Principles of Risk Management and Insurance 12th Edition by George E. Rejda , Michael McNamara -Test Bank

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Principles of Risk Management and Insurance 12th Edition by George E. Rejda , Michael McNamara -Test Bank

 

Sample  Questions

 

Principles of Risk Management and Insurance, 12e (Rejda)

Chapter 6   Insurance Company Operations

 

1) The function of an actuary is to

  1. A) adjust claims.
  2. B) determine premium rates.
  3. C) negotiate reinsurance treaties.
  4. D) invest insurance company assets.

Answer:  B

Question Status:  Previous Edition

 

2) Insurers obtain data which can be used to determine rates from

  1. A) pricing pools.
  2. B) insurance advisory organizations.
  3. C) banks.
  4. D) reciprocal exchanges.

Answer:  B

Question Status:  Previous Edition

 

3) Which of the following statements about underwriting policy is (are) true?

  1. A company must establish an underwriting policy consistent with company objectives.
  2. Underwriting policy is usually subjective and allows the underwriter considerable flexibility with respect to lines written and forms used.
  3. A) I only
  4. B) II only
  5. C) both I and II
  6. D) neither I nor II

Answer:  A

Question Status:  Previous Edition

 

4) Which of the following statements about underwriting standards is (are) true?

  1. One purpose of underwriting standards is to reduce adverse selection against the insurer.
  2. Equitable rates should be charged so that each group of policyowners pays its own way in terms of losses and expenses.
  3. A) I only
  4. B) II only
  5. C) bothI and II
  6. D) neither I nor II

Answer:  C

Question Status:  Revised

 

5) The underwriting process begins with the

  1. A) agent.
  2. B) desk underwriter.
  3. C) inspection report.
  4. D) acceptance of the application.

Answer:  A

Question Status:  Previous Edition

6) Common sources of underwriting information for life and health insurance include all of the following EXCEPT

  1. A) the application.
  2. B) a physical examination.
  3. C) the Medical Information Bureau.
  4. D) the applicant’s income tax return.

Answer:  D

Question Status:  Previous Edition

 

7) If an underwriter suspects moral hazard, the underwriter may ask an outside firm to investigate the applicant and make a detailed report to the insurer.  This report is called a(n)

  1. A) inspection report.
  2. B) application.
  3. C) M.I.B. report.
  4. D) agent’s report.

Answer:  A

Question Status:  Previous Edition

 

8) One source of life and health insurance underwriting information is an organization that life and health insurance companies can join. As a member, life and health insurance companies report health impairments of applicants, and this information is shared with member companies. Although the information is shared, the underwriting decision of the member company is not disclosed. What is this organization called?

  1. A) Fair Isaac Corporation (FICO)
  2. B) Medical Information Bureau (MIB)
  3. C) National Association of Insurance Commissioners (NAIC)
  4. D) National Association of Mutual Insurance Companies (NAMIC)

Answer:  B

Question Status:  Previous Edition

 

9) Factors that may result in more restrictive underwriting decisions include which of the following?

  1. Inadequate rates.
  2. The unavailability of reinsurance at favorable terms.
  3. A) I only
  4. B) II only
  5. C) both I and II
  6. D) neither I nor II

Answer:  C

Question Status:  Previous Edition

 

10) All of the following are functions of the marketing department of an insurance company EXCEPT

  1. A) to advertise the insurer’s products.
  2. B) to develop new products.
  3. C) to identify production goals.
  4. D) to make final underwriting decisions.

Answer:  D

Question Status:  Previous Edition

11) Which of the following statements about claim settlement is (are) true?

  1. The fair payment of claims requires an insurer to adopt a very liberal claims policy.
  2. To prevent lawsuits, an insurer should provide no personal assistance to a claimant other than that which is required by contractual obligations.
  3. A) I only
  4. B) II only
  5. C) both I and II
  6. D) neither I nor II

Answer:  D

Question Status:  Previous Edition

 

12) All of the following statements about claims settlement are true EXCEPT

  1. A) Agents may have the authority to settle claims.
  2. B) Independent adjustors may be used in a geographic area where the volume of business is too low for an insurer to have its own adjustors.
  3. C) Company adjustors are salaried employees who work for one insurer.
  4. D) A public adjustor is usually paid a flat fee regardless of the size of a claim.

Answer:  D

Question Status:  Revised

 

13) Which of the following statements about adjustment bureaus is (are) true?

  1. They are frequently used to settle claims when a large number of losses occur in a given geographic location as a result of a catastrophic event.
  2. Their major advantage is low cost because of the use of part-time adjustors.
  3. A) I only
  4. B) II only
  5. C) both I and II
  6. D) neither I nor II

Answer:  A

Question Status:  Previous Edition

 

14) All of the following statements about the settlement of a claim are true EXCEPT

  1. A) The insurance policy usually has a provision specifying how a notice of loss is to be made to the insurance company.
  2. B) One step in the investigation of a claim is to determine whether the policy was in force when the loss occurred.
  3. C) The adjustor must file the proof of loss, which is a sworn statement supporting his or her decision regarding a claim.
  4. D) A policy provision may determine how disputes over claim settlements are resolved.

Answer:  C

Question Status:  Previous Edition

 

15) All of the following statements about reinsurance are true EXCEPT

  1. A) A reinsurer may also purchase reinsurance.
  2. B) Reinsurance is 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.
  3. C) The insurer transferring business to a reinsurer is called the ceding insurer.
  4. D) The amount of insurance transferred to a reinsurer is called the net retention.

Answer:  D

Question Status:  Previous Edition

16) All of the following are reasons for a primary insurer to use reinsurance EXCEPT

  1. A) to increase the unearned premium reserve.
  2. B) to increase underwriting capacity.
  3. C) to protect against catastrophic losses.
  4. D) to stabilize profits.

Answer:  A

Question Status:  Previous Edition

 

17) The unearned premium reserve of an insurer is

  1. A) an asset representing the investments made with premium income.
  2. B) a liability representing the unearned portion of gross premiums on outstanding policies.
  3. C) a liability representing claims that have been filed, but not yet paid.
  4. D) the portion of the insurer’s net worth belonging to policyowners.

Answer:  B

Question Status:  Previous Edition

 

18) 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

  1. A) a reinsurance pool.
  2. B) automatic treaty reinsurance.
  3. C) retrocession.
  4. D) facultative reinsurance.

Answer:  D

Question Status:  Previous Edition

 

19) Which of the following statements about treaty reinsurance is true?

