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LOMA 281 Module 1 Exam Questions And Correct
Answers Graded A+ 2024-
Risk - the likelihood of an asset to differ from its predicted price either higher or lower,Premium - an amount of money that is set by an insurer, which has to be paid by the insured in return for their promise to pay a policy benefit in case of a particular loss, Insurance company - a business organization that offers protection to individuals againstthe risk of a certain economic loss arising from particular events.
Life insurance - Answer A type of insurance under which the insurer promises to pay adeath benefit upon the death of a named person.
Annuity - Answer A financial product by which an insurer, in return for receiving apremium, promises to make periodic payments to a named person or entity.
Applicant - Answer The person or entity that applies for an insurance policy. Policyowner - The owner of the issued policy. Insured - The person whose life or health the policy insures. Beneficiary - The named person to receive the policy benefit if the insured event occurs. Third party policy - A policy one person buys that insures the life of another person. Speculative risks - A risk involving three possible outcomes: loss, gain, or no change.
Pure risk An uninsurable risk that wholly lacks the chance of a gain; either a loss occursor no loss occurs.
Contracts of indemnity Health insurance; An insurance policy under which the amount ofthe policy benefit payable for a covered loss is based on the actual amount of financial loss that results from the loss, as determined at the time of the loss. Valued contract - The amount of the policy benefit payable upon the occurrence of acovered loss without regard to the actual amount of the loss incurred. An insurance policy which stipulates the amount of the policy benefit payable in case of a loss withoutregard to the actual loss.
Face amount - The amount of the policy benefit as stated on the first page of a lifeinsurance policy.
Law of large numbers A theory of probability that states that generally the greater thenumber of times we observe an occurrence of a particular event, the closer our observed outcome approximates the 'true' probability that the event will occur. Reinsurance - Answer Insurance that one insurance company, called the direct writer,buys from another insurance company, called the reinsurer, in order to transfer some of the risk on insurance policies that the direct writer has issued. Limit of retention - The maximum amount of insurance an insurer is willing to carry at itsown risk on any one life. The direct writer cedes anything above that limit to a reinsurer in a reinsurance transaction or through other risk transfer mechanisms. Direct writer - AKA ceding company; In a reinsurance transaction, the insurance companythat buys reinsurance.
Reinsurer - Answer A reinsurer is the company which accepts reinsurance from the directwriter in a reinsurance transaction.
Finance company - Answer A financial institution that specializes in making short- andmedium-term loans to businesses and individuals. Securities firm - Answer A financial institution that facilitates the sale of investmentinstruments know as securities.
Mutual fund company - A financial institution that sponsors the creation of mutual funds,which are investment vehicles whereby pooled investor money is used to purchase a diversified portfolio of investments in stocks, bonds, and other forms of financialinstruments.
Corporation - Answer A legal entity created by the authority of a government that isseparate and distinct from people who own it. This characteristic provides an element of stability and permanence that makes it an ideal structure for insurers, whose contractualobligations extend many years into the future.
Convergence - Answer The movement toward financial institutions that can serve acustomer's banking, insurance, and securities needs.
Consolidation The coming together of financial services institutions within or acrosssectors.
Globalization The tendency of businesses, technologies, or philosophies to spreadthroughout the world, or the process of making this happen.
McCarran-Ferguson Act 1945 A federal law that permits state law to regulate the businessof insurance without federal government interference.
State insurance department - A state administrative agency, with an insurancecommissioner or a state superintendent of insurance at its head, responsible for regulating those insurers that operate in the state and ensuring they serve the interestsof the public in an acceptable manner and in conformance with applicable state insurance laws and regulations. National association of insurance commissioners - A nongovernmental organization
comprised of the insurance commissioners or superintendents of the various stateinsurance departments.
Model bills - Answer A model law that the state insurance regulators are encouraged touse as a basis for state insurance laws.
National conference of insurance legislators - Answer Assists state insurance legislatorsin discussing insurance issues and passing model laws.
Interstate insurance product regulation commission - Answer Allows member states todevelop uniform national standards for insurance products.
Certificate of authority - A license to conduct insurance business in a particular state.State law Market conduct laws - A state statute regulating the market conduct of an insurer within a state. Life and health guaranty association - Answer An organization that operates under thesupervision of the state insurance commissioner to protect policyowners, insureds, beneficiaries, and specified others against losses that result from the financialimpairment of insolvency of a life or health insurer that operates in the state.
Contract - Answer A legally enforceable agreement between two or more parties. Lapse - Answer Cessation of insurance coverage due to nonpayment of the renewalpremium on or before the due date.
Unilateral contract - Answer One where, at the time of entering into such a contract, oneparty makes legally binding promises.
Bilateral contract - Answer An agreement wherein, upon entering into the contract, bothparties make legally binding promises.
Voidable contract - A contract where one of the parties has the option to avoid all liabilityunder the contract without being in breach of contract.
Actuaries - A finance professional specializing in the mathematics of finance, risk, andinsurance.
Premium rate - The cost per unit (typically $1,000) of life insurance coverage. Standard risk - An applicant for insurance who possesses a risk of loss that is no greaterthan average.
Preferred risk - A proposed insured who presents a risk of loss that is substantially lessthan average.
Substandard risk - A proposed insured who has a risk of loss that is substantially greaterthan average but is still insurable.
Risk Declined- An applicant for insurance who is considered by the underwriter to be toogreat a risk for the insurer to accept. Cost of Benefits - The actuarial present value of benefits promised under in-forcepolicies. For pricing an insurance product, the cost of benefits is simply the sum of all the insurer's possible payments of the benefit obligations to its customers times theprobability of each benefit actually being payable.
Death benefit - The insurance benefit paid upon the death of the insured. Surrender benefits - A life insurance benefit payable if the owner of a cash value lifeinsurance policy surrenders the policy to the insurer before the insured dies.
Mortality rates - Solution Frequency of death within a group of people over given timeperiod. In pricing a life insurance product an insurer will need to make an estimate of the mortality rate for the group of insured.
Mortality tables Answer A table which indicates the mortality an insurer may reasonablyexpect to occur during specified ages amongst a group of insured lives.
Lapse rates Answer The percentage, per year, of policies that do not stay in-force due topolicyowners stopping premium payments.
Block of policies -Answer A group of policies issued to insured who are all the same age,the same sex, and in the same risk classification.
Policy reserves -Answer An amount of money that in insurer projects it will need to payits future obligations to customers.
