

The complication in determining the value of liabilities arises because the insurance company has committed to make payments at some time in the future, and those payments are recorded as contingent liabilities on its financial statement.

Accepted Answer

This is true because liabilities for insurance companies often involve future payments that are uncertain in both timing and amount, making them contingent liabilities.

Question 6

Few insurance companies use independent brokers or producer groups to distribute their products rather than their own agents.

Accepted Answer

Many insurance companies use independent brokers or producer groups to distribute their products, as this allows them to reach a wider market without maintaining a large in-house sales force.

Question 7

Three decades ago, there were three distinct types of products for individuals: insurance products that included ________; savings/ investment products that included ________; retirement products included ________.

Accepted Answer

Insurance products traditionally include term life and whole life insurance, which provide coverage for life or a specified term. Savings/investment products encompass stocks, bonds, and mutual funds, offering various risk and return profiles. Retirement products include Social Security and IRAs (Individual Retirement Accounts), which are designed to provide income in retirement.

Question 8

Traditionally, insurance companies have been stock, but they are increasingly remutualizing due to the perceived benefits of having a publicly traded stock.

Accepted Answer

This statement is incorrect. Traditionally, insurance companies have been mutual, meaning that they are owned by their policyholders instead of shareholders. Some insurance companies have converted to stock companies in the past, but there has been a recent trend towards demutualization, where a stock company converts back to a mutual company.

Question 9

Liability insurance insures against the inability of employed persons to earn an income in either their own occupation or any occupation.

Accepted Answer

Liability insurance does not typically cover loss of income for employed persons. It generally provides coverage for claims of negligence or harm caused to others by the insured person or business. There are other types of insurance, such as disability insurance, that can provide coverage for loss of income due to an inability to work.

Question 10

There have been three major types of changes in the insurance industry in the past two decades. Which of the below is ONE of these?

Accepted Answer

One of the major changes in the insurance industry in the past two decades has been the internationalization of the industry. Insurance companies have expanded their operations globally to reach a wider market and benefit from economies of scale. This has led to increased competition and consolidation in the industry. Choices B, C, and D are not major types of changes that have occurred in the insurance industry.

Question 11

The first major investment-oriented product developed by life insurance companies was the guaranteed investment contract (GIC).

Accepted Answer

Guaranteed investment contracts (GICs) were the first major investment-oriented product developed by life insurance companies in the 1970s. They promised a fixed rate of return and guaranteed principal, making them attractive to conservative investors.

Question 12

Which of the below statements is FALSE?

Accepted Answer

Rollover IRAs are not used when an individual is staying with an employer and wants to continue their employer-sponsored retirement plan. They are used when an individual leaves an employer and wants to transfer their retirement savings to an IRA.

Question 13

In terms of ownership, there are two main forms of insurance companies: stock and mutual. A hybrid form, the mutual holding company, has been approved in some states.

Accepted Answer

This is correct. Insurance companies can be organized as stock companies or mutual companies. Mutual holding companies are a newer form that has been approved in some states, which is a hybrid of the two traditional forms.

Question 14

The performance of separate account products depends on the performance of the ________ portfolio chosen and is not affected by the performance of the overall insurance company's ________ portfolio.

Accepted Answer

Separate account products are investment vehicles that allow policyholders to invest directly in the assets held in their individual account. The performance of these products is determined by the investment choices made by the policyholder and is not affected by the overall performance of the insurance company's general account. Therefore, the correct answer is A – separate account; general account.

Question 15

The performance of the insurance product depends almost solely on the performance of the portfolio selected without adjusting for the fees or expenses of the insuring company.

Accepted Answer

The performance of the insurance product is impacted not only by the performance of the portfolio selected, but also by the fees and expenses charged by the insuring company. These expenses can significantly impact the returns earned by the policyholder.

Question 16

The credit rating of an insurance company is important to a purchaser of insurance, especially for the types of insurance that may be paid well into the future, such as health insurance.

Accepted Answer

The answer of The credit rating of an insurance company...

Question 17

Insurance companies often have different distribution systems for individual and group products because individual product distributors deal with individuals and small company owners; and group product distributors deal with human resource departments of corporations and other organizations.

Accepted Answer

Individual and group products require different types of marketing and sales strategies, as they cater to different target markets. Distributors for individual products typically work with individual consumers, whereas group product distributors work with corporate clientele and their HR departments. Therefore, insurance companies often have separate distribution systems for these different products.

Question 18

Cash value insurance products may be "guaranteed" or "variable"; with fixed or flexible premiums; and, with or without a survivorship feature.

Accepted Answer

Cash value insurance products can come in different variations with guaranteed or variable returns and fixed or flexible premiums. They may also have or lack a survivorship feature.

Question 19

Flexible premium life insurance combines the features of variable life and universal life policies, that is, the choice of separate account investment products and flexible premiums.

Accepted Answer

The answer of Flexible premium life insurance combines the features...

Question 20

Long-term care insurance is a fairly new line of business and is offered by different types of companies, but mainly life insurance companies.

Accepted Answer

Long-term care insurance is a relatively new line of insurance, and it is mostly offered by life insurance companies.

Quiz 6: Insurance Companies