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Alabama Life Insurance Exam (Correct Answers 2023, Exams of Insurance law

A list of questions and correct answers related to commercial insurers, mutual insurers, fraternal benefit societies, risk retention groups, and other insurance-related topics. It also covers ethical considerations for insurance agents and definitions of insurance terms. The document could be useful for students studying for an insurance exam or for those interested in learning more about the insurance industry.

Typology: Exams

2022/2023

Available from 07/15/2023

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Alabama Life Insurance Exam (Correct

Answers 2023

  1. What are commercial insurers also referred to as? - Correct answer Private Insurance Companies
  2. Commercial Insurers are in the business of selling insurance for ___ ________. - Correct answer a profit
  3. What two groups can commercial insurance be broken into? - Correct answer Stock Companies & Mutual Insurers
  4. What is a stock insurer? - Correct answer incorporated to make a profit for its stockholders. nonparticipating because the policyholders do not receive dividends unless they are stockholders. dividends are subject to taxation.
  5. Which type of commercial insurer is nonparticipating? - Correct answer stock companies
  6. Which type of commercial insurer is participating? - Correct answer mutual insurers
  7. what is a mutual insurer? - Correct answer owned by policyholders. participating policies because policyholders get to participate in receiving dividends and electing directors. dividends are not subject to taxation unless they collect interest.
  8. Are dividends subject to taxation in a NONPAR company? - Correct answer Yes
  9. Are dividends subject to taxation in a PAR company? - Correct answer No; only the interest, if collected, is taxable
  10. If a company operates as both PAR and NONPAR what is it called? - Correct answer a Mixed Insurer
  11. Are dividends guaranteed? - Correct answer Never
  12. An insurer selling more than one type of insurance is called a? - Correct answer Multi-Line Insurer
  13. Strong Assessment Mutual Companies are classified by: - Correct answer the way that they charge premiums
  1. What type of mutual company operates on a loss-sharing basis, where each member is assessed a portion of losses? - Correct answer Pure Assessment Company
  2. What type of mutual company charges a premium at the beginning to cover losses, and returns a surplus, or levies additional amounts to meet expenses and losses? - Correct answer Advance Premium Assessment Company
  3. What are fraternal benefit societies? - Correct answer special types of mutual companies that are non-profit religious, ethnic, or charitable organizations.
  4. Who would a fraternal benefit society supply insurance to? - Correct answer Only its members
  5. What are risk retention groups? - Correct answer mutual companies formed by groups of people with the same profession or industry
  6. What are reciprocal insurers? - Correct answer unincorporated groups of people providing insurance for one another through individual indemnity agreements. Each individual who is a member of the reciprocal is known as a subscriber.
  7. what is an indemnity contract? - Correct answer It is a contract involving two parties in which the first party agrees to indemnify and reimburse the second party for covered debts or losses should they take place.
  8. Attorney-in-fact - Correct answer A person given the authority to act on behalf of another under a power of attorney.
  9. what is Reinsurance? - Correct answer an arrangement by which the primary insurer that initially writes the insurance transfers to another insurer part or all of the potential losses associated with such insurance
  10. The company transferring the risk is called? - Correct answer ceding company
  11. The company assuming the risk is called? - Correct answer reinsurer
  12. what is a captive insurer? - Correct answer insurer owned by a parent firm for the purpose of insuring the parent firm's loss exposures
  13. Home service insurers are also called: - Correct answer industrial insurance
  14. Home Service Insurance - Correct answer sold by home service or debit life insurance companies. Face amounts are small & premiums are paid weekly
  15. What does OASDI mean? - Correct answer Old-Age, Survivors, and Disability Insurance
  1. Who does social security provide benefits for? - Correct answer the elderly (retirement) and survivors of parents who died young and those who qualify for federal disability
  2. Who does medicare provide insurance for? - Correct answer health insurance for the elderly
  3. who does medicaid provide insurance for? - Correct answer health insurance for the financially needy
  4. What are SGLI and VGLI? - Correct answer service members/veterans group life insurance
  5. Who does TRICARE cover? - Correct answer Active, retired, survivors and their families of the Armed Forces.
  6. Self-insurance - Correct answer the process of establishing a monetary fund to cover the cost of a loss
  7. Self Insurance is NOT a method of transferring risk, they establish their ________________. - Correct answer own self-funded plans for cost of loss.
  8. A self funded plan is a plan which an _______ pays insurance benefits from a fund derived from employer's current revenues. - Correct answer employer
  9. Define Lloyd's of London - Correct answer NOT an insurance company; members of the association form syndicates to underwrite and issue insurance- like coverage. "group of investors who share in unusual risk"
