USLI Fundamentals of Insurance STUDY GUIDE| QUESTIONS
WITH COMPLETE SOLUTIONS
Insurance industry is over 700 years old. Correct Answer: True
First type of Insurance: Correct Answer: Marine Insurance
Lloyd's of London is an insurance company. Correct Answer: False
Why was it important to the colonists of the new world to transfer the risks associated with the
trade industry? Correct Answer: Because they stood to loose everything with the loos of any one
cargo
What two insurance markets did the new colonies have? Correct Answer: Life and Fire
Why were possessions so important to the colonists? Correct Answer: They had very few
What was significant of fire marks? Correct Answer: Helped the fire company know whether or
not to fight the fire
By the end of the 19th century, what major types of insurance had developed? Correct Answer:
Fire and flood
Insurance was a luxury to early colonists? Correct Answer: False
What is one problem with insurance being regulated by states? Correct Answer: Different
regulations for each state
What did Paul vs. Virginia decide? Correct Answer: States would regulate insurance
Why was Paul vs. Virginia overturned? Correct Answer: Interstate Commerce
The McCarren-Ferguson Act, which is still in effect today, mandates what? Correct Answer:
Insurance is regulated on state level
Although insurance is mandated on state level, which 3 areas are regulated federally? Correct
Answer: Labor, tax, and securities
In terms of insurance, what is risk? Correct Answer: The uncertainty of an outcome
Installing smoke detectors is an example of what? Correct Answer: Risk management
Which is an example of Intentional Risk Retention? Correct Answer: Carrying a deductible
Keeping copies of your social security card in a fire safe box is a: Correct Answer: Duplication
, New safety measures placed on products is a result of: Correct Answer: Product Liability
Claims
Evaluating the frequency and severity of a loss is a key part of: Correct Answer: Underwriting
What does loss frequency determine? Correct Answer: Number of losses per exposure
Evaluating loss frequency and severity helps to: Correct Answer: Create pricing and rates in the
insurance industry
Risks with an exposure level of _____ may not be eligible for insurance. Correct Answer: High
frequency/High severity
The Law of Large Numbers does which of the following: Correct Answer: Makes predictions
about losses and pool similar risks
By pooling risks by classification, insurers determine: Correct Answer: Premium rates
The area in which a home or building is located effects their rates? Correct Answer: True (city
vs. suburbs)
Insurers can use the Law of Large Numbers to predict how much: Correct Answer: True
Would a business in an urban area have a higher or lower rate: Correct Answer: Higher
What is a written premium? Correct Answer: The amount charged for a policy
Earned premiums differ depending on a particular schedule? Correct Answer: True
The expense ratio equals: Correct Answer: Incurred writing expenses over written premium
A combined ratio of over 100% would indicate____? Correct Answer: Loss
What gives an insurer an idea of how efficiently they are operating? Correct Answer: Expense
Ratio
What represents 70 percent of the premium dollar? Correct Answer: Claim Expenses
A company's surplus is associated with their ability to: Correct Answer: Write business
Combined ratio measures underwriting profitability? Correct Answer: True
Why is it important to have reinsurance? Correct Answer: To shift some financial burden
An increase in losses would: Correct Answer: Negatively affect profitability
WITH COMPLETE SOLUTIONS
Insurance industry is over 700 years old. Correct Answer: True
First type of Insurance: Correct Answer: Marine Insurance
Lloyd's of London is an insurance company. Correct Answer: False
Why was it important to the colonists of the new world to transfer the risks associated with the
trade industry? Correct Answer: Because they stood to loose everything with the loos of any one
cargo
What two insurance markets did the new colonies have? Correct Answer: Life and Fire
Why were possessions so important to the colonists? Correct Answer: They had very few
What was significant of fire marks? Correct Answer: Helped the fire company know whether or
not to fight the fire
By the end of the 19th century, what major types of insurance had developed? Correct Answer:
Fire and flood
Insurance was a luxury to early colonists? Correct Answer: False
What is one problem with insurance being regulated by states? Correct Answer: Different
regulations for each state
What did Paul vs. Virginia decide? Correct Answer: States would regulate insurance
Why was Paul vs. Virginia overturned? Correct Answer: Interstate Commerce
The McCarren-Ferguson Act, which is still in effect today, mandates what? Correct Answer:
Insurance is regulated on state level
Although insurance is mandated on state level, which 3 areas are regulated federally? Correct
Answer: Labor, tax, and securities
In terms of insurance, what is risk? Correct Answer: The uncertainty of an outcome
Installing smoke detectors is an example of what? Correct Answer: Risk management
Which is an example of Intentional Risk Retention? Correct Answer: Carrying a deductible
Keeping copies of your social security card in a fire safe box is a: Correct Answer: Duplication
, New safety measures placed on products is a result of: Correct Answer: Product Liability
Claims
Evaluating the frequency and severity of a loss is a key part of: Correct Answer: Underwriting
What does loss frequency determine? Correct Answer: Number of losses per exposure
Evaluating loss frequency and severity helps to: Correct Answer: Create pricing and rates in the
insurance industry
Risks with an exposure level of _____ may not be eligible for insurance. Correct Answer: High
frequency/High severity
The Law of Large Numbers does which of the following: Correct Answer: Makes predictions
about losses and pool similar risks
By pooling risks by classification, insurers determine: Correct Answer: Premium rates
The area in which a home or building is located effects their rates? Correct Answer: True (city
vs. suburbs)
Insurers can use the Law of Large Numbers to predict how much: Correct Answer: True
Would a business in an urban area have a higher or lower rate: Correct Answer: Higher
What is a written premium? Correct Answer: The amount charged for a policy
Earned premiums differ depending on a particular schedule? Correct Answer: True
The expense ratio equals: Correct Answer: Incurred writing expenses over written premium
A combined ratio of over 100% would indicate____? Correct Answer: Loss
What gives an insurer an idea of how efficiently they are operating? Correct Answer: Expense
Ratio
What represents 70 percent of the premium dollar? Correct Answer: Claim Expenses
A company's surplus is associated with their ability to: Correct Answer: Write business
Combined ratio measures underwriting profitability? Correct Answer: True
Why is it important to have reinsurance? Correct Answer: To shift some financial burden
An increase in losses would: Correct Answer: Negatively affect profitability
