Chapter 26
Insurance Operations
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1. The majority of life insurance companies are:
a. stock-owned.
b. mutual.
c. debt-owned.
d. none of the above.
2. ________ insurance protects policyholders until death or as long as premiums are promptly paid. The amount of benefits is typically fixed with this insurance.
a. Variable life
b. Term
c. Whole life
d. Universal life
3. ________ specifies a period of time over which the policy will exist but also builds a cash value for the policyholder over time.
a. Variable life
b. Term
c. Whole life
d. Universal life
4. The largest source of income for life insurance companies is:
a. health insurance premiums.
b. annuity plans.
c. life insurance premiums.
d. investment income.
5. Which of the following is not a use of life insurance companies' funds?
a. annuity plans
b. corporate securities
c. mortgages
d. policy loans
6. _______ mortgages make up more than 90% of total mortgages held by life insurance companies.
a. Residential
b. Farm
c. Commercial
d. none of the above
7. Insurance companies are required to maintain a ______ amount of capital when they are exposed to a ________ degree of risk.
a. smaller; higher
b. larger; lower
c. larger; higher
d. Answers a and b are correct.
8. Life insurance companies are not subject to _______ risk.
a. interest rate
b. credit
c. market
d. Insurance companies are subject to all of the above.
9. As interest rates ________, consumers tend to _______ their voluntary terminations of life insurance.
a. rise; delay
b. rise; accelerate
c. decline; accelerate
d. Answers a and c are correct.
10. As interest rates _________, the price of property and casualty insurance _______.
a. decline; rises
b. decline; declines
c. increase; rises
d. Answers b and c are correct.
11. _________ are the primary use of funds by property and casualty insurance companies.
a. Common stocks
b. U.S. Treasury bonds
c. Municipal bonds
d. Other bonds
12. To assess the performance of an insurance company, which of the following ratios should not be used?
a. liquidity ratio
b. return on equity
c. net underwriting margin
d. All of the above can be used to assess the performance of an insurance company.
13. Health maintenance organizations (HMOs) are intermediaries between purchasers and providers of health care.
a. True.
b. False.
14. Insurance company agents must be licensed.
a. True.
b. False.
15. Life insurance companies can use real estate holdings to partially offset the potential adverse effect of high inflation on bonds.
a. True.
b. False.
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