age 1 of 75
CASUALTY INSURANCE Exam–ACTUAL QUESTIONS
AND ANSWERS LATEST UPDATE THIS YEAR.pdf
SECTION 1: GENERAL INSURANCE PRINCIPLES AND CONCEPTS
(66 Questions – 22% of Exam)
Risk and Insurance Fundamentals
1. Which of the following best describes the primary purpose of
insurance?
A) To eliminate all risks
B) To transfer risk from an individual to an insurer
C) To guarantee a profit for the insured
D) To avoid paying any claims
Answer: B) To transfer risk from an individual to an insurer
,age 2 of 75
Rationale: Insurance transfers the financial risk of a loss from an
individual or business to an insurer, providing protection against
potential losses. It does not eliminate risk or guarantee profit.
2. Which type of risk involves both the possibility of loss and the
possibility of gain, and is generally NOT insurable?
A) Pure risk
B) Speculative risk
C) Physical hazard
D) Morale hazard
Answer: B) Speculative risk
Rationale: Speculative risks involve the chance of loss or gain
(e.g., gambling or investing) and are not insurable. Pure risks
involve only the chance of loss and are insurable.
,age 3 of 75
3. What is the term for the cause of a loss, such as fire, theft, or
windstorm?
A) Hazard
B) Peril
C) Exposure
D) Loss
Answer: B) Peril
Rationale: A peril is the actual cause of a loss (fire, theft, wind,
etc.). A hazard is a condition that increases the chance of loss.
, age 4 of 75
4. Which risk management technique involves the insured
keeping the loss to themselves?
A) Avoidance
B) Transfer
C) Retention
D) Reduction
Answer: C) Retention
Rationale: Retention means the insurer or insured elects to bear
the financial impact of a loss rather than shifting it to another
party.
5. The Law of Large Numbers primarily benefits insurers by:
CASUALTY INSURANCE Exam–ACTUAL QUESTIONS
AND ANSWERS LATEST UPDATE THIS YEAR.pdf
SECTION 1: GENERAL INSURANCE PRINCIPLES AND CONCEPTS
(66 Questions – 22% of Exam)
Risk and Insurance Fundamentals
1. Which of the following best describes the primary purpose of
insurance?
A) To eliminate all risks
B) To transfer risk from an individual to an insurer
C) To guarantee a profit for the insured
D) To avoid paying any claims
Answer: B) To transfer risk from an individual to an insurer
,age 2 of 75
Rationale: Insurance transfers the financial risk of a loss from an
individual or business to an insurer, providing protection against
potential losses. It does not eliminate risk or guarantee profit.
2. Which type of risk involves both the possibility of loss and the
possibility of gain, and is generally NOT insurable?
A) Pure risk
B) Speculative risk
C) Physical hazard
D) Morale hazard
Answer: B) Speculative risk
Rationale: Speculative risks involve the chance of loss or gain
(e.g., gambling or investing) and are not insurable. Pure risks
involve only the chance of loss and are insurable.
,age 3 of 75
3. What is the term for the cause of a loss, such as fire, theft, or
windstorm?
A) Hazard
B) Peril
C) Exposure
D) Loss
Answer: B) Peril
Rationale: A peril is the actual cause of a loss (fire, theft, wind,
etc.). A hazard is a condition that increases the chance of loss.
, age 4 of 75
4. Which risk management technique involves the insured
keeping the loss to themselves?
A) Avoidance
B) Transfer
C) Retention
D) Reduction
Answer: C) Retention
Rationale: Retention means the insurer or insured elects to bear
the financial impact of a loss rather than shifting it to another
party.
5. The Law of Large Numbers primarily benefits insurers by:
