Question 1.

Question :

Ralf owns a home with a fireplace and a generator. He has stacks of wood and several 55-gallon drums
of camping oil in his garage. He likes to go camping and leaves his home for several days at a time, often
with a fire burning in his fireplace. In addition, he leaves his home unlocked. Which of the following
hazards apply?

Physical hazard and moral hazard.

Morale hazard only.

Morale hazard and physical hazard.

Physical hazard only.

Question 2.

Question :

Brea is looking for an insurance policy for her car. Her friend, Justin, who is an attorney, just told her
that the policy is a contract and has some unique characteristics. Which of the following terms applies to the insurance contract?
1. Unilateral.
2. Aleatory.
3. Adhesive.

Statements 1 and 2.

Statement 2 only.

Statements 2 and 3.

Statements 1, 2 and 3.

Question 3.

Question :

Nancy owns a home and an automobile. She has property insurance, but does not have disability
insurance through her employer. She does not know that much about disability, except that a friend of
hers told her that she needed to acquire it. Which of the following are important elements of a disability
policy?

The definition of disability.

Coverage for sickness and accidents.

The elimination period.

All of the above.

Question 4.

Question :

Janice is a nurse in the critical care department. She has property insurance, but does not have disability insurance through the hospital. She does not know that much about disability, except that a friend of hers told her that she needed to acquire it. Which of the following statements is correct?

Any occupation is the better choice for coverage than own occupation.

The elimination period is the period after the policy stops paying benefits.

A guaranteed renewable feature of a policy obligates the insurer to continue coverage as long
as premiums are paid on the policy.

All of the above.

Question 5.

Question :

Lenny works at a hotel in accounting. He is planning on purchasing a home and has met with an
insurance agent. However, he is really not clear about all the policies that they discussed. Which of the following statements is correct?

It is better to purchase a named peril homeowners policy.

PLUPs are generally inexpensive relative to the coverage they provide.

The rates on auto insurance are relatively uniform among the states.

It is important to get a homeowners policy that provides for contents protection equal to
actual cash value.

Question 6.

Question :

Loss severity is the:

Probability that a liability judgment may exceed an individual’s net worth.

Probable size of a loss that may occur.

Probable number of losses that may occur.

Probability that a particular property could be totally lost.

Question 7.

Question :

Which of the following is not a response to a perceived risk?

Risk avoidance.

Risk reduction.

Risk transmission.

Risk transfer.

Question 8.

Question :

Which of the following statements is / are correct?
1. The cause of a loss is a peril.
2. A hazard is a condition that increases the probability of a loss occurring.

1 only.

2 only.

Both 1 and 2.

Neither 1 nor 2.

Question 9.

Question :

B.J. leaves his garage door open during the day because he knows he has property insurance and he is
lazy. One day someone steals his new truck from his garage. Leaving the garage door open is an example
of:

Physical hazard.

Moral hazard.

Morale hazard.

A peril – theft.

Question 10.

Question :

In order to have an insurable risk, all of the following must be present except?

The loss must be measurable.

The loss must be accidental from the insured’s point of view.

The loss cannot be catastrophic to the insured.

The loss must be from a covered exposure.

Instructor Explanation:

Question 11.

Question :

Conditions that increase either the frequency or severity of loss are called:

Circumstances.

Risks.

Hazards.

Perils.

Instructor Explanation:

Question 12.

Question :

An HO-3 policy (“open perils” except those specifically excluded) with no endorsements excludes which
one of the following perils?

Flood.

Fire.

Collapse.

Weight of ice.

Instructor Explanation:

Question 13.

Question :

When fine arts or gun collections are insured under a homeowners policy by endorsement,

Coverage is usually on a replacement cost basis.

Coverage is usually on an actual cash value basis.

Coverage is usually provided on an agreed to valued basis.

The perils covered are the same as the homeowners policy to which the endorsement is
attached.

Question 14.

Question :

Which of the following is / are true regarding the ownership of life insurance?
1. A policy can only be issued to the insured.
2. Generally, assigning a policy requires proof that the insured is still “insurable” meaning still in
good health.
3. Only a person with an insurable interest, generally a relative, a business associate, or lender, can
be named as beneficiary.
4. The owner of a life insurance policy can assign (transfer) the policy to whomever he or she
chooses, even if the assignee has no insurable interest.

2 only.

4 only.

2 and 4.

1, 2, and 3.

Instructor Explanation:

Question 15.

Question :

A contract for variable life insurance may be characterized as a/an:
1. Unilateral contract.
2. Aleatory contract.
3. Conditional contract.
4. Contract of adhesion.

1 and 3.

2 and 4.

1, 2, and 3.