  1. A) The reinsurer is required to underwrite each individual applicant that is reinsured.
  2. B) The reinsurer must accept all business that falls within the scope of the treaty.
  3. C) The ceding insurer can choose which business falling within the scope of the treaty it wishes to reinsure.
  4. D) It protects the reinsurer by requiring the ceding insurer to charge adequate premiums.

Answer:  B

Question Status:  Previous Edition

 

20) Which of the following statements about treaty reinsurance is true?

  1. A) Under a surplus-share treaty, 100 percent of the ceding insurer’s liability must be transferred to the reinsurer.
  2. B) Using a quota-share treaty increases the ceding insurer’s unearned premium reserve.
  3. C) Under an excess-of-loss treaty, the reinsurer pays losses in full only if they are less than the ceding insurer’s retention limit.
  4. D) Using a reinsurance pool provides financial capacity to write large amounts of insurance.

Answer:  D

Question Status:  Previous Edition

21) Delta Insurance Company has a surplus-share treaty with Eversafe Reinsurance. Delta has a retention limit of $200,000, and nine lines of insurance are ceded to Eversafe. How much will Eversafe pay if a $1,600,000 building insured with Delta suffers an $800,000 loss?

  1. A) $600,000
  2. B) $700,000
  3. C) $720,000
  4. D) $800,000

Answer:  B

Question Status:  Previous Edition

 

22) Huge Insurance Company is a property insurer that is interested in protecting itself against cumulative losses that exceed $200 million during the year. This protection can best be obtained using

  1. A) a quota-share reinsurance treaty.
  2. B) a surplus-share reinsurance treaty.
  3. C) an excess-of-loss reinsurance treaty.
  4. D) a reinsuance pool.

Answer:  C

Question Status:  Previous Edition

 

23) All of the following statements about life insurance company investments are true EXCEPT

  1. A) Funds for these investments are derived primarily from premium income, investment earnings, and maturing investments that must be reinvested.
  2. B) Income from these investments reduces the cost of insurance.
  3. C) A primary objective in making these investments is safety of principal.
  4. D) The majority of these investments are short-term investments.

Answer:  D

Question Status:  Previous Edition

 

24) Which of the following statements about the investments of property and liability insurers is (are) true?

  1. Income from investments is important in offsetting any unfavorable underwriting experience.
  2. Because premium income is continually being received, the investment objective of liquidity is of little importance.
  3. A) I only
  4. B) II only
  5. C) both I and II
  6. D) neither I nor II

Answer:  A

Question Status:  Previous Edition

 

25) Functions of an insurance company’s legal department include which of the following?

  1. Lobbying for legislation favorable to the insurance industry.
  2. Drafting policy provisions.
  3. A) I only
  4. B) II only
  5. C) both I and II
  6. D) neither I nor II

Answer:  C

Question Status:  Previous Edition

26) 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)

  1. A) underwriter.
  2. B) actuary.
  3. C) loss control engineer.
  4. D) claims adjustor.

Answer:  A

Question Status:  Previous Edition

 

27) Mark has been an underwriter for 20 years. An application he recently reviewed looked odd to him. The building value in the application seemed far too high, and Mark suspected the applicant might be planning to destroy the property after it is insured. Mark contacted an outside firm and hired someone to investigate the applicant and to prepare a report about the applicant. This report is called a(n)

  1. A) agent’s report.
  2. B) binder.
  3. C) physical inspection.
  4. D) inspection report.

Answer:  D

Question Status:  Previous Edition

 

28) Antonio is a claims adjustor for LMN Insurance Company. After the insurer is notified that there has been a loss, Antonio meets with the insured. The first step in the claims process that Antonio should follow is to

  1. A) determine the amount of the loss.
  2. B) attempt to deny the claim regardless of whether he believes the claim is covered.
  3. C) verify that a covered loss has occurred.
  4. D) delay paying the claim if the claim is covered.

Answer:  C

Question Status:  Previous Edition

 

29) Beverly lives in a sparsely populated area in northern Idaho. Some insurance companies marketing coverage in northern Idaho cannot afford to have full-time adjustors there. Several insurers hire Beverly to adjust claims for their insureds. Beverly charges the insurers a fee for each claim that she settles. Beverly is a(n)

  1. A) public adjustor.
  2. B) adjustment bureau.
  3. C) independent adjustor.
  4. D) company adjustor.

Answer:  C

Question Status:  Previous Edition

30) New Liability Insurance Company began operations last year and has been very successful. The company’s ability to grow is being restricted by an accounting rule that requires insurers to realize acquisition expenses immediately, while not realizing premiums received as income until some time has passed. Reinsurance is often used in such cases for which of the following purposes?

  1. A) to stabilize profitability
  2. B) to reduce the unearned premium reserve
  3. C) to provide protection against catastrophic losses
  4. D) to withdraw from a line of business or territory

Answer:  B

Question Status:  Revised

 

31) Liability Insurance Company (LIC) was approached by a regional airline to see if LIC would write the airline’s liability coverage. LIC agreed to write the coverage and entered into an agreement with a reinsurer. Under the agreement, LIC retains 25 percent of the premium and pays 25 percent of the losses, and the reinsurer receives 75 percent of the premium and pays 75 percent of the losses. This reinsurance arrangement is best described as

  1. A) excess-of-loss reinsurance.
  2. B) surplus-share reinsurance.
  3. C) quota-share reinsurance.
  4. D) pool reinsurance.

Answer:  C

Question Status:  Previous Edition

 

32) Ross studied engineering in college. After graduation, he went to work for an insurance company. Ross visits properties insured by his company. He conducts inspections and makes recommendations about alarm systems, sprinkler systems, and building construction. In what functional area does Ross work?

  1. A) underwriting
  2. B) loss control
  3. C) information systems
  4. D) claims adjusting

Answer:  B

Question Status:  Revised

 

33) Amy heads the legal staff of a large property and liability insurance company. Amy’s staff is likely involved in all of the following activities EXCEPT

  1. A) reviewing policy wording before policies are adopted and marketed.
  2. B) recouping subrogation recoveries from third parties who injured individuals insured by Amy’s company.
  3. C) providing legal advice about marketing, taxation, and insurance law.
  4. D) reviewing applications to determine if the company should insure the risk.

