RMIN4000 FINAL EXAM BROWN
UPDATED ACTUAL Questions and
CORRECT Answers
Lannister Insurance Company insures 200,000 vehicles. In 2019, they paid a total of
$136,000,000 in collision losses to the owners of 16,000 of those vehicles. What was
Lannister's collision loss frequency in 2019? - CORRECT ANSWER- ✔✔0.08 (16k/200k)
Lannister Insurance Company insures 200,000 vehicles. In 2019, they paid a total of
$136,000,000 in collision losses to the owners of 16,000 of those vehicles. What was
Lannister's collision loss severity in 2019? - CORRECT ANSWER- ✔✔8500 (136M/16K)
Michael Scott owns a condominium in Scranton, PA. A fire breaks out when his girlfriend,
Jan, is dancing and knocks over a candle. The fire damages the condo and Michael's most
prized possession - his plasma TV. The damage to Michael's plasma TV is considered a(n): -
CORRECT ANSWER- ✔✔direct loss
What is the most important step in the risk management process? - CORRECT ANSWER-
✔✔Step 1: identify loss exposures
I have a high deductible ($2,200) in my health insurance plan. The high deductible is an
example of which type of risk management technique? - CORRECT ANSWER- ✔✔retention
Insurance is the most appropriate risk management technique for which of the following
types of loss exposures? - CORRECT ANSWER- ✔✔high severity, low frequency
Review
The Very Good Building & Development Company is a general contractor (builder). Due to
difficulty finding affordable workers compensation insurance (covering employee injuries),
Very Good established its own insurance company based in Vermont for the purpose of
insuring Very Good's workers compensation loss exposures. The company that Very Good
formed is called a - CORRECT ANSWER- ✔✔captive insurer
Jim Halpert and his wife, Pam, are selling the home they've lived in for the past seven years.
They are aware of an electrical problem in the home that they do not want to fix because it
,would be expensive. Potential buyers of the home are unaware of the electrical problem. This
is an example of: - CORRECT ANSWER- ✔✔Asymmetric Information
All of the following are examples of operational risks EXCEPT:
a) changing conditions in financial markets
b) employment practices
c) customer service
d) supply chain - CORRECT ANSWER- ✔✔A
Heisenberg Insurance has a home office in Albuquerque, New Mexico and they specialize in
insuring chemical manufacturers. Heisenberg is owned by its policyholders and any annual
profits are distributed through rate reductions. Which type of insurer is Heisenberg? -
CORRECT ANSWER- ✔✔mutual insurer
Reubens work in insurance sales. He sells insurance through several different unrelated
insurance carriers that he legally represents. What is Reuben's job? - CORRECT ANSWER-
✔✔independent agent
Who handles the ratemaking function within insurance companies? - CORRECT ANSWER-
✔✔Actuaries
Agent Michael Scarn sells insurance for the Federal Bureau of Insurance (FBI). He is quoting
a property insurance policy for Samuel Chang, the owner of an office building. The office
building is 15,000 square feet and FBI charges a gross rate of $25 per 100 square feet. What
is the gross premium for the property policy covering the office building? - CORRECT
ANSWER- ✔✔3750 (15K feet/ 100 feet = 150ft * 25$ = 3750$)
Antonio is employed by an insurance company. He reviews applications to determine
whether his company should insure the applicant. Antonio assigns the applicant to a rating
category based on the applicant's degree of risk. Antonio is a(n): - CORRECT ANSWER-
✔✔underwriter
Walter White is the owner of A1A Car Wash. Jesse Pinkman is a regular A1A customer. One
day, while waiting for his car to be washed, Jesse slipped on a wet spot on the floor and
injured his back. As a result of his injury, he threatens to file suit against Walt and A1A Car
,Wash. Walt quickly notifies his insurer to start the claim process. This is an example of a: -
CORRECT ANSWER- ✔✔third party claim
