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B Com Exam  >  B Com Tests  >  Test: Insurance Products - 3 - B Com MCQ

Test: Insurance Products - 3 - B Com MCQ


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10 Questions MCQ Test - Test: Insurance Products - 3

Test: Insurance Products - 3 for B Com 2024 is part of B Com preparation. The Test: Insurance Products - 3 questions and answers have been prepared according to the B Com exam syllabus.The Test: Insurance Products - 3 MCQs are made for B Com 2024 Exam. Find important definitions, questions, notes, meanings, examples, exercises, MCQs and online tests for Test: Insurance Products - 3 below.
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Test: Insurance Products - 3 - Question 1
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What is the primary purpose of an annuity?

Detailed Solution for Test: Insurance Products - 3 - Question 1
An annuity's primary purpose is to provide a reliable means of securing a steady cash flow for individuals during their retirement years and to mitigate the risk of outliving one's assets. It is designed to accept and grow funds during the accumulation phase and then pay out a stream of payments during the annuitization phase, ensuring financial security in retirement.
Test: Insurance Products - 3 - Question 2
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What distinguishes fixed annuities from variable annuities?

Detailed Solution for Test: Insurance Products - 3 - Question 2
Fixed annuities offer stable and regular periodic payments to the annuitant, while variable annuities allow the annuitant to invest in the stock market, resulting in potentially varying cash flows based on the performance of the underlying investments.
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Test: Insurance Products - 3 - Question 3
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What is the primary risk associated with annuities?

Detailed Solution for Test: Insurance Products - 3 - Question 3
Annuities are often criticized for their illiquidity. Deposits into annuity contracts are typically locked up for a period of time, known as the surrender period, during which the annuitant would incur a penalty if they try to access the funds. Surrender periods can last several years, making annuities less liquid compared to other investments.
Test: Insurance Products - 3 - Question 4
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What is the purpose of group life insurance typically offered by employers?
Detailed Solution for Test: Insurance Products - 3 - Question 4
Group life insurance offered by employers is primarily designed to provide life insurance coverage to employees as part of their benefits package. It allows employees to have life insurance at lower costs compared to purchasing individual policies.
Test: Insurance Products - 3 - Question 5
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Which type of risk is generally insurable due to the application of the law of large numbers?
Detailed Solution for Test: Insurance Products - 3 - Question 5
Pure risk is generally insurable because the law of large numbers can be applied to estimate future losses, allowing insurance companies to calculate premiums based on expected losses and share the risk among policyholders.
Test: Insurance Products - 3 - Question 6
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What is a peril in the context of risk and insurance?
Detailed Solution for Test: Insurance Products - 3 - Question 6
A peril is the direct cause of a loss. For example, in the context of insurance, fire can be considered a peril because it directly causes property damage or loss.
Test: Insurance Products - 3 - Question 7
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What is the primary characteristic that distinguishes moral hazard from other types of hazards?
Detailed Solution for Test: Insurance Products - 3 - Question 7
Moral hazard is characterized by losses resulting from dishonesty or unethical behavior. It often occurs when individuals or entities take advantage of insurance without taking proper precautions to prevent losses.
Test: Insurance Products - 3 - Question 8
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What type of risk is created when individuals engage in risky activities due to having insurance coverage?
Detailed Solution for Test: Insurance Products - 3 - Question 8
Moral hazard arises when individuals or entities engage in riskier activities because they have insurance coverage, knowing that they will be protected in case of a loss. This behavior can increase the likelihood of losses for insurers.
Test: Insurance Products - 3 - Question 9
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What risk management department within an organization is responsible for minimizing enterprise risks?
Detailed Solution for Test: Insurance Products - 3 - Question 9
Enterprise risk management is the department within an organization responsible for minimizing enterprise risks. It focuses on identifying, assessing, and mitigating risks that can affect the entire organization.
Test: Insurance Products - 3 - Question 10
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What is the primary purpose of diversifying investments in the context of risk management?
Detailed Solution for Test: Insurance Products - 3 - Question 10
Diversifying investments is primarily done to minimize diversifiable risk, also known as unsystematic risk. By spreading investments across different assets or asset classes, investors can reduce the impact of individual asset performance on their overall portfolio, thereby minimizing risk.
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