Answer:  D

Question Status:  Previous Edition

34) Sue double-majored in mathematics and statistics in college. She also enrolled in a number of finance courses. After graduation, she was hired by Econodeath Insurance Company. Her job is to calculate premium rates for life insurance coverages. Sue is a(n)

  1. A) actuary.
  2. B) underwriter.
  3. C) claims adjustor.
  4. D) producer.

Answer:  A

Question Status:  Previous Edition

 

35) Easy Pay Insurance Company may require insureds who suffer a loss to submit a sworn statement to substantiate that a loss occurred and to describe the conditions under which the loss occurred. This sworn statement is called a

  1. A) binder.
  2. B) proof of loss.
  3. C) inspection report.
  4. D) notice of loss.

Answer:  B

Question Status:  Previous Edition

 

36) All of the following are methods that a property and liability insurance company can use to protect against catastrophic losses EXCEPT

  1. A) sale of catastrophe bonds.
  2. B) purchase of common stock.
  3. C) purchase of excess-of-loss reinsurance.
  4. D) quota share reinsurance with a low retention percentage.

Answer:  B

Question Status:  Previous Edition

 

37) Which of the following statements is (are) true with respect to catastrophe bonds?

  1. The bonds are issued by the U.S. Government.
  2. The bonds have relatively high interest (coupon) rates.
  3. A) I only
  4. B) II only
  5. C) both I and II
  6. D) neither I nor II

Answer:  B

Question Status:  Revised

 

38) Pac-Coast Insurance (PCI) concentrates its underwriting activities in California. The company is concerned that if a catastrophic earthquake occurs, it might threaten the solvency of the company. To address this risk, PCI issued some debt securities. If a catastrophic earthquake occurs, PCI does not have to repay the borrowed funds or pay interest. The securities PCI issued are called

  1. A) catastrophe futures contracts.
  2. B) interest rate swaps.
  3. C) catastrophe bonds.
  4. D) contingent options contracts.

Answer:  C

Question Status:  Previous Edition

39) The process of transferring risk to the capital markets through the use of financial instruments such as bonds, futures contracts, and options is knows as

  1. A) consolidation of risk.
  2. B) avoidance of risk.
  3. C) securitization of risk.
  4. D) compartmentalization of risk.

Answer:  C

Question Status:  Previous Edition

 

40) Which of the following statements is (are) true about life insurance company investments?

  1. The majority of life insurance company general account assets are invested in bonds.
  2. The majority of life insurance company separate account assets are invested in stocks.
  3. A) I only
  4. B) II only
  5. C) both I and II
  6. D) neither I nor II

Answer:  C

Question Status:  Previous Edition

 

41) One method through which reinsurance is provided is through an organization of insurers that underwrites insurance on a joint basis. Through the organization, financial capacity is available for large commercial risks. This reinsurance arrangement is a(n)

  1. A) quota-share treaty.
  2. B) surplus-share treaty.
  3. C) excess-of-loss treaty.
  4. D) reinsurance pool.

Answer:  D

Question Status:  Previous Edition

 

42) Most insurance companies require their marketing representatives to submit an evaluation of the prospective insured. This important source of underwriting information is called the

  1. A) application.
  2. B) agent’s report.
  3. C) inspection report.
  4. D) physical inspection.

Answer:  B

Question Status:  Previous Edition

 

43) Catastrophe bonds are made available to institutional investors in the capital markets through an entity that is specially created for that purpose.  This is entity is called a

  1. A) risk retention group.
  2. B) fraternal insurance company.
  3. C) captive insurance company.
  4. D) special purpose reinsurance vehicle.

Answer:  D

Question Status:  New

44) Which of the following statements is true regarding the information systems functional area of an insurance company?

  1. Computers and information systems are able to perform some tasks that previously were performed directly by employees.
  2. Information systems can speed the processing of policies by insurers.
  3. A) I only
  4. B) II only
  5. C) both I and II
  6. D) neither I nor II

Answer:  C

Question Status:  New

Principles of Risk Management and Insurance, 12e (Rejda)

Chapter 7   Financial Operations of Insurers

 

1) LMN Mutual Insurance Company has total liabilities of $300 million.  The company has total assets of $380 million.  What is LMN’s policyholders’ surplus?

  1. A) $680 million
  2. B) $340 million
  3. C) $80 million
  4. D) -$80 million

Answer:  C

Question Status:  Previous Edition

 

2) All of the following would appear in the asset section of an insurance company’s balance sheet EXCEPT

  1. A) loss reserves.
  2. B) bonds.
  3. C) common stock.
  4. D) real estate.

Answer:  A

Question Status:  Previous Edition

 

3) Under one method of estimating a loss reserve, the reserve is based on life expectancy, duration of disability, and similar factors.  This method of estimating loss reserves is called the

  1. A) judgment method.
  2. B) tabular value method.
  3. C) loss ratio method.
  4. D) average value method.

Answer:  B

Question Status:  Revised

 

4) Reasons for the unearned premium reserve include which of the following?

  1. To pay losses that occur during the policy period.
  2. To pay premium refunds to policyholders in the event of cancellation.
  3. A) I only
  4. B) II only
  5. C) both I and II
  6. D) neither I nor II

Answer:  C

Question Status:  Previous Edition

 

5) A property and casualty insurer’s loss reserve includes estimates for all of the following EXCEPT

  1. A) claims anticipated but not yet incurred.
  2. B) claims reported and adjusted but not yet paid.
  3. C) claims reported and filed but not yet adjusted.
  4. D) claims incurred but not yet reported to the company.

Answer:  A

Question Status:  Previous Edition

6) Which of the following statements about methods for estimating loss reserves for property and casualty insurers is (are) true?

  1. The judgment method involves the use of a statutory formula to estimate the loss reserve.
  2. The average value method is used when the number of claims is large and the claims are settled quickly.
  3. A) I only
  4. B) II only
  5. C) both I and II
  6. D) neither I nor II

Answer:  B

Question Status:  Previous Edition

 

7) One item that appears on an insurance company’s financial statements is a liability that represents an estimate of the claims reported and adjusted but not yet paid, claims reported and filed but not yet adjusted, and claims incurred but not yet reported to the company. This liability is called the insurer’s

  1. A) net income.
  2. B) loss reserve.
  3. C) admitted assets.
  4. D) unearned premium reserve.

Answer:  B

Question Status:  Previous Edition

 

8) A loss reserve established for each individual claim when it is reported to a property and casualty insurance company is call a(n)

  1. A) admitted asset.
  2. B) incurred-but-not-reported (IBNR) reserve.
  3. C) unearned premium reserve.
  4. D) case reserve.

