L06 Pricing and Valuation in Life Insurance MCQs

Welcome to our comprehensive collection of Multiple Choice Questions (MCQs) on L06 Pricing and Valuation in Life Insurance, 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 L06 Pricing and Valuation in Life Insurance 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 L06 Pricing and Valuation in Life Insurance mcq questions that explore various aspects of L06 Pricing and Valuation in Life Insurance problems. Each MCQ is crafted to challenge your understanding of L06 Pricing and Valuation in Life Insurance 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 L06 Pricing and Valuation in Life Insurance MCQs are your pathway to success in mastering this essential IC38 Life Insurance Agent Exam topic.

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L06 Pricing and Valuation in Life Insurance MCQs | Page 4 of 6

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Q31.
What does a policy lapse mean?

a.

Policyholder completes premium payment for a policy

b.

Policyholder discontinues premium payment for a policy

c.

Policy attains maturity

d.

Policy is withdrawn from the market

Discuss
Answer: (b).Policyholder discontinues premium payment for a policy Explanation:A policy lapse means that the policyholder discontinues premium payment for a policy, leading to the policy no longer being in force.
Q32.
What is the key difference between "surplus" in life insurance and "profit" in a firm?

a.

Surplus is determined at the end of the accounting period, while profit is determined at the beginning of the accounting period.

b.

Surplus is the excess of assets over liabilities, while profit is the excess of income over outgo.

c.

Surplus is always negative, while profit is always positive.

d.

Surplus is a term used in firms, while profit is a term used in life insurance.

Discuss
Answer: (b).Surplus is the excess of assets over liabilities, while profit is the excess of income over outgo. Explanation:In the context of life insurance, surplus is defined as the excess of assets over liabilities, whereas profit in a firm is the excess of income over outgo for a given accounting period.
Q33.
What is the primary purpose of periodic valuation of assets and liabilities in a life insurance company?

a.

To determine the company's marketing strategy

b.

To assess the financial state of the company and determine its solvency

c.

To set premium rates for new policies

d.

To calculate the salaries of company executives

Discuss
Answer: (b).To assess the financial state of the company and determine its solvency Explanation:Periodic valuation of assets and liabilities in a life insurance company is primarily done to assess the company's financial state and determine whether it is solvent or insolvent.
Q34.
What is the key difference between "surplus" and "strain" in life insurance?

a.

Surplus is the excess of assets over liabilities, while strain is the excess of liabilities over assets.

b.

Surplus is a positive value, while strain is a negative value.

c.

Surplus represents a financial benefit, while strain indicates financial difficulty.

d.

Surplus and strain are interchangeable terms in life insurance.

Discuss
Answer: (c).Surplus represents a financial benefit, while strain indicates financial difficulty. Explanation:Surplus represents an excess of assets over liabilities, indicating a financial benefit, while strain is a negative surplus, signifying financial difficulty.
Q35.
In the context of life insurance, how is "profit" generally defined for a firm?

a.

The excess of assets over liabilities

b.

The excess of income over outgo for a given accounting period

c.

The total amount of premium collected

d.

The company's total expenses

Discuss
Answer: (b).The excess of income over outgo for a given accounting period Explanation:In the context of a firm, profit is generally defined as the excess of income over outgo for a given accounting period.
Q36.
What is the formula to calculate surplus in life insurance?

a.

Surplus = Liabilities - Assets

b.

Surplus = Assets + Liabilities

c.

Surplus = Assets - Liabilities

d.

Surplus = Liabilities + Assets

Discuss
Answer: (c).Surplus = Assets - Liabilities Explanation:Surplus in life insurance is calculated as the excess of assets over liabilities, so the formula is Surplus = Assets - Liabilities.
Q37.
What is the primary purpose of distributing surplus in the context of life insurance?

a.

To reduce policyholders' benefits

b.

To increase the company's profits

c.

To provide additional benefits to policyholders and shareholders

d.

To minimize the liabilities of the insurance company

Discuss
Answer: (c).To provide additional benefits to policyholders and shareholders Explanation:The distribution of surplus in life insurance is primarily done to provide additional benefits to policyholders and, if applicable, shareholders of the company.
Q38.
What is the most common type of bonus in life insurance that is received only at the time of a claim by death or maturity?

a.

Simple Reversionary Bonus

b.

Compound Bonus

c.

Terminal Bonus

d.

Annual Bonus

Discuss
Answer: (a).Simple Reversionary Bonus Explanation:The most common type of bonus in life insurance received only at the time of a claim by death or maturity is the Simple Reversionary Bonus.
Q39.
What is a "Terminal Bonus" in the context of life insurance?

a.

A bonus that attaches to the policy upon purchase

b.

A bonus paid annually to policyholders

c.

A bonus that attaches to the contract only at the time of its termination (by death or maturity)

d.

A bonus awarded to policyholders who have never made a claim

Discuss
Answer: (c).A bonus that attaches to the contract only at the time of its termination (by death or maturity) Explanation:A Terminal Bonus in life insurance is a bonus that attaches to the contract only at the time of its termination, which can be upon death or maturity.
Q40.
How is the Compound Bonus expressed in life insurance?

a.

As a percentage of the basic cash benefit under the contract

b.

As a fixed amount for each policyholder

c.

As a percentage of the premium paid

d.

As a lump sum payment at the end of the policy term

Discuss
Answer: (a).As a percentage of the basic cash benefit under the contract Explanation:The Compound Bonus in life insurance is expressed as a percentage of the basic cash benefit under the contract.
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