XCEL INSURANCE LICENSING
EXAM 2024-2025 WITH ACTUAL
CORRECT QUESTIONS AND
VERIFIED DETAILED ANSWERS
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QUESTIONS AND SOLUTIONS
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Which of the following is a type of insurance where an insurer transfers loss exposures from policies
written for its insureds?
A) Treaty insurance
B) Reinsurance
C) Mutual insurance
D) Captive insurance
B) Reinsurance
Reinsurance is an arrangement by which an
insurance company transfers a portion of a risk it has assumed to another insurer.
One important function of an insurance company is to identify and sell to potential customers. Which of
these BEST describes this function?
A) Underwriting
B) Marketing
C) Reinsurance
D) Regulation
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,B) Marketing
Marketing can be best defined as identifying and selling to potential customers.
Which of the following is NOT a characteristic of reinsurance?
A) Increases the unearned premium reserve
B) Protects against a very large claim
C) Enables insurer to meet certain objectives
D) A specialized branch of the insurance industry
A) All of these are reinsurance features except
"Increase the unaccredited Premium reserve".
AAA Insurance Company has transferred a portion of its loss exposure to
BBB Insurance Company. In this reinsurance transaction, what is AAA
Insurance Company called?
A) Captive insurer
B) Tertiary insurer
C) Primary insurer
D) Secondary insurer
C) Primary insurer
In a reinsurance agreement, the insurance company that transfers its loss exposure to another insurer is
called the primary insurer.
An insurer owned by its policyholders is called a
A) stock insurer
B) reinsurer
C) mutual insurer
D) multi-line insurer
C) Mutual insurer
The correct answer is "mutual insurer". A mutual insurer is owned by its policyholders.
A participating company is also referred to as which type of insurer?
A) Re-insurer
B) Mutual insurer
C) Domestic insurer
D) Reciprocal insurer
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,B) Mutual insurer
A mutual insurer is also referred to as a participating company
Which of the following is NOT a benefit of insurance?
A) Losses due to fraud are eliminated
B) Reduces the uncertainty of loss exposures
C) Makes a loss whole again
D) Source of investment funds
A) 'Losses due to fraud are eliminated" is NOT a benefit of insurance
When a mutual insurer becomes a stock company, the process is called
A) Mutualization
B) Demutualization
C) Reinsurance
D) Reorganization
B) Demutualization
Which of the following statements regarding a life insurance policy dividend is TRUE?
A) It represents a refund of overcharged premium in a non-participating whole life policy
B) It represents the build-up of cash value in a permanent insurance policy
C) It is the distribution of excess of funds accumulated by the insurer on participating policies
C) It is the distribution of excess of funds accumulated by the insurer on participating policies
Dividends paid to policyowners of participating contracts represent a refund of excess premiums
charged. Remember, since the premiums were initially paid with after-tax dollars, there is no income tax
consequence to the policyowner.
John owns an insurance policy that gives him the right to share in the insurer's surplus. What kind of
policy is this?
A) Nonparticipating
B) Participating
C) Contributory
D) Surplus
B) Participating
Which of the following refers to a condition that may increase the chance of a loss?
A) Adverse selection
B) Hazard
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, C) Risk
D) Peril
B) Hazard
Which of the following is any situation that presents the possibility of a loss?
A) Adverse selection
B) Risk pooling
C) Loss exposure
D) Insured loss
C) Loss exposure
Moral hazard is described as the
A) increased chance of loss because of an insured's recklessness
B) increased ability to predict loss because of a higher exposure to loss
C) increased risk of adverse selection
D) increased chance of a loss because of an insured's
dishonest tendencies
D) increased chance of a loss because of an insured's
dishonest tendencies
Which of the following is a situation where there is a possibility of either a loss or a gain?
A) Hazard
B) Pure risk
C) Speculative risk
D) Peril
C) Speculative risk
A hazard can be best described as
A) the potential for loss
B) the tendency for poorer than average risks to seek out insurance
C) a condition that may increase the likelihood of a loss occuring
D) a risk that has the potential for both loss and gain
C) a condition that may increase the likelihood of a loss occurring
Which of the following is NOT considered to be a definition of the term "loss"?
A) Probability that an event will occur
B) An insurable event that takes place which results in a payment made by the insurance company
C) Unintentional decrease in the value of an asset due to a peril
D) The amount an insurance company must pay because of an insurable event
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