LIFE INSURANCE PRACTICE- EXAM GUIDE 2025
|MOST COMMON QUESTIONS WITH CORRECTLY
VERIFIED ANSWERS|ALREADY A+
GRADED|GUARANTEED PASS
insurance - a contract whereby one party (insurer) agrees to indemnify or guarantee
another party (insured) against a loss by a specified future contingency or peril in return for
payment of a premium
transfer - a basic principle of insurance under which the risk of financial loss is assigned
to another party
risk - uncertainty as to the outcome of an event when two or more possibilities exist
insurance policy - a contract between an insured and an insurance company which
agrees to pay the insured for loss caused by specific events
pure risk - situations that can only result in loss or no change, no opportunity for financial
gain, only type insurance companies are willing to accept
speculative risk - involves the opportunity for either loss or gain, not insurable
exposure - a unit of measure used to determine rates charged for insurance coverage-
age, medical history, occupation, gender
hazards - conditions/ situations increasing chance of loss- physical, moral, & morale
physical hazard - a type of hazard that arises from the physical characteristics of an
individual, such as physical disability due to either current circumstance or condition present at
birth
moral hazard - the effect of a person's reputation, character, living habits, etc on his/her
insurability
morale hazard - the effect of a person's indifference concerning loss has on the risk to be
insured
peril - the cause of a possible loss
, loss - reduction, decrease, disappearance of value, person, or property
avoidance - eliminating exposure to loss, e.g: airplane
retention - paying for a portion of loss before insurance company pays the rest, a method
of dealing with risk by intentionally or unintentionally keeping a portion of it for the insured's
account; use of deductibles, co- payments, or self- insurance
sharing - a group or businesses with similar risk sharing the same loss
reduction - actions leading to a reduction of a loss, e.g: installing smoke detectors
transfer - most effective way to handle risk, a way to transfer financial loss to another
party, e.g: insurance
adverse selection - the insuring of poorer risks, less desirable because of risk class,
underwriters protect insurer against this by restriction of coverage, acceptance only at higher
rate, or refusal to accept
law of large numbers - the larger the # of similar exposure, the more the chance of loss
can be predicted, rates of insurance are determined base on this principle
reinsurance - a contract between one insurance company and another insurance
company, form of insurance whereby one insurance company (the reinsurer) in consideration of
a premium paid to it agrees to indemnify another insurance company (the ceding company) for
part or all of its liabilities from insurance policies it has issued
stock companies - owned by stockholders who provide the capital necessary to establish
and operate the insurance company, share in any profits or losses, policies issued are
nonparticipating; policyowners are not affected by performances of a stock company, earnings
are distributed as dividends on stock or kept as retained earnings
mutual companies - owned by policyholders, policies issued are participating;
policyowners are affected by gain or losses of a mutual company, dividend paid are non-
taxable. Board of Trustees or Board of Directors is chosen by policyholders
fraternal benefit societies - voluntarily formed, only provide for their members; such as
affiliated lodge, religious organization, or fraternal organizations (govt. related), not subject to
all regulation
reciprocals - operate through an attorney in fact, insurance resulting from an interchange
of reciprocal agreements of indemnity among subscribers (Reciprocal Insurance Company or
Exchange), subscribers agree to be reliable for their share of losses and expenses incurred
|MOST COMMON QUESTIONS WITH CORRECTLY
VERIFIED ANSWERS|ALREADY A+
GRADED|GUARANTEED PASS
insurance - a contract whereby one party (insurer) agrees to indemnify or guarantee
another party (insured) against a loss by a specified future contingency or peril in return for
payment of a premium
transfer - a basic principle of insurance under which the risk of financial loss is assigned
to another party
risk - uncertainty as to the outcome of an event when two or more possibilities exist
insurance policy - a contract between an insured and an insurance company which
agrees to pay the insured for loss caused by specific events
pure risk - situations that can only result in loss or no change, no opportunity for financial
gain, only type insurance companies are willing to accept
speculative risk - involves the opportunity for either loss or gain, not insurable
exposure - a unit of measure used to determine rates charged for insurance coverage-
age, medical history, occupation, gender
hazards - conditions/ situations increasing chance of loss- physical, moral, & morale
physical hazard - a type of hazard that arises from the physical characteristics of an
individual, such as physical disability due to either current circumstance or condition present at
birth
moral hazard - the effect of a person's reputation, character, living habits, etc on his/her
insurability
morale hazard - the effect of a person's indifference concerning loss has on the risk to be
insured
peril - the cause of a possible loss
, loss - reduction, decrease, disappearance of value, person, or property
avoidance - eliminating exposure to loss, e.g: airplane
retention - paying for a portion of loss before insurance company pays the rest, a method
of dealing with risk by intentionally or unintentionally keeping a portion of it for the insured's
account; use of deductibles, co- payments, or self- insurance
sharing - a group or businesses with similar risk sharing the same loss
reduction - actions leading to a reduction of a loss, e.g: installing smoke detectors
transfer - most effective way to handle risk, a way to transfer financial loss to another
party, e.g: insurance
adverse selection - the insuring of poorer risks, less desirable because of risk class,
underwriters protect insurer against this by restriction of coverage, acceptance only at higher
rate, or refusal to accept
law of large numbers - the larger the # of similar exposure, the more the chance of loss
can be predicted, rates of insurance are determined base on this principle
reinsurance - a contract between one insurance company and another insurance
company, form of insurance whereby one insurance company (the reinsurer) in consideration of
a premium paid to it agrees to indemnify another insurance company (the ceding company) for
part or all of its liabilities from insurance policies it has issued
stock companies - owned by stockholders who provide the capital necessary to establish
and operate the insurance company, share in any profits or losses, policies issued are
nonparticipating; policyowners are not affected by performances of a stock company, earnings
are distributed as dividends on stock or kept as retained earnings
mutual companies - owned by policyholders, policies issued are participating;
policyowners are affected by gain or losses of a mutual company, dividend paid are non-
taxable. Board of Trustees or Board of Directors is chosen by policyholders
fraternal benefit societies - voluntarily formed, only provide for their members; such as
affiliated lodge, religious organization, or fraternal organizations (govt. related), not subject to
all regulation
reciprocals - operate through an attorney in fact, insurance resulting from an interchange
of reciprocal agreements of indemnity among subscribers (Reciprocal Insurance Company or
Exchange), subscribers agree to be reliable for their share of losses and expenses incurred
