Exam (elaborations)
LOMA 308 Module 2 Exam Questions with Correct Answers.
- Course
- Institution
LOMA 308 Module 2 Exam Questions with Correct Answers.LOMA 308 Module 2 Exam Questions with Correct Answers.
[Show more]
Content preview
LOMA 308 Module 2 Exam Questions with CorrectAnswers.
Suppose that you want to start your own insurance company. The first thing you
need to decide is what kind of structure your company will have. Which
organizational structures do you think you can choose from?
a. sole proprietorship
b. partnership
c. corporation - Correct Answer c. - Laws in most jurisdictions require insurance
companies to be organized as corporations. In this lesson, you'll learn why that
structure is required. You'll also learn how organizational form and management
affect the way an insurance company does business.
Sole Proprietorship - Correct Answer is created, owned, and operated by one
person.
he owner earns all company profits and is responsible for all company debts.
Company operations cease if the owner dies.
The company is considered a privately held company because ownership is
restricted to a specified individual.
privately held company - Correct Answer A company in which ownership is restricted
to specified individuals. Contrast with publicly held company.
partnership - Correct Answer is created, owned, and operated by two or more
partners.
Partners earn all company profits and are responsible for all company debts.
A two-owner partnership dissolves if a partner dies or withdraws; a partnership with
many owners will continue as long as there are two or more owners.
The company is considered a privately held company because ownership is limited
to specified individuals.
Corporation - Correct Answer is a legal entity created by government authority.
It's separate from its owners, so owners can't be held responsible for company
debts.
Operations continue even if one or more owners die or withdraw.
It can sue or be sued, enter into contracts, and own property.
It can be a privately held company or a publicly held company that sells ownership
shares to the public.
publicly held company - Correct Answer A company that sells ownership shares to
the public. Contrast with privately held company.
requirements for incorporation - Correct Answer In the U.S., insurance companies
are incorporated at the state level.
,A description of the company, including its name, location, plan for organizing
operations, and the type of business it intends to conduct
The names of the company's original directors
The amount of initial investment being made by company owners
Licensing - Correct Answer license granting the insurer the legal authority to conduct
insurance business in a specific jurisdiction. An insurer that intends to do business in
more than one jurisdiction must obtain a license from each jurisdiction. In the U.S.,
that means a license from each state in which the insurer will operate.
The purpose of licensing is to ensure that an insurance company is
Financially sound and able to meet its obligation to policyowners
Directed by knowledgeable and capable managers
Which of the following are characteristics of a sole proprietorship? (Choose all that
apply.)
A. Owned and operated by one person
B. All profits on sales belong to company owner(s)
C. Privately held organization
D. Operations cease if only one owner remains
E. Owned and operated by two or more people
F. Created by government authority
G. Owner(s) responsible for company debts
H. Publicly held organization
I. Owner(s) not responsible for company debts - Correct Answer A, B, C, & G
Which of the following are characteristics of a partnership? (Choose all that apply.)
A. Owned and operated by one person
B. All profits on sales belong to company owner(s)
C. Privately held organization
D. Operations cease if only one owner remains
E. Owned and operated by two or more people
F. Created by government authority
G. Owner(s) responsible for company debts
H. Publicly held organization
I. Owner(s) not responsible for company debts - Correct Answer B, C, D, E & G
Which of the following are characteristics of a corporation? (Choose all that apply.)
A. Owned and operated by one person
B. All profits on sales belong to company owner(s)
C. Privately held organization
D. Operations cease if only one owner remains
E. Owned and operated by two or more people
F. Created by government authority
G. Owner(s) responsible for company debts
H. Publicly held organization
I. Owner(s) not responsible for company debts - Correct Answer C, E, F, H & I
In the United States, an insurance company must be incorporated at
A. The state level only
,B. The federal level only
C. Either the state level or the federal level
D. Both the state level and the federal level - Correct Answer A.- In the U.S.,
insurance companies are incorporated at the state level. In Canada, insurers can be
incorporated at the provincial or federal level. In India and many other countries,
insurers are incorporated at the federal level.
