Must have at least 32/40 question correct for positive rating.

1. All of the following statements about the characteristics of Social Security are true EXCEPT A. Social Security is designed to provide a base of economic security B. Adverse selection is well controlled. C. Social Security works exactly same as private insurance. D. Participation is compulsory by law. 2. You can buy insurance from the following parties EXCEPT: A. An exclusive agent B. An independent agent C. An insurance company D. A broker 3. Which of the following is (are) reason(s) for a primary insurer to use reinsurance? A. To reduce variance in claim costs. B. Reinsurance can allow an insurer to hold less capital without increasing its insolvency risk. C. To reduce exposures to catastrophic claim costs. D. All of the above are true. 4. A fair premium is calculated to cover: A. Pure premium. B. Administrative costs C. Fair profit D. All of the above 5. All of the following are methods helping to insure the solvency of insurers EXCEPT: A. Open competition rating laws. B. Risk-based capital standards. C. Insurance Regulatory Information System (IRIS). D. Financial Analysis Solvency Tracking (FAST) system. 6. Jan is employed by an insurance company. She reviews applications to determine whether her company should insure the applicant. If insurable, Jan assigns the applicant to a rating category based on the applicant's degree of risk. Jan is a(n) A. Underwriter B. Broker C. Claim adjustor D. Loss control engineer 7. Medicare Part A covers which of the following expenses? A. Inpatient hospital services B. Physicians' services C. Prescription drug D. All of the above 8. Regarding a stock insurance company, all the following are true EXCEPT A. Can raise capital by issuing equity B. Should act in the best of policyholder's interest C. Stockholders have governing right on corporate operations D. Part of profits can be distributed as dividend to stockholders 9. Most state guaranty funds (except for New York) obtain money to pay claims from: A. Charging each insurer in the state an annual premium based on expected future claims. B. Charging post insolvency assessment on surviving insurers on a pro-rata basis. C. State income taxes. 10. Who is predominantly responsible for determining which insurance companies may legally write business in the state of Illinois? A. The governor of the state of Illinois B. The Illinois state insurance commissioners C. The national association of insurance commissioners D. The federal trade commission. 11. Which area of insurance regulation includes risk-based capital requirements, guaranty funds, and financial reporting requirements? A. Licensing Regulation B. Solvency Regulation C. Rate regulation D. Regulation of sales practices 12. To be eligible for retirement benefits of the Social Security program, the insured status of the participants has to be: A. Fully insured B. Currently insured C. Disability insured 13. Which of the following private rating agencies provides rates only for insurance companies? A. Moody's B. Standard and Poor's C. A. M. Best 14. Social Security benefits are financed mostly by: A. Payroll taxes paid by employees, employers, and the self-employed. B. Government general revenue C. Sales taxes D. Workers' compensation taxes 15. Both agent and broker are intermediaries in insurance transactions. Which of the following statements is true? A. They both can represent either the insurer or the insured. B. Agent represents the insurer while broker represents the insured. C. Agent represents the insured while broker represents the insurer. D. Neither of them receives commissions from insurance companies. 16. All of the following are methods used by insurers to reduce insolvency risk EXCEPT: A. Holding more capital B. Buying more reinsurance C. Diversifying underwriting risk across geographic regions D. Investing in stocks 17. Which of the following government programs will NOT provide benefits if you have a million dollars in the bank? A. Social Security B. Medicare C. Medicaid D. Both A and C 18. Lloyd's of London is a A. Stock insurance company B. Mutual insurance company C. Marketplace for transacting insurance business 19. A major difference between a mutual insurance company and a stock insurance company is: A. A stock insurance company is owned by policyholders, while a mutual insurance company is owned by shareholders. B. Unlike the policyholders of a stock insurance company, the policyholders of a mutual insurance company have the right to profits earned by the insurer. C. Compared to the mutuals, stock insurance companies can better control the interest conflicts between the customers and the owners of the company. D. None of the above. 20. A reinsurance contract that is entered into on a case-by-case basis, after an application for insurance is received by a primary insurer is called: A. Treaty reinsurance B. Facultative reinsurance 21. Which of the following statements about reinsurance is (are) true? A. Reinsurance is the purchase of insurance by an insurer B. Reinsurance involves the shifting of all or part of the insurance originally written by one insurer to another insurer. C. When an insurer buys reinsurance, it is giving up some of its potential underwriting profit to the reinsurer. D. All of the above 22. Which of the following statements about the medical insurance (Part B) portion of Medicare is true? A. Participation in Part B of Medicare is voluntary. B. It is provided at no cost to anyone who is fully insured under Medicare. C. It is financed by a pay-as-you-go method D. Participants do not need to pay deductibles and