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risk management financial

Questions and Answers of Risk Management Financial

In what sense is an insurance contract conditional?In what sense is it unilateral?
Strictly speaking, life insurance is not a contract of indemnity. Nevertheless, there are certain applications of the principle of indemnity in this field. To what extent does the principle of
Identify and briefly describe the four basic sections of insurance contracts.
It was said that some people carried life insurance policies on the czar of Russia as a form of speculation.Although there was no insurable interest, presumably none of those carrying the insurance
Fred Schwartz is from Keokuk, Iowa. He is currently attending college in NewYork City.However, he purchases his automobile insurance from his hometown agent, giving his hometown address. Do you
Rosie LaRue calls her insurance agent at 3:00 A.M.and asks the agent to increase the coverage on her house from $60,000 to $80,000. He agrees to do so. During the night the house burns to the ground,
The subrogation provision enforces the principle of indemnity by preventing the insured from profiting from the existence of the insurance contract. What other beneficial effect might it have?
Jones tells the insurance company his building is equipped with a sprinkler system and a guard is on duty inside the premises when they are closed. Both statements are false. The building is
Identify and describe the major classes of benefits in the Old-Age, Survivors, Disability, and Health Insurance Program (OASDHI)
Identify the persons who are eligible for benefits under the Old-Age, Survivors, and Disability Insurance (OASDI) program and how eligibility for benefits is derived
Explain how benefits under the OASDI program are financed
Explain how the amount of benefits received under OASDI is determined and the circumstances that can lead to a loss of benefits
Evaluate the financial soundness of the Social Security system and identify the proposals that have been suggested to improve that soundness
Explain the rationale for workers compensation laws and outline the principles on which the workers compensation system is based
Describe the operation of the workers compensation system, including the types of injuries covered and the types of benefits?
Identify and briefly describe the four classes of benefits available to those covered under Old-Age, Survivors, Disability, and Health Insurance (OASDHI).
Explain how benefit levels are automatically adjusted under OASDHI. How are the increases in benefits financed?
Outline the requirements for fully insured status under OASDHI.
What benefits does a fully insured worker have that a currently insured worker does not?
What benefits does a worker who is only currently insured have?
Under what circumstances can a person who is entitled to Social Security benefits become ineligible for benefits?
Under what conditions is a children’s benefit payable under Social Security? How is “child” defined for benefit purposes?
Explain the nature of the common-law obligations and the common-law defenses of employers’ liability. Are these obligations and defenses ever used today? Under what circumstances?
Identify and explain the five general principles on which workers compensation laws are based.
Identify and briefly describe the classes of benefits that are provided to injured workers under the workers compensation laws.
Social Security provides protection against financial loss to dependents resulting from premature death of the wage earner and provides wage earners with retirement benefits. Do you think that the
Many observers have voiced concern about the soundness of the Social Security system, pointing to the growing number of recipients and the increasing benefit levels. Towhat extent do you believe that
The OASDHI program has been called “the greatest chain letter in history.” To what aspect of the Social Security system does this probably refer? Do you agree or disagree with the observation and
The Social Security trust funds are invested in U.S.Treasury securities. Although there is little question regarding the safety of these instruments, many observers have expressed alarm over this
Which, if any, of the three proposals contained in the report of the Advisory Council on Social Security released in 1997 do you personally prefer? Why?
Differentiate between net premiums and gross premiums in life insurance?
Identify the three factors that are used in computing life insurance rates and explain how each enters into the computation
Describe the nature of a mortality table and explain the nature of the entries for each age
Describe the net single premium and explain the way it is computed
Explain the relationship of the net single premium to annual level premiums and describe the way in which annual level premiums are computed
Explain how the net premium for an annuity is computed
Distinguish between benefit-certain life insurance contracts and benefit-uncertain contracts and explain the significance of the distinction
“Other things being equal, the lower the interest assumption used in the computation of the premium, the lower will be the reserve on a policy at any point in time.”Do you agree or disagree? Why?
It has been shown that wide differences in cost exist among life insurers for the same type of policy. The three factors used in premium computation are the basis for these differences in cost. To
An article on life insurance in a midwestern newspaper stated: “It makes good sense to purchase life insurance at an early age since the cost of coverage increases the longer you wait.” Do you
Assume you have two groups of policies, each consisting of 1000 policies, issued at the same time to groups of the same age. One group consists of single-premium whole-life policies and the other of
“A young man, age 21, may purchase a term-to-age-65 policy. The probability that he will die and the insurance company will be required to pay the face amount of the policy is about 12 percent. If
What are the primary elements in life insurance ratemaking?Which are used in computing net premiums?The gross premium?
The insurer must estimate in advance the mortality and the interest that will be earned on policyholders’ premiums.How do insurers attempt to guard against deviations from these estimates?
The net single premium for a five-year term policy at age 35 is $4.87 (2001 CSO table, female lives, 4 percent interest assumption). Why can we not compute the annual premium for a five-year term
Explain what is meant by the term present value. Ignoring the concept of present value, what is the net single premium for a whole-life policy?
At age 28, Mr. Jones purchased a whole-life policy, paying the premium in one single payment. On the same day, Mr. Smith bought a 20-pay whole-life policy identical in all other respects to the one
Under awhole-life policy, the actual amount at risk by the insurance company is constantly decreasing. Explain what is meant by this statement.
In a given year, would you expect the initial reserve, the mean reserve, or the terminal reserve of a particular policy to be highest? In your answer, distinguish among the three measures. Which is
What is the difference between a policy that is paid up and one that is mature?