1, 2, 3, and 4.

Instructor Explanation:

Question 16.

Question :

Which one of the following statements is wrong?

A student must submit a FAFSA (Free Application for Federal Student Aid) form to be
eligible to receive federal financial aid.

The four repayment plans for a Stafford loan are: standard repayment, extended repayment,
graduated repayment, and income based repayment.

Factors used in calculation the EFC include taxable and nontaxable income, assets,
retirement funds, and benefits, such as unemployment and Social Security.

PLUS (Parent Loan for Undergraduate Students) loans are for parents to borrow to help pay
for a dependent’s undergraduate education expenses, and are based on financial need.

Instructor Explanation:

Question 17.

Question :

Which one of the following statements is wrong?

A Pell Grant is a federally funded grant awarded to undergraduate students who have not
earned a Bachelors or graduate degree.

The EFC calculation, which is based on a student’s ACT score, is used to determine
eligibility and / or award amount for a Pell Grant.

One type of Stafford loan is the direct Stafford loan that is provided directly to the student
from the Department of Education.

One type of Stafford loan is the FFEL Stafford Loan, where funds are lent to the student
through a lender who participates in the FFEL program.

Question 18.

Question :

All of the following statements concerning educational fund 529 Savings Plans are correct EXCEPT:

Contributions are recognized on a five year pro rata basis.

Earnings grow on a tax deferred basis, unless used for qualified education expenses, and then
distributions are tax free.

The primary benefit of a 529 Savings plan is the state income tax deduction for
contributions.

Earnings are included in gross income and a 10% penalty is assessed if distributions are not
used for qualified education expenses.

Question 19.

Question :

What is one of the primary differences between a Coverdell Education Savings Account and 529 Savings
Plan?

A Coverdell can be used for private elementary, middle or high school.

A Coverdell does not have a phase-out limit for participation.

A 529 plan has a phase-out limit for participation.

A Coverdell allows a 5-year proration of contributions.

Question 20.

Question :

Which of the following types of aid is not need based?

Pell Grant.

Plus Loan.

Perkins Loan.

Subsidized Stafford Loan.

Question 21.

Question :

Randy has ten shares of stock that he bought on March 1, Year 1, for $5 each. On March 1, Year 2, he
sells all of the shares for $200. What is the income tax consequence of the sale?

$150 long term capital gain.

$150 short term capital gain.

$195 long term capital gain.

$195 short term capital gain.

Question 22.

Question :

Christian filed his individual federal tax return for the year ending December 31, 2014 on April 15,
2015 and he owed $18,000. As of December 15, 2015, he still has not paid any. How much does Christian owe as of December 15, 2015?

$23,310.

$18,720.

$22,500.

$18,810.

Question 23.

Question :

Which, if any, of the following statements is (are) correct?
1. Refundable tax credits can generate a tax refund.
2. Nonrefundable tax credits can generate a tax refund.

1 only.

2 only.

Both 1 and 2.

Neither 1 nor 2.

Question 24.

Question :

All of the following are excluded from the gross income of the recipient except:

Alimony ordered by court.

Child support ordered by court.

A cash inheritance received.

A gift of property received.

Question 25.

Question :

Which of the following statements is / are correct?
1. For an income tax itemizer, medical expenses are fully deductible if prescribed by a doctor.
2. For an income tax itemizer, the cost of a professional to prepare the federal income tax return is
fully deductible.

1 only.

2 only.

Both 1 and 2.

Neither 1 nor 2.

Question 26.

Question :

Which of the following is not one of the three types of income in the US?

Passive income.

Active or Ordinary income.

Deferred income.

Portfolio income.

Question 27.

Question :

Bob worked for the City of Philadelphia last year. The money he earned as salary is considered what
kind of income?

Passive income.

Active or Ordinary income.

Deferred income.

Portfolio income.

Question 28.

Question :

Adora is single and age 60, sold her home for $540,000 after living there for 20 years. Her selling expenses were $10,000 and her adjusted basis in that home was $230,000. What is the maximum gain that Adora must report in connection with the sale of her principal residence?

$0.

$60,000.

$310,000.

$320,000.

Question 29.

Question :

Parker is a dog whisperer who has consulted with some of the most famous Hollywood stars and their
canine friends. He issued an invoice on December 1st and received a check in the mail on December 30th. Which of the following doctrines requires that he includes the income as taxable in the current year and not defer it to the following year?

The doctrine of constructive receipt.

The economic benefit doctrine.

The doctrine of the fruit and the tree.

All of the above are key tax principles underling personal income taxation.

Question 30.

Question :

The three types of income in the US income tax system are ordinary income, portfolio income and cap-
ital income.

True

False