Answer:  D

Question Status:  Previous Edition

 

9) All of the following items would appear in the income section of an insurance company’s income and expense statement EXCEPT

  1. A) gain on sale of securities.
  2. B) common stock dividends.
  3. C) commissions.
  4. D) premiums.

Answer:  C

Question Status:  Previous Edition

10) JKL Insurance Company reported the following information on its accounting statements last year:

Premiums Written                       $90,000,000

Loss Adjustment Expenses           $5,000,000

Underwriting Expenses              $30,000,000

Premiums Earned                      $100,000,000

Incurred Losses                           $70,000,000

What was JKL’s loss ratio last year?

  1. A) 70.0 percent
  2. B) 75.0 percent
  3. C) 83.3 percent
  4. D) 90.0 percent

Answer:  B

Question Status:  Previous Edition

 

11) JKL Insurance Company reported the following information on its accounting statements last year:

Premiums Written                       $90,000,000

Loss Adjustment Expenses           $5,000,000

Underwriting Expenses              $30,000,000

Premiums Earned                      $100,000,000

Incurred Losses                           $70,000,000

What was JKL’s expense ratio last year?

  1. A) 5.0 percent
  2. B) 30.0 percent
  3. C) 33.3 percent
  4. D) 50.0 percent

Answer:  C

Question Status:  Previous Edition

 

12) JKL Insurance Company reported the following information on its accounting statements last year:

Premiums Written                       $90,000,000

Loss Adjustment Expenses           $5,000,000

Underwriting Expenses              $30,000,000

Premiums Earned                      $100,000,000

Incurred Losses                           $70,000,000

What was JKL’s combined ratio last year?

  1. A) 100.0
  2. B) 103.3
  3. C) 105.0
  4. D) 108.3

Answer:  D

Question Status:  Previous Edition

13) Which of the following statements about property and casualty insurance company operating results is (are) true?

  1. An insurance company can have a combined ratio greater than 1 (or 100 percent) and still be required to pay income taxes.
  2. By all measures, the property and casualty insurance industry is highly profitable when compared to other industries.
  3. A) I only
  4. B) II only
  5. C) both I and II
  6. D) neither I nor II

Answer:  A

Question Status:  Previous Edition

 

14) Life insurance policyowners may borrow the cash value from their life insurance policies.  Where are life insurance policy loans shown on a life insurance company’s financial statements?

  1. A) as an asset
  2. B) as a liability
  3. C) as income
  4. D) as an expense

Answer:  A

Question Status:  Previous Edition

 

15) MedProf Insurance markets medical malpractice insurance.  The company’s combined ratio in 2009 was 95.4.  Its expense ratio was 25.4.  What was the company’s loss ratio?

  1. A) 60.4
  2. B) 70.0
  3. C) 88.2
  4. D) 120.8

Answer:  B

Question Status:  Previous Edition

 

16) To protect policyholders, state laws place limitations on a life insurance company’s investments.  The assets backing interest-sensitive products, such as variable life insurance and variable annuities, are not subject to these restrictions. Assets backing interest-sensitive products are placed in a special account called the life insurer’s

  1. A) policy reserve account.
  2. B) policy loan account.
  3. C) separate account.
  4. D) policyholders surplus.

Answer:  C

Question Status:  Previous Edition

17) Which of the following statements is (are) true concerning investments of property and casualty insurers and life insurers?

  1. Property and casualty insurance companies place greater emphasis on liquidity than do life insurers.
  2. Life insurance company investments are, on average, of longer duration than property and casualty insurance company investments.
  3. A) I only
  4. B) II only
  5. C) both I and II
  6. D) neither I nor II

Answer:  C

Question Status:  Previous Edition

 

18) All of the following are expenses of life insurance companies EXCEPT

  1. A) matured endowments.
  2. B) surrender benefits.
  3. C) disability income payments.
  4. D) realized capital gains.

Answer:  D

Question Status:  Previous Edition

 

19) All of the following statements about business objectives in designing a rating system are true EXCEPT

  1. A) The rating system should encourage loss control activities.
  2. B) The rating system should be independent of long-run changes in economic conditions.
  3. C) The rating system should be simple to understand.
  4. D) The rating system should be stable over short periods so that consumer satisfaction can be maintained.

Answer:  B

Question Status:  Previous Edition

 

20) All of the following statements about regulatory objectives of insurance rate making are true EXCEPT

  1. A) One purpose of rate adequacy is to maintain the solvency of insurers.
  2. B) Rates unfairly discriminate if loss exposures that are similar with respect to losses and expenses are charged substantially different rates.
  3. C) Insurers know in advance if the coverages marketed will be profitable, so rate regulation is not needed.
  4. D) Rates are excessive if policyholders are paying substantially more than the actual value of their protection.

Answer:  C

Question Status:  Previous Edition

 

21) The unit of measurement used in property and casualty insurance pricing is called the

  1. A) unit rate.
  2. B) premium.
  3. C) exposure unit.
  4. D) experience unit.

Answer:  C

Question Status:  Previous Edition

22) The portion of an insurance premium allocated to expenses, profit, and a margin for contingencies is called the

  1. A) loading.
  2. B) pure premium.
  3. C) gross premium.
  4. D) experience rate.

Answer:  A

Question Status:  Previous Edition

 

23) Which of the following statements about judgment rating is true?

  1. A) It involves the manual rating of exposures.
  2. B) It is used when the loss exposures are so diverse that a class rate cannot be calculated.
  3. C) It is a form of experience rating.
  4. D) It is only used when credible loss statistics are available.

Answer:  B

Question Status:  Previous Edition

 

24) Under one type of merit rating, the class or manual rate is adjusted upward or downward based on past loss history. This type of merit rating is called

  1. A) schedule rating.
  2. B) judgment rating.
  3. C) experience rating.
  4. D) retrospective rating.

Answer:  C

Question Status:  Previous Edition

 

25) All of the following statements about class rating are true EXCEPT

  1. A) Exposures with similar characteristics are placed in the same underwriting class.
  2. B) The rate charged for each class reflects the average loss experience for that class.
  3. C) The complexity of class rating makes it inappropriate for personal lines coverages.
  4. D) It is based on the assumption that future losses to insureds will be determined by the same classification factors currently in use.

