Insurance MCQs

All of the following are parties to a life insurance contract EXCEPT: I. Insurer II. Underwriter III. Beneficiary IV. Owner V. Insured

II only
III only
II, III, and V
All are parties to a life insurance contract

Which of the following will have to meet an insurable interest requirement in order for a policy to issue?

Beneficiary
Insured
All of the above
All of the above

Which of the following is NOT an operating goal of an insurer?

Comply with legal requirements.
Concentrate risk.
Meet customer needs.
Fulfill its duty to society.

What are the three core functions that exist within a typical insurer?

Accounting, actuarial, and underwriting.
Actuarial, claims, and underwriting.
Accounting, marketing and distribution, and sales.
Actuarial, marketing and distribution, and sales

Which of the following errors is the most significant problem in measuring insurer profitability?

Errors in setting adequate rates.
Errors in estimating future investment returns.
Errors in estimating loss reserves.
Errors in classification of loss exposure units.

Which of the following is NOT a reason insurers are subject to governmental regulation?

Protect consumers against fraud.
Guarantee insurer profit.
Maintain insurer solvency.
Protect consumers against unethical marketing behavior.

Which of the following is the primary reason insurer solvency is monitored by regulators?

Insurers hold large sums of money for the benefit of consumers.
Insurers are inherently financially unstable.
The cost of insurer insolvencies is shifted to taxpayers.
The claims-paying ability of insurers can be analyzed by most consumers and businesses.

Which of the following are the three major goals of insurance rate regulation?

Ensure that rates are adequate, are not excessive, and are unfairly discriminatory.
Ensure that rates guarantee insurance company solvency, are affordable, and are not overly complex.
Ensure that rates do not allow insurers excessive or unreasonable profits, are high enough to pay all claims and expenses, and result in fair, consistent, and equitable charges among all insured groups.
Ensure that rates are actuarially sound, are affordable to all, and are equitable.

Which of the following types of insurance customer is most likely to have the broadest choice of risk financing alternatives?

Individual.
Professional partnership.
Small business.
National account.

Which of the following are advantages of allowing qualified producers to handle certain types of claims? I. Lower loss adjustment expenses. II. Lar...

I only.
I and II only.
I and III only.
I, II, and III

Which of the following is the principal method of determining a prospect’s insurance needs?

Having a conversation to determine what insurance coverage the prospect wants to purchase
Performing a thorough risk management review of the prospect’s loss exposures.
Selling the prospect as much coverage as it can afford, given its insurance purchasing budget.
Determining which insurer offers the most attractive contingent commission arrangement for the prospect’s desired coverage.

Which of the following does NOT determine the underwriting capacity of an insurer?

The volume of premiums written relative to the insurer’s policyholders’ surplus.
Availability and cost of adequate reinsurance.
Regulatory guidelines.
Standardized methods used to organize underwriting activities

Which of the following actions must be taken by a line underwriter if policy limits on an application exceed the line underwriter’s binding authori...

Seek approval from supervisory personnel within the underwriting department.
Accept the application but reclassify the loss exposure.
Accept the application and ignore binding authority restrictions.
Decline the application

Numerous factors help shape an insurer’s underwriting policy. Which of the following is NOT a constraint that would cause certain types of insuranc...

Reinsurance treaties exclude the business.
The insurer’s personnel lack needed marketing and underwriting expertise.
Intense competition in the line of business would result in insufficient profit opportunities.
Policy forms, rates, and rating plans are not available to the insurer at a reasonable cost.

COPE is an acronym describing a common tool used in underwriting the fire peril and other causes of loss to property. What does COPE stand for?

Conditions, Omissions, Perils, and Exclusions.
Construction, Occupancy, Protection, and External exposure.
Commercial, Operations, Production, and Entertainment.
Construction, Occupancy, Perils, and External exposure

Which of the following policy provisions does NOT affect the determination of the amount an insurer is obligated to pay at the time of a covered loss...

The policy’s coverage limit.
The insurable interest of all persons insured at policy inception.
The policy’s deductible provisions.
The policy’s provisions for establishing the value of the insured property.

Which of the following is NOT a characteristic of umbrella and excess liability insurance?

Each requires the insured to pay for losses equal to the self-insured retention or the deductible.
Each provides liability coverage in excess of the underlying policy limits.
Umbrella liability insurance provides coverage for gaps in the underlying policies but excess liability insurance does not.
Loss frequency rather than loss severity is the primary concern in underwriting umbrella and excess liability insurance.

