LLQP Insurance Course Practice Questions And Answers

Loss exposure is a term used by authors and corporate risk managers to identify potential losses.

The four major types of hazards are:
(1) Physical hazard
(2) Moral hazard
(3) Attitudinal hazard
(4) Legal hazard

Indirect loss is defined as a financial loss that results indirectly from the occurrence of direct physical damage or theft loss.

Personal risks directly affect an individual or family. Premature death, inadequate retirement income, poor health, and unemployment are some of the major personal risks that can cause great economic insecurity.

The three major burdens of risk in society are:
(1) Larger emergency fund
(2) Worry and fear
(3) Loss of certain goods and services

The basic characteristics of an insurance plan or arrangement are the following:
(1) Pooling is the spreading of losses incurred by the few over the entire group so that in the process, the average loss is substituted for actual loss.
(2) Fortuitous loss is one that is unforeseen and unexpected by the insured and occurs as a result of chance.
(3) Risk transfer means that a pure risk is transferred from the insured to the insurer, who typically is in a stronger financial position to pay the loss than the insured.
(4) Indemnification means that the insured is restored to his or her approximate financial position before the occurrence of the loss.

The benefits of life insurance pay for funeral expenses, uninsured medical bills, estate taxes, and other expenses. The death proceeds can also provide periodic income payments to the deceased’s beneficiary.

Fraudulent claims result in higher premiums to all insured. The existence of insurance also prompts some insureds to deliberately cause a loss to profit from insurance. These social costs fall directly on society.
Other examples of fraudulent claims include the following:
(1) Dishonest claimants inflate or pad an insurance claim to cover a required deductible.
(2) Dishonest claimants fake slip-and-fall accidents.
(3) False health insurance claims are submitted to collect benefits.
(4) Dishonest policyholders take out life insurance policies on unsuspecting insureds and later arrange to have them killed.

The risk retention technique is appropriate primarily for high-frequency, low-severity risks where potential losses are relatively small.
Its major advantages in a risk management program are as follows:
(1) Save on loss costs
(2) Save on expenses
(3) Encourage loss prevention
(4) Increase cash flow

Personal risk management is the process of identifying loss exposures, measuring and analyzing it, selecting appropriate techniques for treating loss exposures, and implementing and reviewing the risk management program periodically.

Interest rate risk is a speculative financial risk. It is the risk of loss caused by adverse interest rate movements.

Risk securitization’s impact upon the insurance marketplace is an immediate increase in capacity for insurers and reinsurers. Rather than relying on the capacity of insurers only, securitization provides access to the capital of many investors.

Mutual insurers is a corporation owned by policyholders. The policyholders elect a board of directors who appoint executives to manage the corporation.
Because relatively few policyholders bother to vote, the board of directors has effective management control of the company.

A broker legally does not have the authority to bind the insurer. Instead, he/she can solicit or accept insurance applications and then attempt to place the coverage with an appropriate insurer, but the insurance is not in force until the insurer accepts the business.

Dodd-Frank Act and Insurance Regulation created the Financial Stability Oversight Council (FSOC) to treat systemic risk and to identify non-bank financial companies and insurance companies that could increase systemic risk in the economy.

In a conditional contract, certain conditions are imposed on the insured if he/she wishes to collect for a loss. Although the insured is not compelled to abide by the policy conditions, he/she must do so to collect for an insured loss. The insurer is not obligated to pay a claim if thee policy conditions are not met.

The reinstatement provision permits the owner to reinstate a lapsed policy if the following requirements are met:
(1) Evidence of insurability is required.
(2) All overdue premium plus interest must be paid from their respective due dates
(3) Any policy loan must be repaid or reinstated, with interest from the due date of the overdue premium.
(4) The policy must not have been surrendered for its cash value.
(5 The policy must be reinstated within a certain period, typically 3 or 5 years fro the date of lapse.

A health savings account is a high-deductible health insurance policy that covers catastrophic medical bills, and an investment account from which the account holder can withdraw money tax-free for medical costs.

Group medical expense insurance is extremely important in providing economic security to employees and their families. Most insured workers today obtain their coverage through employer-sponsored medical expense plans.

Unemployment insurance programs are federal-state programs that pay weekly cash benefits to involuntarily unemployed workers.

No-fault auto insurance is another method for compensating injured accident victims. It is not necessary to determine who is at fault and prove negligence before a loss payment is made. Regardless of who caused the accident, each party collects from his or her insurer.

Inland marine floaters are not uniform, but they have certain common characteristics:
(1) Coverages are tailored to the specific type of personal property to be insured.
(2) Desired amounts of insurance can be selected.
(3) Broader coverage can be obtained.
(4) Most floaters cover insured property anywhere in the world.
(5) Inland marine floaters are often written without a deductible.

The title insurance policy provides protection against title defects that have occurred in the past, prior to the effective date of the policy. If a loss occurs, the insured is indemnified in dollar amounts up to the policy limits.

Worker’s compensation insurance provides medical care, cash benefits, survivor benefits, and rehabilitation services to workers who are injured or die from job-related accidents or diseases.

Professional liability insurance forms are not uniform, and insurers typically use their forms. Some typical provisions of this coverage include the following:
(1) Two insuring agreements.
(2) Liability is not restricted to accidental acts of the physician or surgeon.
(3) There is a maximum limit per medical incident and an aggregate limit for each coverage.
(4) The insurer may settle the claim without the physician’s or surgeon’s consent.
(5) An extended reporting period endorsement can be added.
(6) Professional liability insurance is not a substitute for other necessary forms of liability insurance.

A surety bond is a contract in which the surety guarantees to an obligee that the principal will faithfully perform its obligation to the obligee.

License and permit bonds are commonly required of parties that must obtain a license or permit from a city or town before they can engage in certain activities.

The major advantage of automobile insurance plans is that a high-risk driver generally has at least one source for obtaining liability insurance. Nevertheless, such plans have several disadvantages which include the following:
(1) Despite higher premiums paid by high-risk drivers, auto insurance plans have incurred substantial underwriting losses.
(2) High premiums may cause many high-risk drivers to go uninsured

Under a preferred provider organization, a policyholder can elect to receive care from any physician or healthcare provider. However, if a preferred provider is used, the policyholder pays lower deductible and coinsurance charges. If the policyholder receives care outside the network, he or she must pay a substantially higher deductible and coinsurance charges.

Total disability means that, due solely to injury or sickness, you are unable o perform the material and substantial duties of your regular occupation.