Answer:  C

Question Status:  Previous Edition

 

26) Under the pure premium method of determining class rates, the gross rate is determined by which of the following formulas?

  1. A) pure premium/(1 + expense ratio)
  2. B) pure premium/(1 – expense ratio)
  3. C) (1 + pure premium)/expense ratio
  4. D) expense ratio/(1 – pure premium)

Answer:  B

Question Status:  Previous Edition

27) The expected loss ratio for a class of business is 60 percent. What change would be indicated in the level of rates under the loss ratio method if the actual loss ratio turned out to be 68 percent?

  1. A) 6.67 percent increase
  2. B) 13.33 percent increase
  3. C) 25.00 percent increase
  4. D) 33.33 percent increase

Answer:  B

Question Status:  Previous Edition

 

28) Which of the following statements about schedule rating is (are) true?

  1. It involves the determination of a basis rate for each exposure, which is then modified by credits or debits.
  2. It is based on the assumption that certain physical characteristics of the insured’s operations will influence the insured’s future loss experience.
  3. A) I only
  4. B) II only
  5. C) both I and II
  6. D) neither I nor II

Answer:  C

Question Status:  Previous Edition

 

29) Which of the following statements about experience rating is (are) true?

  1. The insured’s past loss experience is used to determine the premium for the next policy period.
  2. Its use is generally limited to small firms whose actual experience lacks credibility.
  3. A) I only
  4. B) II only
  5. C) both I and II
  6. D) neither I nor II

Answer:  A

Question Status:  Previous Edition

 

30) Which of the following statements about retrospective rating is true?

  1. A) The premium for the current period is determined by the loss experience for prior periods.
  2. B) The premium for the current period is determined by the loss experience during the current period.
  3. C) The premium for future periods is determined by the average loss experience for the current and previous periods.
  4. D) The premium for future periods is determined by the loss experience for the current period.

Answer:  B

Question Status:  Previous Edition

31) Monopoly Insurance is the only company marketing a certain line of insurance in a state. After complaints from several consumers, the State Insurance Department investigated Monopoly’s rates. The regulators determined that Monopoly was taking advantage of being the only insurer offering the line by charging more than double the actuarial cost of the coverage. Which regulatory rating objective was Monopoly violating?

  1. A) Rates must be adequate.
  2. B) Rates should encourage loss control.
  3. C) Rates must not be excessive.
  4. D) Rates must not unfairly discriminate.

Answer:  C

Question Status:  Previous Edition

 

32) Small Town used to be just that–a small town 6 miles from Large City. Over the years, the area between Small Town and Large City has developed, and now Small Town is part of the suburbs surrounding Large City. An auto insurer that operated in the area had a large increase in auto claims from Small Town insureds. The insurer did not adjust its rates, and this year will lose money because of claims attributable to higher population density. Which business rating objective did this insurer fail to meet?

  1. A) simplicity
  2. B) stability
  3. C) responsiveness
  4. D) encouragement of loss control

Answer:  C

Question Status:  Previous Edition

 

33) Nathan was hired as an actuary with ABC Insurance. Nathan was asked to calculate the annual premium for a new product and to explain his calculations to ABC’s director of ratemaking. Nathan calculated the pure premium and presented this value as the final premium. After Nathan’s presentation, the director of ratemaking said, “You left out something very important. If we sell coverage at the pure premium rate, we’ll be out of business soon.” What did Nathan overlook in his calculations?

  1. A) loadings
  2. B) the underwriting cycle
  3. C) seasonality of claims
  4. D) investment income

Answer:  A

Question Status:  Previous Edition

 

34) XYZ Insurance Company expects $500,000 in claims and loss adjustment expenses for each 1,000 properties that it insures in a certain category of business insurance. What pure premium should XYZ charge for each property insured?

  1. A) $69.99
  2. B) $166.67
  3. C) $350.00
  4. D) $500.00

Answer:  D

Question Status:  Previous Edition

35) XYZ Insurance Company uses class rating to determine the rate to charge for insurance. For one type of insurance, the pure premium XYZ actuaries calculated is $75 per unit. If XYZ’s expense ratio is 25 percent, what is the gross rate for this coverage?

  1. A) $37.50
  2. B) $55.25
  3. C) $75.00
  4. D) $100.00

Answer:  D

Question Status:  Previous Edition

 

36) A manufacturing company just hired a new risk manager, and she has instituted several employee safety programs. She has persuaded the insurer writing the company’s workers compensation insurance to base the premium on the company’s actual loss experience during the current period rather than on the company’s historical performance. This type of plan is called a(n)

  1. A) retrospectively rated plan.
  2. B) class rated plan.
  3. C) experience rated plan.
  4. D) judgment rated plan.

Answer:  A

Question Status:  Revised

 

37) An Econodeath Insurance Company actuary calculated the present value of the expected death claim the company will pay if it sells whole life insurance to a 30-year-old woman. This value is called the

  1. A) net level premium.
  2. B) gross premium.
  3. C) net single premium.
  4. D) life insurance policy reserve.

Answer:  C

Question Status:  Previous Edition

 

38) Metro City has six different zip codes. XYZ Insurance Company markets coverages in Metro City. Any applicant who lists one particular zip code is automatically quoted a premium that is twenty percent more than the average premium for applicants from the other five zip codes, even if the loss exposure is identical. Which regulatory objective is not being met given XYZ’s premium structure?

  1. A) Rates must be adequate.
  2. B) Rates must not unfairly discriminate.
  3. C) Rates must be responsive.
  4. D) Rate must not be excessive.

Answer:  B

Question Status:  Previous Edition

39) All of the following statements about the combined ratio are true EXCEPT

  1. A) It is equal to the loss ratio plus the expense ratio.
  2. B) A combined ratio greater than 1 (or 100 percent) means an underwriting loss has occurred.
  3. C) The combined ratio does not consider investment income.
  4. D) A combined ratio less than 1 (or 100 percent) indicates that an underwriting loss has occurred.

Answer:  D

Question Status:  Previous Edition

 

40) In schedule rating, each building is individually evaluated based on several rating factors. One factor refers to the possibility that the building will be damaged or destroyed by a fire that starts at an adjacent property and spreads to the building. This rating factor is known as

  1. A) occupancy.
  2. B) protection.
  3. C) maintenance.
  4. D) exposure.

Answer:  D

Question Status:  Previous Edition

 

41) A strip-mall includes eight identical-sized retail units. All of the units were built at the same time and each has an identical sprinkler system. Unit number two is a dry cleaning business. Unit number three is a bar and grill. Unit number four is a dress shop. The owners of these three units are all insured by the same insurance company, but the property insurance premiums vary significantly. Which of the following rating factors best explains the difference in premiums?

