482 Chapter 25 Insurance and Pension Fund Operations Chapter 25 Insurance and Pension Fund Operations 1 Which of the following statements is incorrect A Insurance provides a payment to the insured under conditions specified by the insurance policy contract B Individuals who are less exposed to specific conditions that cause financial damage are more likely to purchase insurance against those conditions C Insurance can cause the insured to take more risks because they are protected D Insurance companies employ underwriters to calculate the risk of specific insurance policies ANSWER B 2 The insurance premium is related to the uncertainty about the size of the payments the premium is also for group plans A higher lower B higher higher C lower higher D lower lower ANSWER A 3 Those insurance companies whose claims are predictable need to maintain liquidity A less less B more more C less more D none of these ANSWER C 4 A life insurance company is owned by its policyholders most life insurance companies are A stock owned mutual B mutual mutual C stock owned stock owned D mutual stock owned ANSWER D 483 Chapter 25 Insurance and Pension Fund Operations 5 A life insurance policy that protects the policyholder until death or as long as premiums are promptly paid is a policy A whole life B term C universal life D none of these ANSWER A 6 insurance provides insurance for a policyholder only over a specified period A Term B Whole life C Universal D Term and universal ANSWER D 7 Which type of life insurance policy does not build a cash value for policyholders A whole life B term C universal life D All of these build a cash value ANSWER B 8 Which type of life insurance policy specifically accommodates the needs of people who need more insurance now than later A whole life B term C decreasing term D universal life ANSWER C 9 Which type of life insurance policy specifies a limited period of time over which the policy will exist and builds a cash value for policyholders over time A whole life B term C universal life D decreasing term ANSWER C Chapter 25 Insurance and Pension Fund Operations 484 10 Which type of life insurance policy can offer flexibility on the size and timing of premium payments The policyholder can decide the size of payments each period A whole life B term C universal life D decreasing term ANSWER C 11 Under insurance the benefits awarded by the life insurance company to a beneficiary vary with the assets backing the policy A whole life B term C variable life D universal life ANSWER C 12 is not a typical source of funds to life insurance companies A Deposit insurance premiums B Annuity plans C Investment income D Life and health insurance premiums ANSWER A 13 represent the most popular asset of life insurance companies A Corporate bonds B Treasury securities C Corporate stock D State and local bonds ANSWER A 14 Which of the following is the least common use of funds by life insurance companies A government securities B corporate bonds C stocks D real estate ANSWER D 15 Which of the following is not a ratio or group of ratios commonly used by insurance regulators to detect any problems in time to search for a remedy before the company deteriorates further A liquidity ratios B operating expense ratios C profitability ratios D All of these ratios are commonly used by insurance regulators ANSWER D 16 The ratio of an insurance company s net profit to policyholders surplus is called A liquidity ratio B return on net worth 485 Chapter 25 Insurance and Pension Fund Operations C net underwriting margin D return on assets ANSWER B 17 Because life insurance companies carry a large amount of securities the market value of their asset portfolio can be to interest rate fluctuations A short term insensitive B short term very sensitive C long term insensitive D long term very sensitive ANSWER D 18 Life insurance companies can attempt to reduce their exposure to interest rate risk by A increasing their proportion of long term assets B diversifying the age distribution of their customer base C increasing their proportion of short term assets D concentrating on an older age distribution of their customer base ANSWER C 19 Which of the following is a difference in characteristics between life insurance companies and property and casualty insurance companies A Property and casualty policies are longer term B The type of policies offered by life insurance companies are less focused C Future compensation amounts paid on property and casualty policies are more difficult to forecast D Life insurance companies need to maintain a more liquid asset portfolio ANSWER C 20 The most common use of funds for property and casualty insurance companies is A municipal securities B Treasury securities C corporate stock D corporate bonds ANSWER A Chapter 25 Insurance and Pension Fund Operations 486 21 Which of the following is not a difference between property and casualty insurance and life insurance A Property and casualty insurance policies often last ten years or more as opposed to the short term life insurance policies B Property and casualty insurance encompasses a wide variety of activities while life insurance is more focused C Forecasting the amount of future compensation to be paid is more difficult for property and casualty insurance than for life insurance D All of these are differences between property and casualty insurance and life insurance ANSWER A 22 effectively reallocates a portion of an insurance company s return and risk to other insurance companies A Reinsurance B Cash flow underwriting C Factor insurance D Universal insurance ANSWER A 23 usually require individuals to choose a primary care physician A Indemnity plans B Health maintenance organizations C Preferred provider organizations D None of these ANSWER B 24 insurance covers losses due to dishonest employees A Key employee B Credit line C Malpractice D Fidelity bond ANSWER D 25 insurance covers losses due to lawsuits by dissatisfied customers A Fidelity bond B Credit line C Surety bond D Business interruption ANSWER C 487 Chapter 25 Insurance and Pension Fund Operations 26 Which of the following is not involved in the regulation of the insurance industry A National Association of Insurance Commissioners NAIC B Insurance Regulatory Information System IRIS C Federal Deposit Insurance Corporation FDIC D All of these are involved in the regulation of the insurance industry ANSWER C 27 All regulation of insurance companies is performed by A