co-payments 23. Scott works in property and liability insurance marketing. He legally represents insurance purchasers, rather than insurance companies. Scott is paid a commission on the insurance placed with insurers. Scott is a(n): A. Exclusive agent B. Direct writer C. Independent agent D. Insurance broker 24. Which of the following people are eligible for Medicare benefits? A. Persons under age 65 who have been entitled to Social Security disability benefits for at least 24 months. B. Persons under 65 who need long-term kidney dialysis treatment or a kidney transplant. C. Most persons over age 65 D. All of the above 25. When an actuary calculates the pure premium (expected loss) of liability coverage, she/he needs to take into consideration the investment return and expected time of claim payment by the insurer. If everything else is held equal, A. The higher the return, the lower the premium; the earlier the claim payment, the lower the premium. B. The higher the return, the higher the premium; the earlier the claim payment, the lower the premium. C. The higher the return, the higher the premium; the earlier the claim payment, the higher the premium. D. The higher the return, the lower the premium; the earlier the claim payment, the higher the premium. 26. Which one of the following has unlimited liability at Lloyd's of London? A. Corporate names B. Individual names C. Company names 27. Which of the following health care coverage is NOT provided by government? A. Medigap B. Medicaid C. Medicare D. All of the above 28. Frank is doing some life insurance planning. A financial advisor said, \"Be sure to consider Social Security when examining sources of funds available for family support if you die.\" The financial advisor was referring to which social security benefit? A. Retirement benefits B. Survivor benefits C. Disability benefits D. Health insurance benefits 29. Which of the following about insurance regulation is true? A. Insurance regulation should keep the premium rates from being excessive, which means that the premiums should not exceed the expected losses. B. The insurance market in the U.S. is mainly regulated at the federal level C. The state guaranty funds in the U.S. are used to provide protection to consumers that have coverage with an insolvent insurer D. All of the above. 30. The policyholders' surplus (capital) of an insurer is defined as the difference between its A. Assets and its liabilities B. Premium income and its expenses C. Premium income and its liabilities D. Assets and its premium 31. RST insurance is an interesting company. It doesn't have any agents! Rather, the company sells insurance through radio ads, telemarketers, and newspaper and magazine inserts. This distribution method is called A. Direct response system B. Direct writer system C. Agency system 32. Sarah owns a property and liability insurance agency. She is authorized to represent several insurance companies and is compensated by commissions. Sarah is a(n) A. Independent agent B. Exclusive agent C. Direct writer D. Insurance broker 33. Which of the following statements about Social Security is true? A. Benefits generally increase with taxes paid. B. Low-income participants subsidize for high-income participants. C. Social Security only provides survivor benefits and disability benefits. D. Social Security is mainly financed by sales taxes. 34. All of the following factors may contribute to insurance company insolvencies EXCEPT: A. Catastrophic loss B. Bad investments C. Inadequate pricing D. Holding too much capital 35. What is the present value of expected claim costs? A. Between 270 and 280 B. Between 280 and 290 C. Between 300 and 310 D. None of the above A property insurance policy provides full coverage to the loss of the policyholder in the next year. The size and probability of potential losses are given below: Possible loss ($) 0 5,000 10,000 Probability 0.95 0.04 0.01 Assume: 1. The fair premium is collected at the beginning of the year; 2. The administrative expenses and the profit loading are paid at the beginning of the year; 3. Claims, if any, are paid at the end of the year; 4. The investment return is 6%; 5. The expected administrative expenses are assumed to be 10% of the expected claim cost; 6. The profit loading is equal to 3% of the fair premium. 36. Calculate the amount of fair premium. A. Between 300 and 310 B. Between 310 and 320 C. Between 320 and 330 D. None of the above 37. (Assume a pro rata reinsurance agreement with 50% retention. Consider a primary insurance contract with limits of $500,000, premiums of $3,000 and a deductible of $10,000) For a loss of $800,000, how much will the reinsurer pay? A. 395,000 B. 350,000 C. 250,000 D. 400,000 38. (Assume a pro rata reinsurance agreement with 50% retention. Consider a primary insurance contract with limits of $500,000, premiums of $3,000 and a deductible of $10,000) For a loss of $250,000, how much will the ceding insurer pay? A. 100,000 B. 120,000 C. 125,000 D. 250,000 39. (Assume an excess-of-loss reinsurance agreement with attachment point of $500,000 and policy limit of $2,000,000 is in place for a primary policy with deductible of $50,000 and policy limit of $2,500,00) For a loss of $3,000,000, how much will the reinsurer pay? A. 2,950,000 B. 2,000,000 C. 2,500,000 D. 500,000 40. (Assume an excess-of-loss reinsurance agreement with attachment point of $500,000 and policy limit of $2,000,000 is in place for a primary policy with deductible of $50,000 and policy limit of $2,500,00) For a loss of $450,000, how much will the ceding insurer pay? A. 400,000 B. 300,000 C. 200,000 D. 450,000