Financial Underwriting MCQs

Welcome to our comprehensive collection of Multiple Choice Questions (MCQs) on Financial Underwriting, a fundamental topic in the field of IC22 Life Insurance Underwriting. Whether you're preparing for competitive exams, honing your problem-solving skills, or simply looking to enhance your abilities in this field, our Financial Underwriting MCQs are designed to help you grasp the core concepts and excel in solving problems.

In this section, you'll find a wide range of Financial Underwriting mcq questions that explore various aspects of Financial Underwriting problems. Each MCQ is crafted to challenge your understanding of Financial Underwriting principles, enabling you to refine your problem-solving techniques. Whether you're a student aiming to ace IC22 Life Insurance Underwriting tests, a job seeker preparing for interviews, or someone simply interested in sharpening their skills, our Financial Underwriting MCQs are your pathway to success in mastering this essential IC22 Life Insurance Underwriting topic.

Note: Each of the following question comes with multiple answer choices. Select the most appropriate option and test your understanding of Financial Underwriting. You can click on an option to test your knowledge before viewing the solution for a MCQ. Happy learning!

So, are you ready to put your Financial Underwriting knowledge to the test? Let's get started with our carefully curated MCQs!

Financial Underwriting MCQs | Page 4 of 13

Discover more Topics under IC22 Life Insurance Underwriting

Q31.
What is the purpose of personal insurance cover?

a.

To replace the income stream of the insurer

b.

To replace the income stream of the beneficiary

c.

To cover non-existent financial loss

d.

None of the above

Discuss
Answer: (b).To replace the income stream of the beneficiary Explanation:A common reason to purchase personal insurance cover is to replace the income stream of the decedent, which helps the dependents in supporting their ongoing needs, immediate post death expenses, etc.
Q32.
What are the key principles of financial underwriting?

a.

Establishing the need and amount for insurance

b.

Making sure the insured is not worth more dead than alive

c.

Ruling out speculation from insurance

d.

All of the above

Discuss
Answer: (d).All of the above Explanation:The key principles of financial underwriting include establishing the need and amount for insurance, making sure the insured is not worth more dead than alive, ruling out speculation from insurance, and relating past financial trends with current economic conditions.
Q33.
What does it mean to say that the insured is "Not worth more dead than alive"?

a.

The insured has an insurable interest in the policy

b.

The insured's life is not worth insuring

c.

The insured has no dependents who rely on their income

d.

The insured's death should not result in a financial windfall for their beneficiaries

Discuss
Answer: (d).The insured's death should not result in a financial windfall for their beneficiaries Explanation:One of the key principles of financial underwriting is to ensure that the insured is "Not worth more dead than alive", which means that the insured's death should not result in a financial windfall for their beneficiaries.
Q34.
What is the potential risk when an illiterate woman with little or no earned income asks for a term plan with a high sum assured?

a.

Moral hazard

b.

Adverse selection

c.

Investment risk

d.

Both a and b

Discuss
Answer: (d).Both a and b Explanation:An illiterate woman with little or no earned income asking for a term plan with a high sum assured is a high-risk scenario for the insurance company. There is a potential for both moral hazard and adverse selection. Moral hazard refers to the possibility that the insured person may engage in riskier behavior knowing that they are protected by insurance. Adverse selection refers to the tendency for higher-risk individuals to apply for insurance more frequently than lower-risk individuals. In this scenario, the combination of a high sum assured and the lack of financial resources or education on the part of the applicant increase the potential for both moral hazard and adverse selection.
Q35.
Why do parents apply for insurance on the lives of their children?

a.

To get insurance at high cost when children have poor health

b.

To pass on the wealth to the future generation

c.

To minimise moral hazard

d.

None of the above

Discuss
Answer: (b).To pass on the wealth to the future generation Explanation:Parents apply for insurance on the lives of their children for various reasons, one of which is to pass on the wealth to the future generation. This implies that parents want to secure the financial future of their children
Q36.
What is the importance of considering the health status and cover of siblings and parents while insuring the life of a child?

a.

To increase the sum assured for the child

b.

To minimise moral hazard

c.

To reduce the premium amount

d.

None of the above

Discuss
Answer: (b).To minimise moral hazard Explanation:The importance of considering the health status and cover of siblings and parents while insuring the life of a child is to minimize moral hazard. This means that insurers need to assess the risks associated with insuring the child, taking into account the health status and insurance coverage of the parents and siblings, to ensure that the insurance policy is not being taken out purely for financial gain and that it is providing real protection for the child's future.
Q37.
What is the main purpose of child insurance plans?

a.

To secure the financial future of parents

b.

To provide periodic payments at specific intervals

c.

To offer financial security for the children's future

d.

None of the above

Discuss
Answer: (c).To offer financial security for the children's future Explanation:Child insurance plans are purchased by parents to secure the financial future of their children, particularly in the case of an unfortunate event like the parents' untimely death. These plans help parents save funds for their children's education, marriage, and other financial needs. By providing financial security for the children's future, child insurance plans ensure that children are protected against unforeseen financial contingencies.
Q38.
What is the 'waiver of premium' built-in rider in most child plans?

a.

A rider that provides additional coverage for the child

b.

A rider that allows the policyholder to skip premium payments

c.

A rider that makes sure the plan continues in case of the parent's untimely death

d.

None of the above

Discuss
Answer: (c).A rider that makes sure the plan continues in case of the parent's untimely death Explanation:The 'waiver of premium' built-in rider is a feature in most child plans that ensures the plan continues in case of the parent's untimely death. In such a scenario, the parent's premium payments are waived off, and the insurance company continues to pay the premium on their behalf to keep the policy in force. This ensures that the child's financial security is not compromised even if the parent is no longer able to make premium payments.
Q39.
What is the primary reason for a company to purchase life insurance on the life of a key person?

a.

To indemnify the company against the loss of the key person

b.

To provide financial assistance to the family of the key person

c.

To increase the revenue of the company

d.

None of the above

Discuss
Answer: (a).To indemnify the company against the loss of the key person Explanation:The primary reason for a company to purchase life insurance on the life of a key person is to indemnify the company against the loss of the key person whose skills and contribution are critical to the company.
Q40.
What are the common challenges faced by the underwriters while assessing a proposal on a key person?

a.

To qualify the proposed insured as a key person

b.

To determine the potential financial loss to the company on the death of the insured

c.

Both a and b

d.

None of the above

Discuss
Answer: (c).Both a and b Explanation:The common challenges faced by the underwriters while assessing a proposal on a key person are to qualify the proposed insured as a key person and to quantify the potential financial loss to the company on the death of this insured.
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