UTAH LIFE AND HEALTH INSURANCE
PRACTICE EXAM QUESTIONS AND
CORRECT ANSWERS (VERIFIED
ANSWERS) PLUS RATIONALES 2026
SECTION 1: GENERAL INSURANCE PRINCIPLES (Questions 1-15)
Question 1
Which of the following best describes pure risk?
A) A chance of loss or gain
B) A chance of loss or no loss, but no chance of gain
C) A chance of gain only
D) A speculative investment with uncertain outcome
Correct ,,,,answer,,,,: B
Rationale: Pure risk is the only type of risk that is insurable. It involves either a
loss or no loss at all, with no possibility of gain. Speculative risk, such as gambling
or investing, involves a chance of gain and is NOT insurable .
Question 2
,What type of hazard is indicated when an applicant knowingly lies on an
insurance application?
A) Physical hazard
B) Moral hazard
C) Morale hazard
D) Legal hazard
Correct ,,,,answer,,,,: B
Rationale: A moral hazard involves dishonesty or character defects that increase
the likelihood or severity of a loss. Lying on an application is a classic example of
moral hazard. Physical hazards relate to tangible conditions; morale hazards
involve carelessness or indifference .
Question 3
Which of the following is NOT a requirement for a risk to be insurable?
A) The loss must be due to chance
B) The loss must be definite and measurable
C) The loss must be catastrophic in nature
D) The loss exposure must be part of a large group of similar risks
Correct ,,,,answer,,,,: C
Rationale: For a risk to be insurable, it must NOT be catastrophic to the insurer.
The insurer must be able to spread risk across many policies. Losses that are
catastrophic (e.g., widespread nuclear event) are typically excluded .
,Question 4
An insurance company that is incorporated outside the United States is called
a(n):
A) Domestic insurer
B) Foreign insurer
C) Alien insurer
D) Non-admitted insurer
Correct ,,,,answer,,,,: C
Rationale: An alien insurer is incorporated in a country other than the United
States. A domestic insurer is incorporated in the same state where it does business;
a foreign insurer is incorporated in a different US state .
Question 5
Who owns a mutual insurance company?
A) Stockholders
B) Policyowners
C) Board of directors
D) The state insurance department
Correct ,,,,answer,,,,: B
Rationale: Mutual insurance companies are owned by their policyowners, not
outside stockholders. Policyowners may receive dividends, though dividends are
never guaranteed. Stock companies are owned by stockholders .
, Question 6
What makes an insurance policy a unilateral contract?
A) Both parties are legally bound
B) Only the insurer is legally bound
C) Only the insured is legally bound
D) The contract can be modified by either party
Correct ,,,,answer,,,,: B
Rationale: An insurance policy is a unilateral contract because only the insurer
makes a legally enforceable promise. The insured makes no promise to pay
premiums—if premiums are not paid, the insurer simply does not have to perform .
Question 7
The principle that an insured should be restored to the same financial position
as before a loss is called:
A) Subrogation
B) Utmost good faith
C) Indemnity
D) Insurable interest
Correct ,,,,answer,,,,: C
PRACTICE EXAM QUESTIONS AND
CORRECT ANSWERS (VERIFIED
ANSWERS) PLUS RATIONALES 2026
SECTION 1: GENERAL INSURANCE PRINCIPLES (Questions 1-15)
Question 1
Which of the following best describes pure risk?
A) A chance of loss or gain
B) A chance of loss or no loss, but no chance of gain
C) A chance of gain only
D) A speculative investment with uncertain outcome
Correct ,,,,answer,,,,: B
Rationale: Pure risk is the only type of risk that is insurable. It involves either a
loss or no loss at all, with no possibility of gain. Speculative risk, such as gambling
or investing, involves a chance of gain and is NOT insurable .
Question 2
,What type of hazard is indicated when an applicant knowingly lies on an
insurance application?
A) Physical hazard
B) Moral hazard
C) Morale hazard
D) Legal hazard
Correct ,,,,answer,,,,: B
Rationale: A moral hazard involves dishonesty or character defects that increase
the likelihood or severity of a loss. Lying on an application is a classic example of
moral hazard. Physical hazards relate to tangible conditions; morale hazards
involve carelessness or indifference .
Question 3
Which of the following is NOT a requirement for a risk to be insurable?
A) The loss must be due to chance
B) The loss must be definite and measurable
C) The loss must be catastrophic in nature
D) The loss exposure must be part of a large group of similar risks
Correct ,,,,answer,,,,: C
Rationale: For a risk to be insurable, it must NOT be catastrophic to the insurer.
The insurer must be able to spread risk across many policies. Losses that are
catastrophic (e.g., widespread nuclear event) are typically excluded .
,Question 4
An insurance company that is incorporated outside the United States is called
a(n):
A) Domestic insurer
B) Foreign insurer
C) Alien insurer
D) Non-admitted insurer
Correct ,,,,answer,,,,: C
Rationale: An alien insurer is incorporated in a country other than the United
States. A domestic insurer is incorporated in the same state where it does business;
a foreign insurer is incorporated in a different US state .
Question 5
Who owns a mutual insurance company?
A) Stockholders
B) Policyowners
C) Board of directors
D) The state insurance department
Correct ,,,,answer,,,,: B
Rationale: Mutual insurance companies are owned by their policyowners, not
outside stockholders. Policyowners may receive dividends, though dividends are
never guaranteed. Stock companies are owned by stockholders .
, Question 6
What makes an insurance policy a unilateral contract?
A) Both parties are legally bound
B) Only the insurer is legally bound
C) Only the insured is legally bound
D) The contract can be modified by either party
Correct ,,,,answer,,,,: B
Rationale: An insurance policy is a unilateral contract because only the insurer
makes a legally enforceable promise. The insured makes no promise to pay
premiums—if premiums are not paid, the insurer simply does not have to perform .
Question 7
The principle that an insured should be restored to the same financial position
as before a loss is called:
A) Subrogation
B) Utmost good faith
C) Indemnity
D) Insurable interest
Correct ,,,,answer,,,,: C