  1. A) exposure
  2. B) protection
  3. C) construction
  4. D) occupancy

Answer:  D

Question Status:  Previous Edition

 

42) Which of the following statements is true regarding the financial crisis and the insurance industry?

  1. The insurance industry is to blame for causing the financial crisis by originating sub-prime mortgage loans.
  2. Many insurance companies became insolvent as a result of the financial crisis.
  3. A) I only
  4. B) II only
  5. C) both I and II
  6. D) neither I nor II

Answer:  D

Question Status:  New

Principles of Risk Management and Insurance, 12e (Rejda)

Chapter 9   Fundamental Legal Principles

 

1) Fundamental purposes of the principle of indemnity include which of the following?

  1. To reduce physical hazards.
  2. To prevent the insured from profiting from insurance.
  3. A) I only
  4. B) II only
  5. C) both I and II
  6. D) neither I nor II

Answer:  B

Question Status:  Previous Edition

 

2) Which of the following is a fundamental purpose of the principle of indemnity?

  1. A) to reduce moral hazard
  2. B) to minimize physical hazards
  3. C) to settle property insurance losses on a replacement cost basis
  4. D) to require deductibles in all property insurance policies

Answer:  A

Question Status:  Previous Edition

 

3) Sam’s furniture was destroyed by a fire. The furniture cost $1200 when it was purchased, but similar new furniture now costs $1800. Assuming the furniture was 50 percent depreciated, what is the actual cash value of Sam’s loss?

  1. A) $600
  2. B) $900
  3. C) $1200
  4. D) $1800

Answer:  B

Question Status:  Revised

 

4) All of the following are exceptions to the principle of indemnity EXCEPT

  1. A) life insurance.
  2. B) valued policies.
  3. C) replacement cost property insurance.
  4. D) actual cash value property insurance.

Answer:  D

Question Status:  Previous Edition

 

5) Under which of the following rules is actual cash value determined by taking into consideration all relevant factors an expert would use to determine the value of the property?

  1. A) the circumstantial evidence rule
  2. B) the broad evidence rule
  3. C) the property indemnity rule
  4. D) the objective value rule

Answer:  B

Question Status:  Previous Edition

6) A total loss under a valued policy is settled on the basis of the

  1. A) market value of the loss.
  2. B) actual cash value of the loss.
  3. C) replacement value of the loss.
  4. D) amount of insurance covering the loss.

Answer:  D

Question Status:  Previous Edition

 

7) Which of the following statements describes how losses will be settled if a property insurance policy is written on a replacement cost basis?

  1. A) Losses are settled without the applicable deductible.
  2. B) Losses are settled without a deduction for depreciation.
  3. C) The insurer must replace the damaged or destroyed property in lieu of a cash settlement.
  4. D) The policy is converted to a valued policy.

Answer:  B

Question Status:  Previous Edition

 

8) Which of the following statements about the principle of insurable interest is (are) true?

  1. It makes it difficult to measure the amount of an insured’s loss.
  2. It reduces moral hazard.
  3. A) I only
  4. B) II only
  5. C) both I and II
  6. D) neither I nor II

Answer:  B

Question Status:  Previous Edition

 

9) All of the following will support an insurable interest for purposes of purchasing property and liability insurance EXCEPT

  1. A) close family relationship.
  2. B) potential legal liability.
  3. C) secured creditors.
  4. D) a contract right.

Answer:  A

Question Status:  Previous Edition

 

10) Which of the following statements about an insurable interest in life insurance is (are) true?

  1. It is required of any person named as beneficiary.
  2. It may result from a pecuniary (financial) interest.
  3. A) I only
  4. B) II only
  5. C) both I and II
  6. D) neither I nor II

Answer:  B

Question Status:  Revised

11) When must an insurable interest legally exist in life insurance?

  1. A) only at the time of the insured’s death
  2. B) only at the inception of the policy
  3. C) only at the time the beneficiary is paid
  4. D) both at the time of the insured’s death and at the inception of the policy

Answer:  B

Question Status:  Previous Edition

 

12) When must an insurable interest legally exist in property insurance for an insured to receive payment for a loss from the insurer?

  1. A) only at the time of the loss
  2. B) only at the inception of the policy
  3. C) only at the time the loss settlement process takes place
  4. D) both at the time of the loss and at the inception of the policy

Answer:  A

Question Status:  Revised

 

13) Sue’s office building was damaged by a fire caused by a careless tenant. After paying Sue for her loss, the insurance company sued the tenant to recover its loss. This suit is based on the principle of

  1. A) warranty.
  2. B) insurable interest.
  3. C) utmost good faith.
  4. D) subrogation.

Answer:  D

Question Status:  Previous Edition

 

14) All of the following are basic purposes of subrogation EXCEPT

  1. A) to eliminate adverse selection.
  2. B) to hold down the cost of insurance.
  3. C) to prevent an insured from collecting twice for the same loss.
  4. D) to hold the negligent person responsible for a loss.

Answer:  A

Question Status:  Previous Edition

 

15) Which of the following statements about subrogation is true?

  1. A) It is used primarily for losses paid under life insurance policies.
  2. B) It allows the insurer to sue its own insured who is negligent.
  3. C) The insured’s right to collect benefits may be forfeited if the insured interferes with the insurer’s rights after a loss occurs.
  4. D) The insurer is required to exercise its subrogation rights.

Answer:  C

Question Status:  Previous Edition

 

16) The principle of utmost good faith is supported by all of the following legal doctrines EXCEPT

  1. A) representations.
  2. B) warranty.
  3. C) subrogation.
  4. D) concealment.

Answer:  C

Question Status:  Previous Edition

17) What is the legal significance of a material concealment by an insurance applicant?

  1. A) The contract is automatically voided from its inception.
  2. B) The contract is voidable at the insurer’s option.
  3. C) Loss payments are reduced by the degree of the concealment.
  4. D) The insurer is immediately entitled to a higher premium.

Answer:  B

Question Status:  Previous Edition

 

18) What is the legal significance of a material misrepresentation in an insurance application?

