Multiple choice Flashcards
Study (47 cards)
Which of the following best describes the Law of Large Numbers as applied to life insurance?
A. The more people are insured, the more claims the company will pay out randomly.
B. The larger the number of similar insurance contracts, the more accurately future losses can be predicted.
C. It guarantees that each policyholder will receive equal benefits.
D. It allows only individuals in large cities to participate in insurance.
Correct Answer:B
What is a key reason local mortality tables are not commonly used in the Caribbean?
A. Local life insurance companies prefer to use North American tables.
B. Mortality rates do not change frequently in the Caribbean.
C. The size of the local population is too small to be statistically reliable.
D. The data collected locally is considered outdated and irrelevant.
Correct Answer: C
What does a mortality rate of 0.003 for 40-year-old males indicate?
A. There is a 30% chance of death each year.
B. Three out of every 1,000 males aged 40 are expected to die within the year.
C. Every 40-year-old male will live for at least 3 more years.
D. The insurance company guarantees 3 payouts per 1,000 policies.
Correct Answer: B
Which two characteristics primarily define life insurance contracts?
A. Tax benefits and employer participation
B. High investment returns and short duration
C. Dependence on human life and long-term nature
D. Fixed premiums and flexible payouts
Correct Answer: C
Why is the sharing of risk fundamental to the concept of life insurance?
A. It ensures that everyone receives the same payout.
B. It allows a few to benefit financially while most pay premiums.
C. It spreads the cost of individual misfortune across many people.
D. It increases the chances of receiving a refund.
Correct Answer: C
Why is the underwriting process critical in life insurance?
A. It ensures that only young people are insured.
B. It groups policyholders for marketing purposes.
C. It ensures the insured group resembles the mortality table group to manage risk.
D. It increases profit margins by limiting policyholders.
Correct Answer: C
How is the problem of insuring a small group of lives typically addressed in the Caribbean?
A. By using only local mortality tables
B. Through government subsidies
C. By setting higher premium rates for small groups
D. Through reinsurance with larger companies
Correct Answer: D
Which of the following best explains why a policy fee might be used instead of simply increasing premiums?
A. Because all expenses are proportional to policy size
B. Because it applies a flat charge that better matches certain fixed costs
C. Because it lowers the company’s overhead
D. Because large policies need more expensive administration
Correct Answer: B
Why do insurance companies consider investment income when setting premium rates?
A. To fund employee bonuses
B. To increase commission payments
C. To help reduce premium rates by offsetting future liabilities
D. To cover marketing and advertising costs
Correct Answer: C
In which band is the premium rate likely to be highest under the banding system?
A. Band 1 (20,000 – 50,000)
B. Band 2 (50,001 – 200,000)
C. Band 3 (Over 200,001)
D. Premiums are equal in all bands
Correct Answer: A
Which of the following best describes the “level premium concept”?
A. Premiums remain constant and the risk is evenly distributed across all years.
B. Premiums increase each year to match the rising risk of mortality.
C. Premiums are higher in early years to build reserves to offset higher costs later.
D. Premiums are paid only in the early years of the policy.
Answer: C
Why are premiums for permanent insurance typically higher than those for term insurance?
A. Because permanent policies include accidental death benefits.
B. Because a benefit will always be paid under permanent insurance if premiums are kept up.
C. Because permanent insurance does not require underwriting.
D. Because permanent insurance offers lower interest returns.
Answer: B
Which of the following most accurately reflects the impact of gender on life insurance premiums?
A. Males pay lower premiums because they are the main breadwinners.
B. Females pay higher premiums due to increased health risks.
C. Females pay lower premiums because they typically live longer.
D. Gender has no effect on premiums due to legal regulations.
Answer: C
How does the level premium system affect a policyholder’s payments over time?
A. Payments decrease in later years due to accumulated interest.
B. Payments increase in later years as mortality risk rises.
C. Payments remain stable, with early overpayments funding later shortfalls.
D. Payments vary yearly based on inflation and economic conditions.
Answer: C
What is a key reason level premium systems are used in life insurance pricing?
A. They allow insurers to reduce costs by avoiding reserves.
B. They provide consistent income for the insured throughout the policy term.
C. They create a reserve that helps cover higher mortality costs in later years.
D. They increase initial profitability for insurance companies.
Answer: C
What is the primary difference between selling a product like a car and selling life insurance?
A) A car sale includes an immediate exchange of goods for cash; insurance promises future delivery.
B) Life insurance is not sold for cash.
C) Insurance involves trading goods rather than services.
D) A car has no long-term value compared to insurance.
Correct Answer: A
Which of the following best describes Term Insurance?
A) A policy that pays a benefit only after retirement.
B) A life insurance policy that offers a fixed payout during the insured’s lifetime.
C) A life insurance policy that provides a payout only if death occurs within a specified period.
D) A whole life policy that ends after 10 years.
Correct Answer: C
What is a major benefit of the conversion option in a Term Insurance policy?
A) It allows the insured to switch to another policy with higher benefits at no cost.
B) It lets the insured change to a permanent plan without proving insurability.
C) It reduces the premium every year.
D) It automatically renews the policy for life.
Correct Answer: B
What distinguishes an Endowment Plan from a Term Plan?
A) Endowment pays on death only; Term pays on maturity.
B) Term provides lifelong coverage; Endowment does not.
C) Endowment pays a sum on death or at the end of a period, whichever comes first.
D) Term insurance always pays more.
Correct Answer: C
What is a key feature of Limited Payment Whole Life policies?
A) Premiums are paid only if the insured dies early.
B) The policy ends when premiums stop.
C) The insured pays premiums for a limited time but remains covered for life.
D) Premiums must be paid until age 90.
Correct Answer: C
Which of the following is NOT a purpose of Supplementary Benefits in life insurance?
A. Increasing the cash value of the basic policy
B. Providing additional life coverage
C. Offering coverage for accidental death
D. Allowing purchase of more insurance without medical evidence
Answer: A
The Accidental Death Benefit is typically paid when death results:
A. From natural causes during the policy term
B. Due to any accident, regardless of contributing factors
C. Directly and independently from accidental bodily injury
D. From a self-inflicted injury
Answer: C
What happens if a policyholder becomes totally disabled and qualifies for the Total Disability Waiver of Premium?
A. The policy is canceled
B. All premiums must still be paid by the insured
C. The insurer pays the premiums and all benefits continue
D. The policy converts into a term plan
Answer: C
The Guaranteed Insurability Benefit allows the policyholder to:
A. Purchase more insurance only after submitting medical reports
B. Purchase more insurance only upon reaching retirement
C. Automatically receive higher death benefits
D. Buy more coverage at specific ages/events without medical proof
Answer: D