In the United States, an insurance company must be licensed in
A. The state in which it is incorporated
B. The state in which its home office is located
C. Each state in which it does business
D. All states - Correct Answer C. - In addition to fulfilling incorporation requirements,
insurers operating in the U.S. must obtain a license from each jurisdiction in which
they intend to conduct business.
Which of these organizational forms do you think is the most common?
A. Stock company
B. Mutual company
C. Fraternal benefit society - Correct Answer A. - Most of the insurers in the U.S. are
organized as stock companies.
Which of these organizational forms do you think is protected against takeover or
control by another type of company?
A. Stock company
B. Mutual company - Correct Answer B. - In most jurisdictions, mutual insurance
companies can merge with or acquire other mutual companies (with regulatory
approval), but they can't be taken over or controlled by another type of company.
Stock companies can be acquired by other stock insurance companies or publicly
held companies if the acquiring company holds most or all of the acquired company's
stock.
Which of these organizational forms do you think provides social as well as
insurance benefits to members?
A. Stock company
B. Mutual company
C. Fraternal benefit society - Correct Answer C. - All of these forms offer insurance
coverage. However, only fraternal benefit societies also offer social and other non-
insurance benefits to members.
Stock Insurance - Correct Answer companies are owned by the people and
organizations that buy shares of the company's stock. If financial conditions are
favorable, stockholders may receive periodic dividends, which represent a return on
their investment.
Mutual Insurance Companies - Correct Answer are owned by the people and
organizations that own policies issued by the company. If financial conditions are
favorable, owners of participating policies may receive periodic returns in the form of
policy dividends.
, Fraternal Benefit Societies - Correct Answer are created to provide benefits,
including insurance benefits, to members who share a common social, intellectual,
educational, charitable, or religious background. These benefits are not available to
nonmembers
Stock insurance companies are - Correct Answer easy to establish: The founders of
a stock insurance company can raise the money needed to create the company by
selling shares of stock in the proposed company. The company can raise additional
operating funds by selling additional shares.
able to expand quickly: A stock insurance company can expand operations by
acquiring or merging with another stock insurance company or a publicly held
company. In an acquisition, the insurer gains ownership control by buying most or all
of the other company's stock. In a merger, the insurer gains control over the other
company's assets and liabilities, and the other company ceases to exist. In both
cases, the purchasing company obtains the acquired company's products,
customers, and distributors and gains access to new markets.
mutualization - Correct Answer The conversion of a stock insurance company to a
mutual insurance company.
Mutual Insurance Companies extra notes - Correct Answer Although mutual
insurance companies are among the oldest and largest insurers in existence,
beginning operations as a mutual company isn't fast or easy. That's because a new
mutual insurer needs to sell a certain number of policies in advance to generate the
funds it needs to begin operations. The process can take years because people
often hesitate to buy products from companies that don't actually exist.
As a result, most mutual insurance companies start out as stock companies and later
convert to mutual companies through a process called mutualization.
advantages: The primary benefit of mutualization is that in most jurisdictions a
mutual company can't be taken over or controlled by another company.Mutual
insurance companies are also subject to fewer filing and reporting requirements than
stock insurance companies.
Disadvantages: The major disadvantage of mutualization is that attracting the capital
needed to expand is difficult because the only way a company can raise operating
funds is by selling insurance policies. And selling insurance is a lot harder than
selling stock. It's also harder for mutual companies to buy and operate other
companies.
To avoid these problems, many mutual insurance companies have converted to
stock companies through the process of demutualization.
Fraternal Benefit Societies - Correct Answer Fraternal benefit societies provide a
variety of social, educational, religious, charitable, and insurance benefits to their
members. These benefits are not available to non-members.Although some fraternal
benefit societies are open to the general public, most limit membership to individuals
who share a common ethnic, religious, or vocational background.Fraternal benefit
societies are generally more informal than corporations, but they do require
members to elect society officers.
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller Lectjoe. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $22.49. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
75632 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy study notes for 14 years now