Which of the following is an ethical obligation insurers have with regard to using their superior knowledge of loss control and prevention?

Earn a profit.
Provide funds for government sponsored disaster relief programs.
Decline coverage for exposures that may have a loss.
Discourage risk-taking in business and personal activities.

Which of the following statements about premium auditing is true?

Premium auditing is verification of premium information included on an insurer’s financial statements.
Premium auditing is a methodical examination of the insured’s operations, records, and books of account to determine the actual exposure units and premiums for insurance to be provided in the next policy period.
Premium auditing is a regulatory function that determines if the insurer has paid the correct amount of premium taxes to the states in which it operates.
Premium auditing is a methodical examination of the insured’s operations, records, and books of account to determine the actual exposure units and premiums for insurance already provided

Which of the following is NOT a reason why accurate premium audits are important to the insurer?

Undetected premium audit errors may allow the insurer to retain premium overcharges and boost profits.
Incomplete or inaccurate premium audits cause costly extra work and a loss of efficiency.
Accurate premium audits assure equity in prices charged insured customers that present similar loss exposures.
The insurer’s cash flow depends on timely and accurate billing of auditable commercial insurance.

Which of the following is NOT included among an insurer’s claim representatives?

Insurance agents and brokers.
Independent claim adjusters.
Public claim adjusters.
Staff claim representatives

Which of the following is NOT a reason that a court of law may find an insurer to be guilty of bad faith claim settlement practices if it has denied ...

Failing, without legal cause, to fulfill a contractual promise.
Mishandling the claim resulting in financial detriment to the insured or third party claimant.
Failing to comply with the implied duty of good faith claim settlement.
Failing to deal with the claimant fairly and in good faith.

Which of the following is NOT a reason why accurate premium audits are important to the insurer?

Which of the following should a claim representative do when deciding how thoroughly to investigate a claim?

Be sure the investigation has been thorough enough to satisfy a judge and jury that good faith claim handling procedures have been followed.
Comply with requirements of the Fair Credit Reporting Act by avoiding any access to the claimant’s financial information.
Collect enough evidence to support denial of the claim.
Refer most claims to the insurer’s special investigations unit (SIU).

Which of the following potential claimants does NOT have an insurable interest in property damaged or destroyed by a covered cause of loss?

An unsecured creditor of the property owner.
A person who leases the property from the owner.
Warehouse operators acting as custodians of the property.
Business partners holding property as owners in common.

Which of the following causes of loss are common carriers liable for when a shipper’s goods are damaged?

By an act of God.
By theft while the property is in the care, custody, and control of the carrier.
By negligence of the shipper.
By exercise of public authority.

Betty Smith is an avid golfer. While teeing off at her golf club recently, she sliced her shot and hit her golfing partner, Susan Jones, in the face ...

Identify the insurance policy covering Betty Smith.
Acknowledge receipt of the claim to the agent.
Advise Susan not to contact an attorney.
Document and file all information concerning the claim

Which of the following is NOT a reason why reinsurance is purchased?

Reinsurance increases underwriting capacity.
Reinsurance reduces the number of claims incurred.
Reinsurance stabilizes loss experience.
Reinsurance provides catastrophe protection.

Which of the following is true regarding a facultative reinsurance contract?

The reinsurer is obligated to accept all loss exposures underwritten by the primary insurer.
The primary insurer must negotiate a separate agreement for each loss exposure it wants to reinsure.
The reinsurer agrees in advance to accept a set proportion of all loss exposures underwritten by the primary insurer.
Reinsurance protection continues as long as the primary insurer renews the insured’s coverage.

Which of the following reinsurance programs is best suited for a primary insurer experiencing rapid premium growth in its personal auto insurance lin...

Finite risk reinsurance.
Excess of loss treaty reinsurance.
Pro rata facultative reinsurance
Quota share treaty reinsurance

Which of the following is the traditional and most commonly used system for compensating victims of auto accidents?

Pure no-fault system.
Absolute liability system.
Tort liability system.
Vicarious liability system.

Which of the following is the basic argument in favor of no-fault auto insurance systems currently used in the United States?

No-fault systems eliminate fraudulent claims.
No-fault systems offer rich benefits at lower overall cost.
No-fault systems offer unlimited medical benefits.
No-fault systems settle auto claims more quickly at lower cost

Under which type of auto insurance arrangement are all auto insurers in a state required to issue policies and service their proportionate share of h...

