Free RIBO Insurance Fundamentals Test 1

Question 1

John owns an insurance policy that gives him the right to share in the insurer's surplus. What kind of policy is this?

Accepted Answer

Participating

Answer

A participating insurance policy grants the policyholder the right to share in the insurer's surplus, typically through dividends. This means that if the insurance company performs better than expected financially, a portion of those profits is returned to the policyholders. This feature distinguishes it from nonparticipating policies, which do not offer such a share in surplus.

Question 2

What is a participating life insurance policy?

Accepted Answer

Contract that allows the policy owner to receive a share of surplus in the form of policy dividends.

Answer

A participating life insurance policy is specifically designed to allow policy owners to receive dividends, which are a share of the insurer's divisible surplus. These dividends reflect the company's financial performance and can be used in various ways, such as reducing premiums, purchasing paid-up additions, or being taken as cash. This feature provides a potential return to the policyholder beyond the basic coverage.

Question 3

Which of the following is Not a characteristic of reinsurance?

Accepted Answer

Increases the unearned premium reserve

Answer

Reinsurance involves one insurer transferring a portion of its risk to another insurer. When an insurer cedes risk through reinsurance, it actually reduces its unearned premium reserve because a portion of the premium and the associated liability for future claims are transferred to the reinsurer. Reinsurance is primarily used to manage risk, stabilize financial results, and increase underwriting capacity, not to increase the ceding insurer's unearned premium reserve.

Question 4

A participating company is also referred to as which type of insurer?

Accepted Answer

Mutual insurer

Answer

A participating company is often referred to as a mutual insurer because it is owned by its policyholders. These policyholders 'participate' in the company's profits through dividends, which are a return of excess premiums. Unlike stock companies owned by shareholders, mutual insurers operate for the benefit of their policyholders, sharing any surplus with them.

Question 5

One important function of an insurance company is to identify and sell to potential customers. Which of these BEST describes this function?

Accepted Answer

Marketing

Answer

The function of identifying and selling to potential customers is fundamentally what marketing entails. In the insurance industry, marketing involves promoting insurance products, communicating their value, and reaching out to target audiences to generate sales. Underwriting, reinsurance, and regulation are distinct functions related to risk assessment, risk transfer, and oversight, respectively.

RIBO - Registered Insurance Broker of Ontario Practice Test

RIBO - Registered Insurance Broker of Ontario Practice Test

Free RIBO Insurance Fundamentals Test 1