C05 Underwriting and Rating MCQs

Welcome to our comprehensive collection of Multiple Choice Questions (MCQs) on C05 Underwriting and Rating, a fundamental topic in the field of IC38 Life Insurance Agent Exam. Whether you're preparing for competitive exams, honing your problem-solving skills, or simply looking to enhance your abilities in this field, our C05 Underwriting and Rating 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 C05 Underwriting and Rating mcq questions that explore various aspects of C05 Underwriting and Rating problems. Each MCQ is crafted to challenge your understanding of C05 Underwriting and Rating principles, enabling you to refine your problem-solving techniques. Whether you're a student aiming to ace IC38 Life Insurance Agent Exam tests, a job seeker preparing for interviews, or someone simply interested in sharpening their skills, our C05 Underwriting and Rating MCQs are your pathway to success in mastering this essential IC38 Life Insurance Agent Exam topic.

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C05 Underwriting and Rating MCQs | Page 3 of 4

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Q21.
Identify the two factors that affect insurance ratemaking.

a.

Probability and severity of risk

b.

Source and nature of risk

c.

Source and timing of risk

d.

Nature and impact of risk

Discuss
Answer: (a).Probability and severity of risk Explanation:In insurance ratemaking, the primary factors that affect the calculation of rates are the "probability" and "severity" of risk. These two factors are crucial in determining how much an insurance company should charge for coverage.
Q22.
What is the "pure premium" in insurance ratemaking?

a.

The premium paid by policyholders without any additional costs

b.

The premium charged to cover the expected cost of losses only

c.

The premium with a margin for profits

d.

The premium with expenses and commissions included

Discuss
Answer: (b).The premium charged to cover the expected cost of losses only Explanation:The "pure premium" represents the premium that is calculated to cover the expected cost of losses without any additional costs, such as administrative expenses or profit margins.
Q23.
How is the "pure premium" calculated?

a.

L X V

b.

L / V

c.

M X V

d.

L X 100 / V

Discuss
Answer: (d).L X 100 / V Explanation:The formula calculates the "pure premium" by dividing the sum total of losses (L) by the total value of all motor cycles (V) and then multiplying the result by 100 to express it as a percentage.
Q24.
What does "Burning Cost" refer to in the context of insurance premium?

a.

The cost of claims paid to policyholders

b.

The pure premium calculated without any additional costs

c.

The expenses associated with procuring new insurance business

d.

The total premium collected by the insurer

Discuss
Answer: (b).The pure premium calculated without any additional costs Explanation:"Burning Cost" in insurance refers to the pure premium, which is the cost of covering expected losses without including any additional costs such as administrative expenses or profit margins.
Q25.
What components make up the final rate of premium in insurance?

a.

Loss payments and loss expenses

b.

Agency commission and management expenses

c.

Expenses of management and profit margins

d.

All of the above

Discuss
Answer: (d).All of the above Explanation:The final rate of premium includes various components, including loss payments, loss expenses, agency commission, expenses of management, margin for reserves for unexpected heavy losses, and margin for profits.
Q26.
Why is it necessary to include a margin for profit in the insurance premium?

a.

To cover the expenses of management

b.

To provide for reserves for unexpected heavy losses

c.

To ensure fairness in premium rates

d.

To generate a return on the capital invested in the business

Discuss
Answer: (d).To generate a return on the capital invested in the business Explanation:Including a margin for profit in the insurance premium is necessary to ensure that the insurer can generate a return on the capital invested in the business, just like any other commercial enterprise.
Q27.
Which rating factors are used to ensure that insurance rates are not unfairly discriminatory?

a.

Similarity of risks

b.

Policy type and quality

c.

Loss payments and expenses

d.

Both a and b

Discuss
Answer: (d).Both a and b Explanation:Insurance rates are designed to be fair and not unfairly discriminatory. This is achieved by considering factors such as the similarity of risks (similar types of risks should be treated similarly) and the quality of the policy (ensuring that the policy type and quality are taken into account in rate-setting to avoid unfair discrimination). Age and gender, while important, may not be directly related to the concept of fair rating.
Q28.
What is pure premium?

a.

Premium sufficiently big enough to pay for losses only

b.

Premium applicable to marginal members of the society

c.

Premium after loading for administrative costs

d.

Premium derived from the most recent loss experience period

Discuss
Answer: (a).Premium sufficiently big enough to pay for losses only Explanation:The pure premium is the basic premium that is sufficient to cover expected losses. It does not include additional amounts for administrative costs, profits, or other expenses. It is essentially the cost of the insurance coverage needed to pay for expected claims or losses.
Q29.
What is the purpose of a deductible in insurance policies?

a.

To make insurance policies more expensive

b.

To ensure the insured does not receive any claims

c.

To share the cost of claims between the insurer and the insured

d.

To eliminate the need for documentation in the claims process

Discuss
Answer: (c).To share the cost of claims between the insurer and the insured Explanation:Deductibles are a cost-sharing provision in insurance that requires the insured to bear a portion of the claim costs, ensuring that both the insurer and the insured share the financial burden.
Q30.
In which types of insurance policies are deductibles typically used?

a.

Life insurance

b.

Health insurance

c.

Property, motor, and home insurance

d.

Liability insurance

Discuss
Answer: (c).Property, motor, and home insurance Explanation:Deductibles are commonly found in property, motor, and home insurance policies, where the insured is required to bear a portion of the claim costs.
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