Reinsurers form a separate segment of the insurance industry by providing coverage to primary insurance companies. This process, called reinsurance, allows insurers to reduce their exposure to large losses by sharing risks with another company. This enhances the stability and solvency of the insurance system.
[Reference: Ohio Life Insurance Study Guide – Insurance Basics and Concepts – "Reinsurance is insurance for insurance companies. It helps insurers manage large risks.", ]
Question 2
Which of the following is an example of risk sharing?
Options:
A.
Purchasing an insurance policy to cover liability exposures
B.
Installing a sprinkler system in a high-rise building
C.
Pooling money to cover malpractice exposures
D.
Choosing not to purchase a car
Answer:
C
Explanation:
Risk sharinginvolvesdistributing risk among a group, such as in mutual insurance companies or professional groups pooling money for coverage. This differs from risk transfer (insurance) or risk avoidance.
"Risk sharing occurs when a group of individuals or entities pools resources to mutually cover potential losses, such as pooling funds to cover professional liability."
Question 3
If the annuitant dies before the payout start date, the interest earned is:
Options:
A.
Taxable
B.
Non-taxable
C.
Never taxed
D.
Taxed if the beneficiary is a spouse
Answer:
A
Explanation:
When an annuitant dies before the annuity's payout phase begins, the accumulated interest within the annuity is subject to income tax for the beneficiary. The beneficiary receives the premiums paid into the annuity tax-free, but any earnings or interest accrued are taxable as ordinary income. This taxation applies regardless of the beneficiary's relationship to the annuitant.