Questions on Insurance and Life Insurance

Question 1 - Life insurance companies have a portion of their assets invested in common stocks most likely because

A- there's no other way to finance whole life insurance policies.

B- the company probably offers variable-life insurance policies.

C- it reduces the risk of the corporate bond portfolio.

D- common stockholders desire a small amount of their return in life insurance.

Question 2 - Which statement is not true about life insurance companies?

A- they have relatively predictable inflows and outflows.

B- their liabilities are long-term in nature.

C- they invest heavily in short-term highly marketable securities.

D- they sell contracts that offer financial protection against premature death and against living too long.

Question 3 - All but one of the following is a reason mutual thrifts have converted to stock institutions:

A- to obtain federal deposit insurance

B- to sell stock and increase their net worth

C- to acquire subsidiaries more easily

D- to merge with other institutions more easily

Question 4 - Earnings of the S&L industry suffered in the 1980s from both maturity imbalances and

A- loan losses related to new asset powers granted in 1980.

B- high, sustained interest rates.

C- the high rates paid on NOW accounts.

D- higher yields from consumer credit card loans.

Question 5 - Thrifts' return on average assets (ROAA) has increased in recent years primarily due to

A- increased loan loss reserves per average assets.

B- decreased noninterest expenses per average assets.

C- increased noninterest income per average assets.

D- the decline in average assets in the period.

Question 6 - The sale of mortgages would offer the thrift institution all of the following except:

A- a source of liquidity from the mortgage portfolio.

B- a source of interest income.

C- an opportunity to reduce a high negative GAP position.

D- an opportunity to make additional mortgage loans.

Question 7 - Annuities protect against

A- the economic consequences of living too long.

B- varying interest rates.

C- aggressive beneficiaries.

D- default by life insurance companies.

Question 8 - The difference between an insured versus a noninsured pension plan is

A- the insured plan is insured under the Pension Benefit Guaranty Corporation, while the noninsured is not.

B- the insured plan is a government pension fund; the noninsured is in the private sector.

C- the insured plan obligations are issued by a life insurance company with promises to pay specific amounts in the future, while the

noninsured are managed by a trustee with no guarantee of amounts distributed in the future.

D- the employer of the insured guarantees payments, but not so in the case of the uninsured

Question 9 - To protect against moral hazard, disability income policies

A- do not cover disabilities from moral problems.

B- do not provide a high percentage of pre-disability income and require a waiting period.

C- usually pay more than 100 per cent of an insured's income.

D- usually require a five-year waiting period before benefits begin.

Question 10 - Which statement is not true about casualty insurance companies?

A- they are subject to federal income tax.

B- they invest heavily in municipal bonds.

C- they have more predictable cash flows related to claims than life insurance companies.

D- they invest in corporate stock.