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FP512 Practice Exam Q)&A
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FP512 Practice Exam Q)&A
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FP512 Practice ExamWhich of the following refers to the process of evaluating and classifying the
risk level of applicants for insurance?
A)
Utilization review
B)
Underwriting
C)
Actuarial science
✅✅
D)
Adverse selection - -Underwriting is the process of evaluating and
classifying the risk level of applicants for insurance. Underwriting may also
help insurers control adverse selection.
Choose the method of risk management that is implemented by a homeowner
who installs storm shutters.
A)
Retention
B)
Reduction
C)
Transfer
✅✅
D)
Avoidance - -The answer is reduction. Installing storm shutters reduces
the risk of damage to the homeowner's property.
You have a meeting with Oscar, age 26, and his wife Judith, age 25, this
afternoon to review their risk management plan. They have two children, two
cars, a home, and a boat. Oscar works at the local bank, and Judith works at
an engineering firm. Identify the CORRECT statement(s) regarding their risk
management plan.
They have a limited amount of liability exposure.
They have a higher probability of becoming disabled versus experiencing
premature death.
Having collision insurance on their cars is more important than liability
coverage.
Long-term care insurance should not be a current priority within their risk
management plan.
A)
,IV only
B)
II and IV
C)
II, III, and IV
✅✅-B
D)
I, II, and III -
Oscar and Judith have unlimited liability exposure. A car accident could lead
to an unlimited amount of liability depending on the circumstances, as well as
the possibility of negligence occurring on their property. There is a higher
probability of becoming disabled than of experiencing premature death at their
ages, and it is much more important to have liability insurance on a vehicle
than collision coverage. Liability claims may be much higher than any type of
collision damage to a vehicle. Both Oscar and Judith are too young to
consider long-term care insurance at this time.
Preston called Joanna, an insurance broker, to obtain coverage on his 30-foot
sailboat. Joanna told him to send in a binder premium of $75. She told him
that by doing so, he would be covered and that he should go ahead and enjoy
the boat. Joanna submitted an application for insurance to Boater's Insurance
Corp. for issuance of the policy. Boater's declined the coverage. The day
Joanna learned this, Preston called and told her a sudden wind caused him to
lose control of his boat. He then smashed into another sailboat, causing
substantial damage to both boats.
Who will be responsible for the damages?
A)
Boater's Insurance Corp. will have to pay the damages since it did not notify
Preston that he was not covered.
B)
Boater's will have to pay since Joanna collected a premium from Preston.
C)
Preston will have to pay because no insurance policy is in force until the
insurance company accepts the risk.
✅✅
D)
Joanna is respons - -D
Joanna will have to pay because, as a broker, she personally bound coverage
for Preston but was unable to place the coverage before the accident. Boater's
Insurance Corp. was never a party to an insurance contract with Preston.
,Since Joanna is a broker, her actions only speak for herself. There is no
insurance coverage in force. Preston will need to make a claim against
Joanna, which will likely be reviewed by her Errors and Omissions carrier. If
Preston sues and wins, Joanna also could be held personally liable.
Which of the following are duties of the courts in regulating insurers?
To render decisions on the meaning of policy terms
To enact laws that govern the conduct of insurers
To rule on the constitutionality of insurance laws
To determine requirements an insurer must meet to obtain a license
A)
I and IV
B)
I and III
C)
II and IV
✅✅
D)
III and IV - -B
The answer is I and III. The courts render decisions on the meaning of policy
terms and rule on the constitutionality of insurance laws. The state legislature
completes the remaining two duties: enacts laws and may establish
requirements that an insurer must meet to obtain a license to do business in
that state.
The insurance industry is regulated primarily by
A)
the National Association of Insurance Commissioners (NAIC).
B)
the individual states.
C)
the Supreme Court.
✅✅
D)
the federal government. - -The answer is the individual states. Under the
McCarran-Ferguson Act of 1945, insurance is regulated primarily at the state
level. The NAIC issues model insurance legislation that the individual states
are free to adopt if they choose, but the NAIC has no legislative authority in
any state.
, Which one of the following is the correct definition of a term related to risk
management?
A)
Moral hazard: something that increases the likelihood of risk due to
indifference
B)
Risk: something that causes a loss
C)
Peril: the possibility of loss occurring
D)
✅✅
Hazard: something that increases the likelihood of a loss occurring -
-The answer is hazard: something that increases the likelihood of a loss
occurring. Risk is the possibility of loss and perils are the causes of losses.
Moral hazard is a result of the client being unethical or misrepresenting
himself in order to obtain insurance or to induce the payment of a claim.
Carmen and David received eight place settings of their sterling silver flatware
pattern as wedding presents. Because the silverware cost nearly $500 per
place setting, they wanted to make sure it was adequately insured. The couple
called Jerry, an agent with Forest Insurance Co., and asked him what needed
to be done to ensure that they had adequate insurance coverage. Jerry
assured them that because they had less than 10 place settings, they were
adequately insured.
If the silverware is stolen, which one of the following legal remedies will most
likely be used to assure the loss is covered?
A)
Rescission
B)
Doctrine of estoppel
C)
Last clear chance
✅✅
D)
Waiver doctrine - -Jerry, representing Forest Insurance Co., made a
statement on which Carmen and David relied. This represents the doctrine of
estoppel. The insurance company cannot later state that the agent made a
mistake and deny the claim. Waiver doctrine is used in the instance where, if
the insurance company failed to exert its right to deny one claim, it may not
later exert that right with a similar claim. Last clear chance is a liability defense
raised in a case where a person either attempted or failed to attempt to make
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