Alabama Life & Health Insurance Exam
ACTUAL QUESTIONS AND CORRECT
ANSWERS
Which of the following would be considered a speculative risk? - Correct answers✔The
possibility the painting you bought might be a long-lost masterpiece
A speculative risk is one in which there is a chance for either loss or gain. Example: Gambling,
Casino's, Lottery, etc. All of the other choices describe pure risk, where there is no chance of
gain, only a chance of loss exists.
Which is the proper term for a company owned by its policy owners? - Correct answers✔A
mutual insurance company
A producer who is acting as an agent is representing: - Correct answers✔Always the insurer
All of the following are elements of a contract, except: - Correct answers✔Authority
All enforceable contracts must include these characteristics: offer and acceptance (agreement),
considerations, competent parties, and legal purpose. Authority is not considered one of the
elements of a legal contract.
Each of the following would be an element in the definition of fraud, except: - Correct
answers✔An individual warrants a fact stated on the application
A warranted fact is one guaranteed to be true. Although no statement on an application is
regarded as warranty, no fraud is involved if a statement is guaranteed to be true.
,Examples of Fraud - Correct answers✔Intentional material misrepresentation with the intent of
causing injury to another party
Withholding of known material facts
A false statement on the application that is material to the acceptance of the risk
A company that is licensed to sell insurance in a particular state is: - Correct answers✔An
authorized Company
In order to be valid, a contract must be between individuals considered legally able to enter into
an agreement. This principle is known as: - Correct answers✔Competent parties
An insurance contract is an aleatory contract. This means: - Correct answers✔Equal value is not
given by both parties to the contract
Aleatory: contract of unequal values exchanged
The ____________ market is a private source of coverage of last resort for individuals or
businesses that have been rejected by voluntary market insurers. - Correct answers✔Residual
To address adverse selection what can an insurer legally do? - Correct answers✔Establish and
enforce sound underwriting practices
Underwriting helps to protect the insurer against adverse selection and accepting risks that are
more likely than average to suffer losses.
,A contract that is drafted by an insurer and receives no input or alteration from the insured, is
considered a(n): - Correct answers✔Contract of Adhesion
_________ refers to the jurisdiction where an insurer was formed or incorporated. - Correct
answers✔Domicile: Domicile refers to the jurisdiction either state or country where an insurer
was formed or incorporated.
_____________ insurance allows for insurance coverage to be obtained when not available from
admitted carriers. - Correct answers✔Surplus Lines
Insurance can be obtained through surplus lines brokers (producers) from non-admitted insurers.
To make insurance more affordable and protect the insurance company from paying out too
much in claims, insurers will: - Correct answers✔Reinsure the risk
Reinsurance is what makes insurance affordable. Reinsurance companies are insurance
companies that accept all or a portion of the financial risk of loss from the insurance company.
The field underwriter is the _________ and is not a determiner of insurability. - Correct
answers✔Producer
The producer is in the field soliciting applications for insurance and in effect is another pair of
eyes and ears for the insurer in helping to issue policies to insurable prospects.
Third-party ownership refers to: - Correct answers✔A situation where the policyowner is
someone other than the insured
, Which statement best describes the term reserve? - Correct answers✔That amount that, when
increased by future premiums on outstanding policies, and interest on those premiums will
enable the company to meet future death claims
The applicant, if other than the proposed insured, must have: - Correct answers✔An insurable
interest in the life of the insured
Controlled business may be defined as insurance sold: - Correct answers✔To the producer, the
producer's family and friends, and the producer's business associates
With regard to life insurance policies, loading refers to: - Correct answers✔Assignment of the
appropriate share of the company's operating expenses to each policy
Which of the following statements about the average number of people who die each year is
true? - Correct answers✔It is called the mortality rate
Mortality Rate: which is the statistical probability of death in a large population of insureds.