  1. A) The contract is automatically voided from its inception.
  2. B) The contract is voidable at the insurer’s option.
  3. C) Loss payments are reduced by the degree of the misrepresentation.
  4. D) The insurer is immediately entitled to a higher premium.

Answer:  B

Question Status:  Previous Edition

 

19) A false statement made by an applicant for insurance is an example of a

  1. A) concealment.
  2. B) breach of warranty.
  3. C) lack of offer and acceptance.
  4. D) misrepresentation.

Answer:  D

Question Status:  Previous Edition

 

20) Which of the following statements about a warranty in an insurance contract is (are) true?

  1. It is part of the insurance contract.
  2. Statements made by an insurance applicant are considered warranties rather than representations.
  3. A) I only
  4. B) II only
  5. C) both I and II
  6. D) neither I nor II

Answer:  A

Question Status:  Previous Edition

 

21) David owns a liquor store in a high-crime area. In order to obtain a reduced insurance premium, David promised to have a burglar alarm operating at the store when the store was closed.  This agreement, which was incorporated into the insurance contract, is an example of a

  1. A) representation.
  2. B) unilateral contract.
  3. C) contract of adhesion.
  4. D) warranty.

Answer:  D

Question Status:  Previous Edition

22) Which of the following statements about offer and acceptance for insurance contracts is true?

  1. A) In property and liability insurance, agents typically do not have the authority to bind coverage.
  2. B) In life insurance, the agent can usually accept an offer by immediately binding coverage.
  3. C) In property insurance, the offer and acceptance are usually in writing but may be oral.
  4. D) In life insurance, the offer is merely the promise to pay the first premium.

Answer:  C

Question Status:  Previous Edition

 

23) Chris applied for life insurance and paid the first premium on Monday. She was given an insurability premium receipt which specified that coverage was effective on the date of the application or the date of the medical exam, whichever is later. She took the medical exam the following Thursday. She was found to be in perfect health. On which day was her coverage effective?

  1. A) on Monday, when she completed the application and paid the first premium
  2. B) on Wednesday, two days after completing the application and paying the first premium
  3. C) on Thursday when she passed the medical exam
  4. D) on Saturday, two days after passing the medical exam

Answer:  C

Question Status:  Previous Edition

 

24) Which of the following statements about consideration in an insurance contract is (are) true?

  1. The insured’s total consideration is submission of a completed application.
  2. The insurer’s consideration is the promise to do those things specified in the policy.
  3. A) I only
  4. B) II only
  5. C) both I and II
  6. D) neither I nor II

Answer:  B

Question Status:  Previous Edition

 

25) A contract in which the values exchanged are not equal because chance is involved is called a(n)

  1. A) contract of adhesion.
  2. B) unilateral contract.
  3. C) conditional contract.
  4. D) aleatory contract.

Answer:  D

Question Status:  Previous Edition

 

26) Why are insurance contracts said to be contracts of adhesion?

  1. A) The values exchanged by the parties to the contract are not equal.
  2. B) One party writes the contract, and the other party must accept the entire contract as written.
  3. C) Only one party makes a legally enforceable promise.
  4. D) Conditions are placed on the insurer’s promise to perform.

Answer:  B

Question Status:  Revised

27) Why does the insured get the benefit of the doubt if an insurance policy contains any ambiguities or uncertainties?

  1. A) because insurance contracts are aleatory
  2. B) because insurance contracts are unilateral
  3. C) because insurance contracts are conditional
  4. D) because insurance contracts are contracts of adhesion

Answer:  D

Question Status:  Previous Edition

 

28) Why can an insurer refuse to pay a claim if an insured fails to abide by the policy provisions?

  1. A) because insurance contracts are aleatory
  2. B) because insurance contracts are unilateral
  3. C) because insurance contracts are conditional
  4. D) because insurance contracts are contracts of adhesion

Answer:  C

Question Status:  Previous Edition

 

29) Which of the following types of insurance policies can usually be assigned without the insurer’s consent?

  1. Life insurance
  2. Property insurance
  3. A) I only
  4. B) II only
  5. C) both I and II
  6. D) neither I nor II

Answer:  A

Question Status:  Previous Edition

 

30) What is the practical effect of an insurance policy being a conditional contract?

  1. A) The insurer can refuse to a pay claim unless the insured has complied with all policy provisions.
  2. B) The insured can assign the policy only with the insurer’s consent.
  3. C) The insurer can sue the insured for failure to pay any premiums.
  4. D) The insured gets the benefit of the doubt if a policy contains any ambiguities or uncertainties.

Answer:  A

Question Status:  Revised

 

31) What is the practical effect of an insurance policy being a contract of adhesion?

  1. A) The insurer can refuse to pay claims unless the insured has complied with all policy provisions.
  2. B) The insured can assign the policy only with the insurer’s consent.
  3. C) The insurer can sue the insured for failure to pay any premiums.
  4. D) The policy is interpreted in the insured’s favor if the policy contains any ambiguities or uncertainties.

Answer:  D

Question Status:  Previous Edition

32) All of the following statements about the rules governing agency relationships are true EXCEPT

  1. A) An agent must be authorized to act on behalf of a principal.
  2. B) An agency agreement may grant certain powers to the agent as well as denying the agent other powers.
  3. C) The principal is responsible for the acts of agents only if the acts are criminal.
  4. D) Knowledge of the agent is presumed to be knowledge of the principal with respect to matters within the scope of the agency relationship.

Answer:  C

Question Status:  Previous Edition

 

33) The voluntary relinquishment of a legal right is called

  1. A) subrogation.
  2. B) adhesion.
  3. C) estoppel.
  4. D) waiver.

Answer:  D

Question Status:  Previous Edition

 

34) Frank asked his company’s employee benefits director if his group health coverage could be converted to individual coverage.  The benefits director said, “Yes, you can convert to an individual policy, and the coverage is identical to your group coverage.” Frank quit his job and converted to an individual policy. Six months later he filed a claim.  He was dismayed to learn the conversion policy was limited compared to the group coverage, and his claim was denied. What legal doctrine will allow Frank to bring a successful legal action against his former employer because he was financially harmed due to his reasonable reliance upon a representation of fact?

