MICHIGAN PROPERTY & CASUALTY INSURANCE LICENSING
EXAM, 2026/2027 – QUESTION PRACTICE EXAM WITH VERIFIED
DETAILED ANSWERS.
Risk - ANSWER-The possibility that a loss will occur
Speculative Risk - ANSWER-Chance of loss or gain
Pure Risk - ANSWER-only the possibility of loss
Peril - ANSWER-cause of loss
Exposure - ANSWER-The potential for accidents and other losses
Direct Loss - ANSWER-Loss that is a direct result of a peril, such as fire.
Indirect Loss - ANSWER-Loss that is a result or consequence of a direct loss
Moral Hazard - ANSWER-Arise from a person's character (dishonesty)
Morale Hazard - ANSWER-A condition of carelessness or indifference that increases
the frequency or severity of loss.
Physical Hazard - ANSWER-a physical condition that increases the frequency or
severity of loss
, Sharing risk - ANSWER-Two or more individuals share risk
transfer risk - ANSWER-The purpose of insurance
Avoidance - ANSWER-eliminating certain risk by not engaging in certain activity
Retention - ANSWER-Self-insurance, person will pay for loss
Reduction - ANSWER-Lessening the possibility or severity of a loss.
Law of Large Numbers - ANSWER-A principle stating that the larger the number of
similar exposure units considered, the more closely the losses reported will equal
the underlying probability of loss.
Elements of Insurable Risk - ANSWER-Calculable
Affordable
Non-catastrophic
Homogeneous
Accidental
Measurable
Adverse Selection - ANSWER-risks that have a greater than average chance of loss
Reinsurancd - ANSWER-Transfers risk from one insurer to another
Stock Insurer - ANSWER-Owned by stockholders
Mutual Insurer - ANSWER-owned by policyholders
EXAM, 2026/2027 – QUESTION PRACTICE EXAM WITH VERIFIED
DETAILED ANSWERS.
Risk - ANSWER-The possibility that a loss will occur
Speculative Risk - ANSWER-Chance of loss or gain
Pure Risk - ANSWER-only the possibility of loss
Peril - ANSWER-cause of loss
Exposure - ANSWER-The potential for accidents and other losses
Direct Loss - ANSWER-Loss that is a direct result of a peril, such as fire.
Indirect Loss - ANSWER-Loss that is a result or consequence of a direct loss
Moral Hazard - ANSWER-Arise from a person's character (dishonesty)
Morale Hazard - ANSWER-A condition of carelessness or indifference that increases
the frequency or severity of loss.
Physical Hazard - ANSWER-a physical condition that increases the frequency or
severity of loss
, Sharing risk - ANSWER-Two or more individuals share risk
transfer risk - ANSWER-The purpose of insurance
Avoidance - ANSWER-eliminating certain risk by not engaging in certain activity
Retention - ANSWER-Self-insurance, person will pay for loss
Reduction - ANSWER-Lessening the possibility or severity of a loss.
Law of Large Numbers - ANSWER-A principle stating that the larger the number of
similar exposure units considered, the more closely the losses reported will equal
the underlying probability of loss.
Elements of Insurable Risk - ANSWER-Calculable
Affordable
Non-catastrophic
Homogeneous
Accidental
Measurable
Adverse Selection - ANSWER-risks that have a greater than average chance of loss
Reinsurancd - ANSWER-Transfers risk from one insurer to another
Stock Insurer - ANSWER-Owned by stockholders
Mutual Insurer - ANSWER-owned by policyholders
