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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Q41.
Which method of surplus distribution is adopted in North America, where surplus is declared and distributed as dividends?

a.

Reversionary Bonus Method

b.

Contribution Method

c.

Premium Adjustment Method

d.

Unit Linked Method

Discuss
Answer: (b).Contribution Method Explanation:In North America, the "Contribution" method is adopted for surplus distribution, where surplus is declared and distributed as dividends.
Q42.
How are dividends typically distributed in the Contribution Method?

a.

In the form of additional coverage options

b.

In the form of adjustments to future premiums

c.

In the form of cash payments

d.

In the form of interest-bearing loans to policyholders

Discuss
Answer: (c).In the form of cash payments Explanation:In the Contribution Method of surplus distribution, dividends are typically distributed in the form of cash payments to policyholders.
Q43.
What is the primary focus of Unit Linked Policies in life insurance?

a.

Maximizing annual premium payments

b.

Providing guaranteed returns to policyholders

c.

Linking policy benefits to the performance of investment funds

d.

Offering fixed, predetermined bonus amounts

Discuss
Answer: (c).Linking policy benefits to the performance of investment funds Explanation:The primary focus of Unit Linked Policies in life insurance is to link policy benefits to the performance of investment funds.
Q44.
Which method of surplus distribution is more commonly used in North America?

a.

Reversionary Bonus Method

b.

Contribution Method

c.

Terminal Bonus Method

d.

Annual Dividend Method

Discuss
Answer: (b).Contribution Method Explanation:In North America, the Contribution Method is more commonly used for surplus distribution in the context of life insurance.
Q45.
In the context of insurance, what does the term "premium" refer to?

a.

The interest rate applied to a life insurance policy

b.

The profits generated by an insurance company

c.

The price paid by an insured for purchasing an insurance policy

d.

The total coverage amount provided by an insurance policy

Discuss
Answer: (c).The price paid by an insured for purchasing an insurance policy Explanation:In the context of insurance, the term "premium" refers to the price paid by an insured for purchasing an insurance policy. It is the cost associated with obtaining and maintaining insurance coverage.
Q46.
Which of the following factors is not considered in the process of setting the premium for life insurance policies?

a.

Mortality

b.

Interests

c.

Economic inflation

d.

Expense management

Discuss
Answer: (c).Economic inflation Explanation:The process of setting the premium for life insurance policies involves consideration of factors like mortality (the likelihood of policyholders passing away), interest rates, expense management, and the creation of reserves to cover future obligations. These factors are essential in determining the cost of insurance and ensuring the financial stability of the insurance company.
Q47.
What is the Gross premium in the context of life insurance?

a.

The premium paid by the insured

b.

The premium before any discounts are applied

c.

The premium adjusted for inflation

d.

The premium after the policyholder's death

Discuss
Answer: (b).The premium before any discounts are applied Explanation:The Gross premium in the context of life insurance is the premium before any discounts or adjustments are applied. It represents the base cost of the insurance coverage without any modifications.
Q48.
What does a "lapse" mean in the context of insurance?

a.

The cancellation of an insurance policy

b.

The premium paid for insurance coverage

c.

The payout made to the policyholder's beneficiaries

d.

The interest earned on the policy's cash value

Discuss
Answer: (a).The cancellation of an insurance policy Explanation:In the context of insurance, a "lapse" means the cancellation of an insurance policy by the policyholder. When a policy lapses, the policyholder discontinues payment of premiums and forfeits the insurance coverage. Lapses often occur when policyholders can no longer afford the premiums or no longer need the coverage.
Q49.
What is the primary reason for the emergence of surplus in the context of life insurance?

a.

Unpredictable market conditions

b.

Policyholders not paying premiums

c.

The actual experience being better than assumed

d.

Decline in interest rates

Discuss
Answer: (c).The actual experience being better than assumed Explanation:The primary reason for the emergence of surplus in the context of life insurance is that the actual experience of the life insurer, including factors like mortality and investment returns, is better than what the company initially assumed when setting premiums and reserves. This surplus can result from a combination of favorable factors such as lower mortality rates and higher investment returns.
Q50.
How can surplus be allocated in the life insurance industry?

a.

Increasing policyholder premiums

b.

Distributing it among shareholders

c.

Maintaining solvency requirements

d.

Reducing the sum assured for all policies

Discuss
Answer: (c).Maintaining solvency requirements Explanation:Surplus in the life insurance industry can be allocated for various purposes. One common use is to maintain solvency requirements, ensuring that the insurance company has sufficient funds to meet its obligations to policyholders. Additionally, surplus can be used to increase free assets, which can provide additional financial stability to the company.
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