Question 1. A modified endowment contract is a life insurance policy that has failed

a. the test for life insurance

b. the seven-pay test

c. the transfer for value rule

d. the rule against perpetuities

Question 2. The transfer for value rule may not apply to a transfer in which of the following situations?

a. the sale of a policy by the insured to his son

b. the sale of a policy by the insured to a co-shareholder

c. the sale of a policy by the insured to his spouse

d. all of the above

Question 3. Underwriting is defined as:

a. a concept in which a number of companies pool resources to assume a percentage of risks on a given policy

b. a process in which an insurance company analyzes the exposure to risk and designs and prices an insurance program

c. the process in which the terms of a treaty are negotiated and the contract is written, including pricing and exclusions

d. a concept in which reinsurers accept only specific policies for coverage

Question 4. Which of the following is the policy holder with the highest-risk tolerance?

a. A homeowner who has a $2,000 deductible on a house worth $150,000

b. A homeowner who has a $750 deductible on a house worth $150,000

c. A car owner who has a $50 deductible on a car worth $75,000

d. A renter who has a $100 deductible on personal property worth $100,000

Question 5. Jack is driving his car when Tom runs a red light and hits Jack. Both men have liability insurance. Whose insurance covers the cost of Jack's car repairs and medical bills, and why?

a. Jack's insurance pays for it all, because he is insured against accidents.

b .Tom's insurance pays for the car repairs, but not the medical bills, because he is liable only for the damage to Jack's personal property.

c. Jack's insurance covers his repair bills, but not his medical bills, because he does not have medical insurance.

d. Tom's insurance covers it all, because liability insurance means that both injury and damage are covered.