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| Section | Weight | Objectives |
|---|---|---|
| Topic 1: Life Insurance Basics | - Life Insurance Uses and Applications
| |
| Topic 2: General Insurance | - Risk and insurance concepts
| |
| Topic 3: Insurance Regulation | 5% | - Arizona Insurance Laws and Regulations
|
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NEW QUESTION # 93
All of the following factors are used in life insurance premium determination EXCEPT
Answer: D
Explanation:
The three traditional actuarial factors underlying life insurance premium calculations are mortality, interest, and expenses. Consequently, morbidity is the exception.
Mortality measures the statistical incidence of death within a population and is fundamental to estimating future life insurance death claims. Insurers use mortality experience and actuarial tables, adjusted through underwriting classifications, to estimate expected claim costs.
Interest represents the investment earnings the insurer anticipates receiving on premiums and reserves.
Expected investment income helps offset the amount that must be collected directly from policyowners; other factors being equal, greater assumed investment earnings can reduce the required premium.
Expenses include acquisition costs, underwriting, commissions, policy administration, taxes, claims processing, and other operating expenses. These costs must also be incorporated into premium pricing.
Morbidity, by contrast, refers to the frequency or likelihood of sickness and disability. It is particularly important in health, disability income, and long-term care insurance pricing, but it is not one of the traditional three premium factors for life insurance.
The examination formula to remember is therefore: mortality + expenses # anticipated interest = fundamental life insurance pricing structure.
Study Guide Reference: Life Insurance Basics - premium determination; mortality; interest; expenses; distinction between mortality and morbidity.
NEW QUESTION # 94
An insurable interest must exist
Answer: B
Explanation:
For life insurance, insurable interest must exist when the policy is applied for and issued, rather than necessarily continuing until the insured ' s death. Insurable interest prevents life insurance from becoming a wagering contract in which the policyowner would financially benefit from the death of someone in whom the owner has no legitimate personal or economic interest.
An individual unquestionably has an insurable interest in his or her own life. Insurable interest may also arise from close family relationships involving love and affection or from substantial economic relationships, such as between business partners, a business and a key employee, or a creditor and debtor within appropriate financial limits.
This differs importantly from property insurance, where insurable interest generally must exist at the time of loss because the claimant must suffer an actual financial loss to recover. In life insurance, a validly established insurable interest at policy inception normally remains sufficient even if the underlying relationship subsequently changes.
There is no requirement that insurable interest exist between every participant in the insurance transaction or between the applicant and the producer.
Study Guide Reference: Life Insurance Basics - insurable interest; policy ownership; personal and business uses of life insurance.
NEW QUESTION # 95
A parent is considering purchasing a life insurance policy for their minor child. They are interested in a policy that offers an automatic increase in the face amount when the child reaches adulthood without an increase in premium. Which policy option should the parent choose?
Answer: A
Explanation:
A jumping juvenile policy is specifically designed as life insurance for a child in which the policy ' s face amount automatically increases substantially when the insured reaches a specified age, commonly young adulthood. The increase occurs according to the policy terms without requiring a corresponding increase in premium and typically without requiring new evidence of insurability.
This feature permits relatively modest coverage during childhood while establishing a larger amount of permanent protection when the insured reaches adulthood. It is particularly useful because the child ' s subsequent health condition generally does not prevent the scheduled increase when the contractual conditions have been satisfied.
Universal life is a flexible-premium permanent insurance product and is not defined by an automatic juvenile face-amount increase. Term life provides temporary protection for a specified period but does not inherently contain the described automatic increase. Ordinary whole life can certainly insure a minor and accumulate cash value, but a standard whole life contract does not automatically multiply or "jump" its face amount solely because the insured reaches adulthood.
The scenario therefore describes the defining feature from which jumping juvenile insurance receives its name.
Study Guide Reference: Types of Life Insurance Policies - juvenile insurance; jumping juvenile policies; permanent life insurance; automatic increases in coverage.
NEW QUESTION # 96
Under the exclusion clause, which is a scenario that would NOT be covered if death resulted?
Answer: D
Explanation:
Traditional life insurance aviation exclusions, where included in a policy, distinguish ordinary commercial passengers from individuals who actively participate in aviation. A person traveling as a fare-paying passenger on a regularly scheduled commercial airline is ordinarily treated as an ordinary passenger and is not excluded solely because death results from an aviation accident.
A commercial pilot or crew member, however, actively participates in aviation and historically represents the category to which an aviation exclusion or aviation limitation may apply. Consequently, among the alternatives, Commercial pilot or crew member is the best answer to the question asking which scenario would not be covered under the relevant exclusion concept.
Merely attending an automobile race as a spectator does not make the individual a participant in hazardous racing activity. Similarly, being an Army officer "killed in the line of duty" does not by itself establish that the death resulted from an excluded act of war. A specific war or military exclusion would have to be applied according to its wording and cause-of-death requirements.
The question is therefore testing the distinction between ordinary passenger aviation and active aviation participation.
Study Guide Reference: Life Insurance Policy Provisions, Options, and Riders - exclusions; aviation risks; hazardous activities; war-related exclusions.
NEW QUESTION # 97
A company that is authorized to do business in a state is
Answer: B
Explanation:
An insurer that has received authorization from the appropriate state insurance regulator to transact insurance in that state is an admitted insurer, also described as an authorized insurer. Authorization is evidenced through the regulatory authority granted to conduct specified insurance business within the jurisdiction.
The other choices describe different classifications. A domestic insurer is organized under the laws of the state in which the classification is being made. A foreign insurer is organized under the laws of another U.S.
state. Either a domestic or foreign insurer may become admitted in Arizona if it meets the state ' s requirements and receives authority to transact insurance. A mutual insurer is classified by ownership structure: it is owned by its policyholders rather than stockholders. Mutual status does not, by itself, establish whether the insurer is authorized in a particular jurisdiction.
Accordingly, the decisive wording in the question is "authorized to do business in a state." That points directly to admitted rather than domestic, foreign, or mutual.
Study Guide Reference: Insurance Regulation - insurer classifications; admitted/authorized versus nonadmitted insurers; domestic, foreign and alien insurers; regulatory authority.
NEW QUESTION # 98
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