Which of the following is NOT a characteristic of life insurance as property? - Correct
answers✔It requires a fund portfolio manager
Characteristics:
It creates an immediate estate
It requires no physical maintenance
ACTUAL QUESTIONS AND CORRECT
ANSWERS
Which of the following would be considered a speculative risk? - Correct answers✔The
possibility the painting you bought might be a long-lost masterpiece
A speculative risk is one in which there is a chance for either loss or gain. Example: Gambling,
Casino's, Lottery, etc. All of the other choices describe pure risk, where there is no chance of
gain, only a chance of loss exists.
Which is the proper term for a company owned by its policy owners? - Correct answers✔A
mutual insurance company
A producer who is acting as an agent is representing: - Correct answers✔Always the insurer
All of the following are elements of a contract, except: - Correct answers✔Authority
All enforceable contracts must include these characteristics: offer and acceptance (agreement),
considerations, competent parties, and legal purpose. Authority is not considered one of the
elements of a legal contract.
Each of the following would be an element in the definition of fraud, except: - Correct
answers✔An individual warrants a fact stated on the application
A warranted fact is one guaranteed to be true. Although no statement on an application is
regarded as warranty, no fraud is involved if a statement is guaranteed to be true.
,Examples of Fraud - Correct answers✔Intentional material misrepresentation with the intent of
causing injury to another party
Withholding of known material facts
A false statement on the application that is material to the acceptance of the risk
A company that is licensed to sell insurance in a particular state is: - Correct answers✔An
authorized Company
In order to be valid, a contract must be between individuals considered legally able to enter into
an agreement. This principle is known as: - Correct answers✔Competent parties
An insurance contract is an aleatory contract. This means: - Correct answers✔Equal value is not
given by both parties to the contract
Aleatory: contract of unequal values exchanged
The ____________ market is a private source of coverage of last resort for individuals or
businesses that have been rejected by voluntary market insurers. - Correct answers✔Residual
To address adverse selection what can an insurer legally do? - Correct answers✔Establish and
enforce sound underwriting practices
Underwriting helps to protect the insurer against adverse selection and accepting risks that are
more likely than average to suffer losses.
,A contract that is drafted by an insurer and receives no input or alteration from the insured, is
considered a(n): - Correct answers✔Contract of Adhesion
_________ refers to the jurisdiction where an insurer was formed or incorporated. - Correct
answers✔Domicile: Domicile refers to the jurisdiction either state or country where an insurer
was formed or incorporated.
_____________ insurance allows for insurance coverage to be obtained when not available from
admitted carriers. - Correct answers✔Surplus Lines
Insurance can be obtained through surplus lines brokers (producers) from non-admitted insurers.
To make insurance more affordable and protect the insurance company from paying out too
much in claims, insurers will: - Correct answers✔Reinsure the risk
Reinsurance is what makes insurance affordable. Reinsurance companies are insurance
companies that accept all or a portion of the financial risk of loss from the insurance company.
The field underwriter is the _________ and is not a determiner of insurability. - Correct
answers✔Producer
The producer is in the field soliciting applications for insurance and in effect is another pair of
eyes and ears for the insurer in helping to issue policies to insurable prospects.
Third-party ownership refers to: - Correct answers✔A situation where the policyowner is
someone other than the insured
, Which statement best describes the term reserve? - Correct answers✔That amount that, when
increased by future premiums on outstanding policies, and interest on those premiums will
enable the company to meet future death claims
The applicant, if other than the proposed insured, must have: - Correct answers✔An insurable
interest in the life of the insured
Controlled business may be defined as insurance sold: - Correct answers✔To the producer, the
producer's family and friends, and the producer's business associates
With regard to life insurance policies, loading refers to: - Correct answers✔Assignment of the
appropriate share of the company's operating expenses to each policy
Which of the following statements about the average number of people who die each year is
true? - Correct answers✔It is called the mortality rate
Mortality Rate: which is the statistical probability of death in a large population of insureds.
Which of the following is NOT a characteristic of life insurance as property? - Correct
answers✔It requires a fund portfolio manager
Characteristics:
It creates an immediate estate
It requires no physical maintenance