Briefly explain the distinction between benefitcertain and benefit-uncertain life insurance contracts.
You have been called on as a consulting actuary by a tribe of natives in an underdeveloped country. Owing to warfare with the neighboring tribes, the mortality rate in the country is high. At the
Describe the common provisions of life insurance contracts?
Explain the purpose and importance of the incontestable clause in life insurance contracts
Identify and explain the distinction among the various types of beneficiaries that may be designated in a life insurance contract
Identify and describe the settlement options and explain the circumstances in which each of the settlement options might be used?
The incontestability clause seems to permit fraud to go unpunished. Do you think that this exception is justified?On what grounds?
John Jones dies, leaving $100,000 in life insurance policy proceeds to his widow.Widow Jones elects to have the $100,000 paid out under the life income option. At the end of the first year, after
The interest rate guaranteed under the settlement options of a life insurance policy seems low in comparison with alternatives available to the beneficiary. Does the guarantee of 3.5 percent or 4
The exposure of insurers to adverse selection is not restricted to the underwriting process. To what extent, if any, is the insurer subject to any formof adverse selection under policy settlement
On January 1, 2005, Sam Smith gave his application for life insurance to his agent, including his first premium payment. On the application, he neglected to notify the company of a mild heart attack
Some life insurance contract provisions are designed for the protection of the insured and some for the protection of the insurance company. Indicate whether each of the following provisions is
Explain the difference among the insured, the owner, and the beneficiary of a life insurance policy. Give a specific example in which each party might be a different person.
Briefly distinguish between a direct beneficiary and a contingent beneficiary; between a revocable and an irrevocable beneficiary.
Explain in detail the obligation of the insurer under a straight life income option, life income with 10 years certain, and life income with installment refund.
Settlement options of life insurance policies include lump sum, the interest option, installments for a fixed period, installments of a fixed amount, and life income options. Explain each.
What are the rights of a person who is designated as an irrevocable beneficiary?
Describe the taxation of life insurance proceeds payable under the policy settlement options.
What is meant by reinstatement? Under what conditions may a policy that has lapsed be reinstated?
At age 30, John Doe applies for a life insurance policy, stating that he is 28 years old. The misstatement is discovered at the time of his death. Does it make any difference if the misstatement is
The settlement option providing a life income with cash or installment refund seems too good to be true.How can the insurance company agree to pay for as long as the beneficiary-annuitant lives and
Describe the nonforfeiture options in life insurance contracts and explain the source of these values?
Identify and describe the dividend options in life insurance policies and explain the source of dividends
Explain the importance of the disability waiver of premium provision and the guaranteed insurability option
Although a standard life insurance policy does not exist, certain provisions may be required by law. In addition, some optional provisions or modificationsmay need to be added to the basic
To what extent does the accidental death benefit (or double indemnity) provision of a life insurance policy violate the rules of good risk management?
What, in your opinion, are the principal benefits of the disability waiver of premium provision in life insurance contracts? Of what significance is premiums being waived only until the insured’s
It is often said that policyholders should not have to pay interest on policy loans since they are “borrowing their own money.” Explain specifically the fallacy of this argument. Assuming that
The guaranteed insurability option is a valuable form of protection, permitting an individual to insure his or her insurability up to some multiple of the face amount of the policy to which the
Joe Smith purchased a $10,000 whole-life policy with an accidental death (double indemnity) provision on December 1, 2004. He committed suicide on December 15, 2006. Discuss the liability of the
What is the purpose behind the insertion of an automatic premiumloan provision into a life insurance policy?What is its relation to the grace period?
Describe the nonforfeiture options. Under what circumstances would you advise the choice of each in preference to the other two?
John Jones has elected to permit the dividends under his participating whole-life contract to accumulate but is concerned because a friend informed him that this subjects the dividends to taxation.
It has been said that policy loans constitute “borrowing from widows and orphans.” What is meant by this statement? Do you agree with it?
One week after taking out a policy loan, John Doe is in a fatal automobile accident. Howmuch will be payable to the beneficiary of his policy?
What are the four standard dividend options available under a participating life insurance policy? What is the so-called fifth dividend option?
Historically, the disability waiver of premium provision was to provide benefits only if the disability was total and permanent. How have the terms total and permanent been interpreted?
Jones elected to use dividends under his whole-life policy to buy paid-up additions to the policy but has now changed his mind and would like to prepay the policy as quickly as possible. Are the past
Describe the two approaches commonly used to adjust the death benefits of universal life policies to avoid tax disqualification.
Describe the characteristics of the various special life insurance forms discussed in the chapter?
Explain the circumstances in which each of the specialized forms may be used
Identify the economic conditions that led to the new generation of life insurance contracts
Identify the advantages and disadvantages of specialized life insurance policies generally
Explain the difference between the family income policy and the family income rider. How would you expect their rates to differ and why?
Briefly describe the specialized policies that have been created to address the needs associated with mortgages.
The family income policy is a combination of wholelife insurance and decreasing term insurance. Explain.
Briefly explain the nature of the family protection policy, identifying the various components by type of protection.
Describe the situation for which survivorship wholelife or the second-to-die policy was developed.Are there any other situations for which it would be appropriate?
Explain why the economic environment of the late 1970s and early 1980s led to the creation of new types of life insurance policies.
Explain how indeterminate premium whole-life policies differ from traditional whole-life policies.

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