Joint underwriting association.
Automobile insurance plan.
Unsatisfied judgment fund.
Reinsurance facility

Which of the following is NOT contained in the Declarations page of the Personal Auto Policy (PAP)?

Policy period.
Insuring agreement.
Policy number.
Name of the insurer.

Liability coverage – Part A is the most common part of the Personal Auto Policy (PAP). Which of the following is NOT covered under the liability se...

A newly acquired auto that replaces a vehicle previously described in the policy.
A trailer owned by the named insured.
A borrowed auto used by the insured as a temporary substitute during servicing of the insured’s primary vehicle.
A nonowned van that the insured drives to the grocery store each week

Which of the following is NOT considered to be an uninsured motor vehicle by the Uninsured Motorists Coverage – Part C of the Personal Auto Policy ...

A vehicle for which no bodily injury liability insurance or bond applies at the time of the accident.
A hit-and-run vehicle whose operator cannot be identified.
An uninsured vehicle furnished for regular use by a family member.
A vehicle insured with an insurer that denies coverage due to the insurer’s insolvency.

Which of the following is NOT a duty of an insured after an auto accident covered under the Personal Auto Policy (PAP)?

Submit proof of loss.
Submit to a physical examination if requested.
Agree to an examination under oath.
Admit negligence to the police if at fault.

Which of the following is NOT a common endorsement added to the Personal Auto Policy (PAP)?

Snowmobile endorsement.
Limited Mexico coverage endorsement.
Towing and labor cost coverage.
Garage Business endorsement.

Which of the following is true regarding tenants of rented apartment units?

Tenants have no need for Homeowners insurance.
Tenants must insure both the apartment building and their personal property.
Tenants are eligible for Homeowners insurance using HO-3 (the Special Form).
Tenants are eligible for Homeowners insurance using HO-4 (the Contents Broad Form)

One of the Conditions in Homeowners HO-3 (the Special Form) lists the insured’s duties after a property loss. Which of the following statements con...

The insured’s claim representative might not require that all of these duties be performed.
The insurer is prevented from denying a claim even if the insured fails to perform required duties.
All listed duties always must be performed prior to final claim settlement.
Claim representatives usually waive most or all duties expected of the insured.

Spencer has a Homeowners HO-3 policy that provides $320,000 of insurance on his dwelling, which has a current replacement value of $500,000. Ignoring...

$20,800
$24,000
$26,000
$28,000

Which of the following is NOT an exclusion in Section II of the Homeowners HO-3 policy?

Intentional injuries.
Business activities.
Transmission of a communicable disease.
The gradual yet accidental seepage of pollutants from the insured’s septic system into the neighborhood water supply

Which of the following statements regarding the “severability of insurance” condition in the HO-3 Special Form insurance policy is true? I. The ...

I only.
I and II only.
I and III only.
I, II, and III.

Which of the following motor vehicles is NOT covered under Section II – Liability coverage in the ISO HO-3 policy?

Motor vehicle in dead storage on an insured location.
Motor vehicle powered by one or more batteries that cannot exceed five miles per hour on level ground that is designed as a toy for use by children under the age of seven.
Motor vehicle used solely to service a residence.
Motor vehicle used for snow removal on public roads within one mile of an insured location.

Which of the following statements about Fair Access to Insurance Requirements (FAIR) plans is true? I. FAIR plans make property insurance coverage a...

I only.
I and II only.
I and III only.
II and III only.

Which of the following is NOT typically contained in the declarations page of a Commercial Package Policy?

The description of the covered property.
The list of mortgagees, if any
The list of optional coverages, if any.
The cancellation provisions.

What is the fundamental difference between the three commercial property insurance covered causes of loss forms – Basic Form, Broad Form, and Speci...

Both the Basic and Broad Forms are written on a named perils basis while the Special Form provides coverage for all direct causes of loss not specifically excluded.
The Basic Form names the perils covered while the Broad and Special Forms cover all perils that are not specifically excluded.
The number of perils listed in each causes of loss form.
Only the Special Form offers additional coverage for fungus and collapse.

ABC Corporation is insured under a Business and Personal Property Coverage Form that specifies a $4 million limit of insurance on the building and a ...

$3,901,000.
$3,910,000.
$4,391,000.
$4,401,000.

