XCEL INSURANCE LICENSING TEST
BANK 250 QUESTIONS AND CORRECT
DETAILED ANSWERS | A GRADED | NEW
AND REVISED
A participating company is also referred to as which type of insurer?
A) Re-insurer
B) Mutual insurer
C) Domestic insurer
D) Reciprocal insurer - ANSWER- 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 - ANSWER- 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 - ANSWER- 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 - ANSWER- 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 - ANSWER- B) Participating
,Which of the following refers to a condition that may increase the chance of a
loss?
A) Adverse selection
B) Hazard
C) Risk
D) Peril - ANSWER- 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 - ANSWER- 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 - ANSWER- 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 - ANSWER- 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 - ANSWER- 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
- ANSWER- A) Probability that an event will occur
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