  10. distribution system - Correct answer the ways insurance products are marketed and sold to the public
  11. Agents are recruited, trained and supervised by either a managing employee or General Agent who is contracted with the insurance company. - Correct answer Career Agency Systems
  12. In a career agency system, all produces under the system are __________ agents - Correct answer Captive
  13. Agents work for an independent agency selling policies from several insurance companies. The agents are NOT employees of the ins company, but work for the system. - Correct answer Personal Producing General Agency System (PPGA)
  1. Independent Agents represent a number of insurance companies through separate contractual agreements, and are paid commission based on their sales.
    • Correct answer Independent Agency System (American Agency System)
  2. US Supreme Court ruled that insurance transactions crossing state lines are NOT interstate commerce - Correct answer 1861 Paul v Virginia
  3. gave the authority to the states to regulate insurance. - Correct answer 1905 Armstrong Investigation Act
  4. Ruled that insurance transactions crossing state lines ARE interstate commerce and subject to federal regulation. - Correct answer 1944 US v. South-Eastern Underwriters Association
  5. states that while the federal govt has the authority to regulate the insurance industry, it would not exercise its right if the state level adequately regulates the industry. - Correct answer 1945 McCarran-Ferguson Act
  6. The minimum penalty of a producer for obtaining personal info on a client without a legit reason is a ____________. - Correct answer fine of $10,
  7. provides individuals privacy protection and fair and accurate credit reporting, notifying them when a credit check will be performed as well - Correct answer 1970 Fair Credit Reporting Act (FCRA)
  8. this law repealed the glass-steagull act; allows banks, retail brokerages, and insurance companies to enter each other's line of business - Correct answer 1999 Gramm-Leach-Bliley Act (Financial Services Modernization Act)
  9. As it relates to the Insurance industry, is designed to detect and deter terrorists and their funding by imposing anti-money laundering requirements on brokerage firms and financial institutions. - Correct answer 2001 USA PATRIOT ACT
  10. Insurance calls are not exempt from the no call registry. - Correct answer 2003 National Do Not Call Registry
  11. what is the NAIC? - Correct answer National Association of Insurance Commissioners
  12. An organization composed of commissioners from all 50 states, the district of Columbia, and the four US territories. They are responsible for recommending appropriate laws and regulations - Correct answer The National Association of Insurance Commissioners
  1. What is the advertising code? - Correct answer The code specifies certain words and phrases that are considered misleading and are not to be used in advertising of any kind.
  2. Gives chief financial officer the authority to investigate insurance companies and producers to impose penalties. - Correct answer Unfair Trade Practices Act
  3. What is selling to needs? - Correct answer an agent must first determine a client's needs, and then determine which policy fits their needs best.
  4. Full an Accurate Disclosure - Correct answer an ethical agent must inform consumer's of the benefits and limitations of recommend products.
  5. Documentation - Correct answer an ethical agent must document each client's meetings and transactions.
  6. Buyer's Guide - Correct answer A booklet that describes insurance policies and concepts, and provides general information to help an applicant make an informed decision.
  7. Policy Summary - Correct answer helps consumers evaluate the suitability of the recommended product
  8. Reserves - Correct answer the accountability measurement of an insurer's future obligations to its policyholders.
  9. Liquidity - Correct answer an insurer's ability to make unpredictable payouts to policyowners.
  10. Protects policy owners in the event of any insurance company going out of business, becoming insolvent, or the inability to pay claims - Correct answer State Guarantee Association
  11. A condition or situation that creates or increases a possibility of loss is a: - Correct answer hazard
  12. Types of hazards: - Correct answer moral, morale, and physical
  13. Define Moral Hazard and give an example. - Correct answer an idea that a party protected from risk in some way will act differently than if they didn't have that protection (dishonesty, drugs, alcohol abuse, etc)
  14. Define morale hazard and give an example - Correct answer used to describe an insured person's attitude about his or her belongings. It represents the rise of indifference to loss because the items are covered. (careless attitude, recklessness)
  1. Give an Example of a physical hazard - Correct answer obesity, poor health, blind
  2. The unintentional decrease in the value of an asset due to peril. - Correct answer Loss
  3. An immediate, specific event which causes loss (ie: an earthquake) the "accident" - Correct answer A Peril
  4. The potential for loss - Correct answer Risk
  5. Presents both the chance for loss or gain, a type of risk that is not insurable - Correct answer Speculative Risk
  6. Example of speculative Risk - Correct answer gambling
  7. Presents the potential for loss only, the only type of insurable risk - Correct answer Pure Risk