Which of the following is true regarding the “No Benefit to Bailee” condition used in commercial property forms?

Limits a bailee’s liability for damages to the property of others in the bailee’s care, custody, and control.
Is intended to defeat a bailee’s attempts to limit its liability for damages to property insured by the bailor.
Makes the bailee’s insurance secondary to insurance of the bailor.
Defeats the insurer’s right of subrogation against the bailee.

Which of the following statements concerning the Agreed Value optional coverage available for purchasers of the Business and Personal Property Covera...

This option removes any uncertainty regarding compliance with the coinsurance clause.
Insurers typically require proof of value before providing agreed value coverage.
Agreed values of property are shown on the policy’s declarations page.
If the limit of insurance is less than the agreed value, the full agreed value of property destroyed by a covered cause of loss will be paid.

Which of the following factors does NOT result in higher premiums on commercial property insurance?

Larger limits of insurance.
Smaller deductible amounts.
Broader covered causes of loss.
Higher coinsurance requirements

The most widely used general liability insurance form is the Insurance Services Office, Inc. (ISO) Commercial General Liability (CGL) policy. Which o...

I only.
III only.
I and II only.
I, II, and III

The most widely used general liability insurance form is the Insurance Services Office, Inc. (ISO) Commercial General Liability (CGL) policy. Which o...

Bodily injury.
Property damage.
Personal injury.
Intentional injury.

Which of the following are paid by the Commercial General Liability form’s Coverage C – Medical Payments? I. Only medical expenses for which the...

I only.
II only.
I and II only.
I, II, and III

Which of the following statements regarding certain supplementary payments under Coverages A and B of the Commercial General Liability policy are tru...

I only.
I and II only.
I, II, and III
II and III only.

Chip is a volunteer worker at his church’s mid-week adult day care facility. He accidentally spilled hot coffee on one of the elderly participants,...

Both the church and Chip would be covered as insureds under the CGL policy.
Only the church would be covered by the CGL as a named insured.
No coverage applies because the CGL only covers commercial businesses.
Mary cannot sue the church because she voluntarily participated in the adult day care program.

The owner, who also is the landlord, of an office building has Premises and Operations coverage under a Commercial General Liability (CGL) policy wit...

The damages will not be covered by the CGL.
The damages will be paid without regard to fault.
The damages will be paid without regard to limit.
The damages will be applied to the policy’s general aggregate limit.

In the United States, which of the following is true regarding workers compensation?

Workers Compensation is governed by a system of laws that vary from state to state.
A federal system that assures uniformity across the country governs workers compensation insurance.
Workers Compensation is an exclusive remedy that effectively shields employers from all liability suits for work-related injuries.
Workers Compensation statutes require employers to purchase insurance as the exclusive way to demonstrate financial responsibility to pay claims for workrelated injuries to their employees.

Workers compensation statutes apply to virtually all industrial workers and to most other kinds of private employment. However, there are a few excep...

Casual employees only hired for a short period of time.
Employees in certain states that do not require coverage in firms with few employees
Full-time employees who are paid without formal acknowledgment of employment status.
Domestic workers in states that exempt their employers from obtaining coverage

Which of the following are true regarding the Voluntary Compensation and Employers Liability endorsement to the Workers Compensation and Employers Li...

I only.
II only.
I and II only.
I and III only.

Which of the following is true regarding “drop-down” coverage that pays claims for which the underlying commercial liability policies do not prov...

I only.
II only.
I and III only.
II and III only.

Which of the following is NOT a way that aircraft insurance resembles auto insurance?

Both are divided into liability and physical damage sections.
Both require strict qualification and licensing of drivers or pilots.
Both exclude obligations of the insured under workers compensation laws.
Both exclude loss due to wear and tear, mechanical breakdown, or tire damage

Which of the following is an important difference between coverage provided by commercial general liability (CGL) insurance and coverage provided by ...

Costs of legal defense often are paid within (not in addition to) policy limits in CGL policies while these costs are paid in addition to policy limits in professional liability and management liability policies.
Professional liability and management liability policies are written with a claimsmade trigger less frequently than are CGL policies.
The CGL often has large limits of liability coverage while professional liability and management liability policies have smaller limits.
Unlike CGL policies, professional liability and management liability policies often give the insured the right to participate in the decision regarding whether or not a claim should be settled or contested.