  1. A) adhesion
  2. B) concealment
  3. C) estoppel
  4. D) subrogation

Answer:  C

Question Status:  Revised

 

35) Janice purchased a living room set for $1,000 and insured this furniture on an actual cash value basis. Two years later the living room set was destroyed by a covered peril. At the time of loss, the property had depreciated in value by 25 percent. The replacement cost of the furniture at the time of loss was $1,200. Assuming no deductible, how much will Janice receive from her insurer?

  1. A) $900
  2. B) $950
  3. C) $1,000
  4. D) $1,200

Answer:  A

Question Status:  Previous Edition

36) Jacob sold his house to Shelia for $140,000 in cash. Jacob “threw in” insurance on the house as part of the deal and did not bother telling the insurer that there was a new owner. Four months after Shelia purchased the home, a windstorm damaged the roof. Which of the following legal characteristics of insurance contracts could the insurer use to legally deny payment for the damage to the roof?

  1. A) Insurance contracts are unilateral contracts.
  2. B) Insurance contacts are contracts of adhesion.
  3. C) Insurance contracts are aleatory contracts.
  4. D) Insurance contracts are personal contracts.

Answer:  D

Question Status:  Previous Edition

 

37) Melody’s car was damaged when another driver ran a stop sign and hit her car. Melody decided to collect from her own insurer and to let her insurer recoup the loss payment from the negligent driver who hit her. What fundamental legal principle is illustrated in this scenario?

  1. A) the principle of utmost good faith
  2. B) the principle of insurable interest
  3. C) the principle of subrogation
  4. D) the principle of reasonable expectations

Answer:  C

Question Status:  Previous Edition

 

38) When Ben applied for life insurance, he was asked on the application if he smoked or used tobacco products. Ben answered “No.” In reality, Ben smokes two packs of cigarettes a day. The policy was issued at the “preferred, nonsmoker rate.” If Ben dies 6 months after the policy is issued, upon what grounds will the insurer be able to legally deny the claim?

  1. A) warranty
  2. B) misrepresentation
  3. C) waiver
  4. D) concealment

Answer:  B

Question Status:  Previous Edition

 

39) Robin plans to open a bar in a high-crime area. She had difficulty obtaining insurance for the business. She found an insurer willing to write the coverage, but only if Robin agreed to have a security alarm system in operation at all times when the business is closed. Robin’s promise to have a security alarm system operational as a condition of having the insurance coverage in force is a

  1. A) binder.
  2. B) warranty.
  3. C) waiver.
  4. D) deductible.

Answer:  B

Question Status:  Previous Edition

40) Dave is an agent for Easy Pay Insurance. Easy Pay insures only the highest-quality applicants. Dave wanted to earn more commissions, so he sold some policies to applicants he knew were below-average risks. When these policyowners started filing claims, Easy Pay tried to deny the claims stating that Dave had not acted appropriately. Which general rule of agency makes Easy Pay responsible for the claims of the higher-than-average risk policyowners?

  1. A) There is no presumption of an agency relationship.
  2. B) Agents should be compensated based on the quality of the business they generate.
  3. C) A principal is responsible for the acts of its agents who are acting within the scope of their authority.
  4. D) An agent must have authority to represent the principal.

Answer:  C

Question Status:  Previous Edition

 

41) Ted’s insurance claim was denied by XYZ Insurance Company. When Ted inquired why the claim was denied, he was told to, “Read the exclusion on page 5 of the policy.” Ted read the exclusion. In his opinion, the exclusion was poorly worded and vague. If a court of law agrees with Ted’s assessment of the exclusion, Ted may still be able to have his claim paid by the insurer because insurance contracts are

  1. A) personal contracts.
  2. B) unilateral contracts.
  3. C) aleatory contracts.
  4. D) contracts of adhesion.

Answer:  D

Question Status:  Previous Edition

 

42) Mark owns a bar. The bar has a back room where Mark has some slot machines. Mark lets some of his patrons play the machines, and Mark keeps any profits. This type of gambling is illegal where Mark lives. Mark wanted to purchase insurance in case his slot machines were confiscated by the police. Such an insurance contract would not be enforceable. Which requirement needed to form a valid insurance contract is missing?

  1. A) consideration
  2. B) offer and acceptance
  3. C) legal purpose
  4. D) competent parties

Answer:  C

Question Status:  Previous Edition

 

43) Which distinct legal characteristic of insurance contracts states that only the insurer’s promise to perform is legally enforceable?

  1. A) contracts of adhesion
  2. B) unilateral contracts
  3. C) aleatory contracts
  4. D) personal contracts

Answer:  B

Question Status:  Previous Edition

44) Some courts have ruled that an alternative to “replacement cost less depreciation” should be used to determine the actual cash value of a property loss. Under this alternative, the value of property lost is determined by the price a willing buyer would pay a willing seller for the property in a free market. This method of determining actual cash value is called the

  1. A) intrinsic value method.
  2. B) valued policy method.
  3. C) fair market value method.
  4. D) reconstruction cost method.

Answer:  C

Question Status:  Previous Edition

 

45) Some states have a law that requires payment of the face amount of insurance to the insured if a total loss to real property occurs from a peril specified in the law. These laws are called

  1. A) agreed amount laws.
  2. B) replacement cost laws.
  3. C) homestead laws.
  4. D) valued policy laws.

Answer:  D

Question Status:  Previous Edition

 

46) The general rule that ambiguity in insurance contracts is construed against the insurer is reinforced by an important legal principle. This principle states the insured is entitled to coverage under a policy that he or she would assume the policy would provide, and exclusions must be conspicuous, plain, and clear. This principle is known as

  1. A) the principle of utmost good faith.
  2. B) the principle of reasonable expectations .
  3. C) the principle of subrogation.
  4. D) the principle of indemnity.

Answer:  B

Question Status:  Previous Edition

 

47) Dave and Meagan Philips borrowed $150,000 from Fifth National Bank to help fund the purchase of a new home. The home serves as collateral for the loan.  Fifth National has an insurable interest in the home based on

  1. A) potential responsibility for legal liability.
  2. B) being a secured creditor.
  3. C) expectation of ownership.
  4. D) having a contractual right.

Answer:  B

Question Status:  New

 

48) All of the following statements about subrogation are true EXCEPT

  1. A) the insurer is only entitled to recover the amount it has paid its insured under the policy.
  2. B) subrogation does not apply in life insurance.
  3. C) interfering with the insurer’s subrogation rights can jeopardize indemnification of the insured.
  4. D) the insurer reserves the right to subrogate against its own insureds.

Answer:  D

Question Status:  New