O'Houlihan Wrenches is a tool manufacturer. They have asked Average Joe Insurance to
insure their new $40 million manufacturing facility. Because of the high amount of coverage
needed, the Average Joe's underwriter has indicated that they'll need to check with their
reinsurer, Globo Re, to determine if they can obtain a reinsurance policy to specifically cover
the manufacturing facility. Which type of reinsurance does Average Joe Insurance need for
the manufacturing facility? - CORRECT ANSWER- ✔✔Facultative
Average Joe Insurance has entered into a Surplus Share reinsurance agreement with Globo
Re. The reinsurance treaty covers Average Joe's Commercial Property line of business and
includes a $250,000 retention. Average Joe insures a gymnasium for $1,500,000. The owners
of the gymnasium pay Average Joe $15,000 in premium for the policy covering the factory. If
the factory sustained a $600,000 loss, how much is Globo Re responsible for? - CORRECT
ANSWER- ✔✔500,000 (250,000/1,500,000} * 600,000)
Who is responsible for regulating the insurance industry? - CORRECT ANSWER-
✔✔individual states
What is the actual cash value of a 5 year old refrigerator with a 10 year useful life? It cost
$1,500 when originally purchased, but costs $2,000 brand new today? - CORRECT
ANSWER- ✔✔1000 (5/10=50% depreciation) so ACV=RC-DEPR so 2000-1000=1000
Johnny and Moira Rose borrowed $150,000 from Rosebud National Bank to help fund the
purchase of a new home. The home serves as collateral for the loan. Rosebud National has an
insurable interest in the home based on - CORRECT ANSWER- ✔✔being a secured creditor
Jason is the owner of a liquor store. With the insurance policy covering the liquor store, there
is a provision stating that the liquor store must have a working burglar alarm at all times in
order for insurance coverage to apply. What is this an example of? - CORRECT ANSWER-
✔✔warranty
The insurance company drafts and prints the policy contract. The insured must accept the
entire contract; they cannot insist that some of the policy language be changed. Which legal
characteristic of an insurance contract is this describing? - CORRECT ANSWER-
✔✔contract of adhesion
, Vincent recently broke his arm and had to go to the Emergency Room. The resulting medical
bills were $2,000. Vincent's health insurance includes a $1,000 deductible and an 80-20
coinsurance clause. How much will his insurance company pay for the medical bills? -
CORRECT ANSWER- ✔✔800 (2000-1000=1000 * .8= 800)
Samir is using the Needs Approach to determine how much life insurance to buy. He has
calculated the following: cash needs of $30,000, income needs of $170,000, and special
needs of $200,000. His current assets total $50,000. Based on the Needs Approach, how
much life insurance does Samir need? - CORRECT ANSWER- ✔✔350,000
If you have a limited budget to spend on life insurance, but you want to maximize the amount
of life insurance you have, which type would be most appropriate? - CORRECT ANSWER-
✔✔Term Life Insurance
Each time I visit my primary care physician, my healthcare plan requires me to pay $25. The
$25 I pay is - CORRECT ANSWER- ✔✔copayment
Which type of spending account can be coupled with a high-deductible healthcare plan? -
CORRECT ANSWER- ✔✔Health Savings Account
While walking your dog, if he/she were to bite and severely injure someone, what type of tort
would this be? - CORRECT ANSWER- ✔✔Strict Liability
Jack recently ran a red light and struck a pedestrian. As a result of the accident, the pedestrian
was admitted to the hospital. Which type of damages are the pedestrian's medical bills? -
CORRECT ANSWER- ✔✔Special Damages
Dante Hicks works at Quick Stop Groceries (a convenience store). Which of the following
correctly describes customers of the store? - CORRECT ANSWER- ✔✔Invitees
Felix Gallardo has a Personal Auto Policy with liability limits of $100,000 / $300,000 /
$50,000. What is Felix's limit for property damage? - CORRECT ANSWER- ✔✔50,000
