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TEXAS GENERAL LINE PREP QUESTIONS & ANSWERS
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TEXAS GENERAL LINE PREP QUESTIONS & ANSWERS
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TEXAS GENERAL LINE PREP QUESTIONS &ANSWERS
All of the following are elements of an insurable risk EXCEPT:
A.) The loss must be measurable.
B.) The insured peril must be outside of the insured's control.
C.) Any losses resulting from the insured peril must be definable as to time, cause, and
location.
D. ) Losses resulting from the insured peril must be potentially catastrophic. - Answers-
D.) Losses resulting from the insured peril must be potentially catastrophic
What is the mathematical concept of probability that helps insurers estimate the
statistical likelihood of mortality or morbidity losses at any given age?
A.) law of large numbers
B.) underwriting principle
C.) actuarial principle
D.) law of probability - Answers-A.) Law of large number
Which of the following is an insurable risk?
A.) the possibility of becoming disabled and unable to earn an income
B.) the possibility of losing money gambling in Las Vegas
C.) the possibility of losing money in stock investments
D. ) the possibility of one's home value decreasing due to a drop in market prices -
Answers-A.) the possibility of becoming disabled and unable to earn an income
From an insurance perspective, underwriting is best defined as:
A.) the process of determining if an applicant is an insurable risk
B.) the process of identifying applicants who are engaging in adverse selection
C) the process of determining when an applicant will die or suffer a serious illness
D. )the process of calculating mortality and morbidity charges - Answers-A.) the process
of determining if an applicant is an insurable risk
A person who refuses to engage is risky activities like rock climbing for fear of injury or
death is demonstrating which risk management technique?
A.) risk avoidance
B.) risk retention
C.) risk reduction
D.) risk sharing - Answers-A.) Risk Avoidance
Refusing to engage in a risky activity is a form of risk avoidance
,To be considered insurable, a risk (and the potential loss it represents) must meet which
one of the following requirements?
A.) The loss must be definable as to time, cause, and location.
B.) The loss must be catastrophic.
C.) The loss must be certain to occur.
D.) The loss cannot be measurable. - Answers-A.) The loss must be definable as to
time, cause, and location
MUST BE DEFINABLE, MEASURABLE, UNCERTAIN AND NOT CATASTROPHIC
As a risk management technique, which of the following best illustrates risk transfer?
A.) Robert purchases life insurance because he figures doing so is far less expensive
than trying to save all the money his survivors would need upon his death.
B.) Sheila refuses to drink alcoholic beverages if she expects to drive a car afterward.
C.) John refuses to buy life insurance because he figures he has enough money in his
savings to pay for his burial when he dies.
D.) Carol eats a healthy diet and exercises regularly, hoping that doing so will keep her
healthy. - Answers-A.) Robert purchases life insurance because he figures doing so is
far less expensive than trying to save all the money his survivors would need upon his
death.
From an insurance perspective, the term "loss exposure" means:
A.) the extent to which an insurer discloses its marketing practices
B.) the extent to which an insurer is subject to a possible loss
C.) the extent to which insurers are required to open their financial books for public
inspection
D.) the extent to which an insurer discloses the components making up its policy
premium rates - Answers-B.) The extent to which an insurer is subject to a possible loss
The tendency of a person diagnosed with a serious illness to try to buy life or health
insurance is known as:
A.) concealment
B.) exposure reduction
C.) risk avoidance
D.) adverse selection - Answers-D.) Adverse selection
From an insurance risk perspective, an applicant engaging in adverse selection is
demonstrating which type of hazard?
A.) morale hazard
B.) moral hazard
,C.) physical hazard
D.) legal hazards - Answers-B.) Moral Hazard
All the following statements regarding perils and hazards are correct EXCEPT:
A.) Smoking cigarettes is an example of a peril.
B.) A hazard is a condition that raises the chance of a peril occurring.
C.) Indifference to loss is an example of a hazard.
D.) A peril is the immediate cause of a loss and is the event that insurance protects
against. - Answers-A.) Smoking cigarettes is an example of a peril
Buying life or health insurance is an example of which risk management technique?
A.) risk transfer
B.) risk reduction
C.) risk retention
D.) risk avoidance - Answers-A.) Risk transfer
From an insurance risk perspective, an applicant engaging in adverse selection is
demonstrating which type of hazard?
A.) legal hazards
B.) morale hazard
C.) moral hazard
D.) physical hazard - Answers-C.) Moral Hazard
Why would a large manufacturer choose to self-insure rather than buy an insurance
policy from an insurance company?
A.) to shelter company cash from federal taxation
B.) to avoid having to comply with state insurance laws dealing with employee benefits
C.) so they can pick and choose which losses they cover
D.) to save insurance premiums by paying relatively minor losses out of company funds
- Answers-D.) to save insurance premiums by paying relatively minor losses out of
company funds
The Royale Insurance Company, domiciled in Toronto, Canada, transacts business
legally in New York. In New York, Royale is classified as a(n):
A.) foreign insurance company
B.) alien insurance company
C.) unauthorized insurance company
D.) domestic insurance company - Answers-B.) Alien insurance company
Which of the following does NOT provide independent ratings of insurance companies'
financial strength and claims-paying abilities?
, A.) A.M. Best
B.) Standard & Poor's
C.) each state's Department of Insurance
D.) Moody's - Answers-C.) Each state's Department of Insurance
Which insurance company function calculates company mortality and morbidity rates as
well as the dividends on participating life insurance policies?
A.) actuarial division
B.) underwriting division
C.) claims division
D.) sales division - Answers-A.) Actuarial Division
Which of the following is an example of an unauthorized insurance company in Illinois?
A.) Company B, an Iowa-based company that does not hold a certificate of authority in
Illinois and sells products that are not approved by the Illinois insurance department
B.) Company D, a Canadian company that holds a certificate of authority in Illinois
C.) Company C, a Florida-based company that does not hold a certificate of authority
Illinois but whose products are approved by the Illinois insurance department
D.) Company A, an Illinois-based company that holds a certificate of authority in Illinois
and 32 other states - Answers-A.) Company B, an Iowa-based company that does not
hold a certificate of authority in Illinois and sells products that are not approved by the
Illinois insurance department
An insurance company that primarily sells life insurance policies designed for burial and
last expense purposes, and whose agents typically collect premiums in person, is
known as a:
A.) home service insurance company
B.) risk retention group
C.) fraternal insurance company
D.) reinsurance company - Answers-A.) Home service insurance company
A not-for-profit insurance provider operated by an organization that has a representative
form of leadership, operates on a lodge system, and exists solely for the benefit of its
members and their beneficiaries is called a:
A.) risk retention group
B.) home service insurance company
C.) mutual insurance company
D.) fraternal insurance company - Answers-D.) Fraternal insurance company
The insurance company function responsible for evaluating the insurable risks and
assigning appropriate premium rates, is the:
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