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FP512 Practice Exam questions correctly answered
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FP512 Practice Exam questions correctly answered
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FP512 Practice Exam questionscorrectly answered
Which 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 - correct answer ✔✔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 - correct answer ✔✔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
D)
I, II, and III - correct answer ✔✔B
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 - correct answer ✔✔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 - correct answer ✔✔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. - correct answer ✔✔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 - correct answer ✔✔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?
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