Janis is the Human Resources Manager of Company X and she is looking for a group life insurance policy. The insurance agent informs her that Company X...

avoid adverse selection.
ensure insurability.
increase agency commission.
reduce premium.

Bill submitted his proposal for a whole life insurance policy with a sum insured of $1,000,000 and paid the first premium of $2,000. He has passed th...

$0
$2,000
$998,000
$1,000,000

Which of the following is/are the effects of the principle of indemnity in insurance? I. It prevents the insured from profiting from insurance. II. ...

I only
III only
I & III only
I, II & III

Ronald purchased his life insurance policy 5 years ago and committed suicide last month. When the insurance company processed the claim, it was found...

can reject; entire contract
can reject; suicide
cannot reject; incontestable
cannot reject; ownership

Which of the following statements with respect to a disability income benefit rider in a life insurance policy are CORRECT? I. Income benefits will b...

I & II only
I & III only
II & III only
I, II & III

Which of the following statements regarding a convertible term life insurance policy are CORRECT? I. The insured has the option of converting the pol...

I & III only
I & IV only
II & III only
II & IV only

Jane is 30 years old now and is considering taking out a life insurance policy. The quotations for four different policies have been obtained, all ba...

35-year endowment life insurance policy.
35-year term life insurance policy.
65-year paid-up non-participating whole life insurance policy.
Non-participating whole life insurance policy.

Derek is the owner of a factory in Hong Kong. A German buyer recently placed an order with Derek, included in the contract is a provision that Derek ...

Avoidance.
Prevention.
Retention.
Transfer.

In requiring Derek to insure all his products, the insurance companies are MOST LIKELY protecting themselves against which ONE of the following issues...

Adverse Selection.
Moral Hazard.
Morale Hazard.
Physical Hazard.

In giving up the contract with the German buyer, Derek is MOST LIKELY to have taken which ONE of the 6 steps in the risk management process?

Consideration of alternatives and selection of risk treatment device.
Evaluation and review.
Evaluation of risks
Implementation of the decision.

Mathew is 50 years old and single. He was employed for over 14 years as a full-time chef of a restaurant. However, Mathew had a car accident 3 months...

I & II only
I & III only
II & IV only
III & IV only

Mathew is 50 years old and single. He was employed for over 14 years as a full-time chef of a restaurant. However, Mathew had a car accident 3 months...

I & II only
I & IV only
I, III & IV only
II, III & IV only

Mathew is 50 years old and single. He was employed for over 14 years as a full-time chef of a restaurant. However, Mathew had a car accident 3 months...

II & IV only
I, II & III only
I, III & IV only
II, III & IV only

A social device for spreading the chance of financial loss among a large number of people is the definition of

Hazard
Risk
Insurance
Peril

Which of the following risks is most likely to be insurable?

George is concerned about the financial impact his premature death would have on his family.
Talyn is concerned about the financial impact large betting losses at the horse track will have on his retirement savings.
John is concerned about the financial impact on his savings when his car eventually becomes worn enough to need to be replaced.
Jewel is concerned about the financial impact losing her hat would have on her weekly spending money.

Roger refuses to travel by airplane. Roger is managing the risk of being in a plane crash by

Reduction
Avoidance
Transference
Retention

Chianna becomes injured in a car accident caused when she took her eyes off the road to answer her cell phone. This is an example of a

Physical hazard
Moral hazard
Morale hazard
Legal hazard

Mathematicians who study and compile statistical data regarding exposure and risks for insurance companies are called

Solicitors
Insuraries
Underwriters
Actuaries

Which of the following would not be an example of insurable interest?

Jose wishes to take out a life insurance policy on his own life to provide for his family in the event of his death.
Ana wishes to take out a life insurance policy on her mother to ensure that funeral costs will be covered when the time comes.
Juan wishes to take out a life insurance policy on his neighbor because his neighbor is a careless driver who Juan thinks is likely to die in a car accident.
Carla wishes to take out a life insurance policy on her best salesperson to protect the business from lost sales in the event of the salesperson’s death.

Kim is injured in a house fire. When the bills come, the insurance company pays 80% of the cost and Kim pays the rest. This is an example of

Coinsurance
A deductible
Extraneous insurance
Policy limits

Associations organized to protect claimants, policyholders, annuitants, and creditors of financially impaired insurers are known as

Insurance Associations
Department Associations
Liability Associations
Guaranty Associations

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Insurance MCQs