Life Insurance and Risk Management Practice Quiz (31 questions)

Explanation

Risk involves uncertainty, the possibility of loss, and an event or consequence that lies in the future. Severity may help measure a loss, but it does not replace these three elements.

Explanation

The exposed wire is a visible physical condition, falsifying records is intentional dishonesty, and careless inattention is a morale hazard. The two behavioral hazards are easily confused, but dishonesty is moral while carelessness is morale.

Explanation

Speculative risk allows either gain or loss, whereas pure risk presents the possibility of loss without the possibility of gain. The classification depends on whether a gain is possible, not on whether the risk involves a business.

Explanation

Risk management seeks the greatest security at the lowest cost, balancing protection against expense. Eliminating every possible loss regardless of cost does not reflect that cost-conscious objective.

Explanation

The process moves from identifying risks to measuring them, then selecting risk-management responses and implementing and evaluating them. Measuring risk before identifying it reverses the initial stages.

Explanation

Expected loss cost is frequency multiplied by severity, so $12\times\$5{,}000=\$60{,}000$ per year. Adding frequency and severity, as in $17,000, does not apply the stated multiplication rule.

Explanation

A life table, also called a mortality table, uses the law of large numbers and typically draws on observations of 100,000 people to estimate mortality. A small group's experience would not provide the large-scale basis described.

Explanation

Mortality rate is the number of deaths during the year divided by the number alive at the beginning, giving $100/20{,}000=0.005$. Dividing by the number still alive at year's end uses the wrong denominator.

Explanation

The pure premium is intended to fund future insurance benefits, and the loading premium covers the insurer’s operating expenses. Reversing these roles is a common confusion, but it assigns each component the other component’s purpose.

Explanation

A higher assumed mortality rate raises premiums for ordinary life insurance because the insurer anticipates greater benefit costs. A lower assumed interest rate would also raise premiums, but it is not the change described in this situation.

Explanation

A liability reserve is money set aside so the insurer can meet its contractual obligations and pay benefits when covered events occur. Operating expenses are addressed through the loading premium, rather than being the purpose of the liability reserve.

Explanation

Each stated difference is a gain: actual mortality and expenses are below assumptions, while actual interest is above the assumption, so these gains may contribute to policy dividends. Higher claims, lower returns, and expense overruns describe adverse deviations rather than the gains in the scenario.

Explanation

Life insurance combines risk transfer with mutual aid by having many people share and absorb losses. Individual saving may help meet future expenses, but it does not capture the shared risk-pooling arrangement described here.

Explanation

Article 13 divides insurance into personal insurance and property insurance, then identifies life, annuity, accident, and health insurance as types of personal insurance. Placing annuity, accident, and health insurance under property insurance misclassifies those personal insurance categories.

Explanation

Whole life insurance remains in force for life unless it lapses or is surrendered, making it the suitable policy for the stated goal. Term insurance covers death or total disability during its term and provides no benefit if the insured survives to the term’s end.

Explanation

Endowment insurance pays on death during the term or on survival to the term’s end. Pure endowment insurance is the close alternative, but it pays only when the insured survives to the end.

Explanation

Annuity insurance provides periodic payments of an agreed amount while the insured is alive or over a specified period. A death-triggered payment is a different benefit structure, not the defining feature of an annuity.

Explanation

A deferred annuity begins after an agreed interval or when the insured reaches an agreed age while still alive. An immediate annuity starts after the contract is concluded, rather than after the later interval in this scenario.

Explanation

A certain annuity does not make payment conditional on the recipient’s survival, matching the stated arrangement. An uncertain annuity is the close alternative, but its payments do depend on the recipient’s survival.

Explanation

A joint-and-survivor annuity continues while at least one recipient survives. A joint-life annuity instead pays only while all named recipients are alive, so it would not continue after one recipient dies.

Explanation

Health insurance can compensate for both income losses and medical expenses resulting from illness or injury. Property damage and vehicle repairs are not the losses identified as health-insurance coverage here.

Explanation

Reimbursement requires a physician’s diagnosis that hospitalization is necessary, formal admission, and actual treatment in a hospital. A physician’s recommendation without formal admission does not meet all three conditions.

Explanation

Disability and death benefits arising from the same accident are combined under a cap equal to the insured amount. Allowing each benefit to independently reach that amount would exceed the stated combined limit.

Explanation

Investment-linked insurance places investment gains and losses on the policyholder, and its surrender value has a floor of 75% of the policy reserve. The insurer-borne investment risk described in another type of insurance does not apply to this arrangement.

Explanation

Group insurance requires an enterprise policyholder, employees as insured persons, at least five members, and participation by at least 75% of employees. A group with five members but only 60% employee participation falls short of the participation threshold.

Explanation

Ordinary labor insurance premiums are shared 20% by the individual, 10% by the government, and 70% by the employer. The 30% individual and 60% employer shares are the allocation for National Health Insurance.

Explanation

National Health Insurance covers illness, injury, and maternity, and its premiums are allocated 30% to individuals, 10% to government, and 60% to employers. The 20%/10%/70% split applies to ordinary labor insurance premiums.

Explanation

The salesperson must proactively present their registration certificate when soliciting insurance, unless the regulator provides otherwise. Waiting for the applicant to request it does not meet this proactive requirement.

Explanation

A fraction exceeding six months adds one year when determining insurance age. A fraction of six months or less is disregarded, so that rule does not apply to an eight-month fraction.

Explanation

An authorized premium collector must provide a receipt or equivalent record, state when the payment was collected, and observe the NT$50,000 cash cap per policy installment. Raising the cap to NT$100,000 would exceed the stated limit.

Explanation

The stated claim-payment deadline is 15 days. The 10-day period concerns policy cancellation, while the 30-day period is a grace period.