FREE Chartered Life Underwriter (CLU) Insurance and Risk Management Questions and Answers

Question 1

A financial planner is advising a client who is the sole proprietor of a successful consulting firm.
The client is concerned about the financial impact a premature death would have on her family's ability to meet their long-term goals.
The planner's recommendation to purchase a life insurance policy is an example of which risk management technique?

Accepted Answer

Risk Transfer

Answer

Risk Avoidance

Answer

Risk Retention

Answer

Risk Reduction

Question 2

Insurers are generally unwilling to issue policies that cover losses resulting from acts of war. This is primarily because such an event violates which characteristic of an ideally insurable risk?

Accepted Answer

The loss should not be catastrophic.

Answer

The loss must be definite and measurable.

Answer

There must be a large number of homogeneous exposure units.

Answer

The loss must be fortuitous or accidental.

Question 3

A life insurance policy is referred to as a 'contract of adhesion' because it is offered on a 'take-it-or-leave-it' basis. What is the primary legal consequence of this classification when a dispute arises over ambiguous policy language?

Accepted Answer

Any ambiguity is interpreted against the insurer, who drafted the contract.

Answer

The policyowner is presumed to have understood all terms upon acceptance.

Answer

The contract is automatically voided, and all premiums are returned.

Answer

The court will require the parties to enter into mandatory arbitration.

Question 4

An individual owns a Universal Life insurance policy with a specified face amount of $750,000 and has selected Death Benefit Option B. The policy currently has an accumulated cash value of $125,000. If the insured dies today, what will be the total death benefit paid to the beneficiary?

Accepted Answer

$875,000

Answer

$750,000

Answer

$625,000

Answer

$125,000

Question 5

A successful architect is covered by a disability income policy that contains a 'true own-occupation' definition of disability. After a car accident, she is no longer able to draw architectural plans due to a nerve injury in her hand, but she is able to earn a significant income as a university professor. How will her disability policy most likely respond?

Accepted Answer

She will be considered totally disabled and eligible to receive the full policy benefit.

Answer

She will be considered partially disabled because she can still work in another field.

Answer

Her claim will be denied because her new income exceeds her previous income.

Answer

Her benefits will be reduced by the amount of income she earns from teaching.

Question 6

Dr. Chen is the sole practitioner in her medical practice. She is worried that if a serious illness prevents her from working for an extended period, she will be unable to pay for her office rent, staff salaries, and medical supply bills, forcing her to close the practice. Which type of insurance is specifically designed to cover these ongoing business costs?

Accepted Answer

Business Overhead Expense (BOE) Insurance

Answer

Key Person Disability Insurance

Answer

Individual Disability Income Insurance

Answer

A Disability Buy-Out Policy