MGRADES
RMI Exam UPDATED ACTUAL Exam
Questions and CORRECT Answers
3) The Financial Definition of insurance:
A) is that insurance is a contract in which one party agrees to compensate another party for
losses covered by the contract
B) is that insurance is a financial agreement that transfers the risk of insured losses to an insurer
C) differs from state to state
D) is that it is any pool for which the insurance mechanism works - CORRECT
ANSWER - Answer: B
4) The Legal Definition of insurance:
A) is that insurance is a contract in which one party agrees to compensate another party for
losses covered by the contract
B) is that insurance is a financial agreement that transfers the risk of insured losses to a risk pool
by an insurer
C) differs from state to state
D) originally comes from tort law - CORRECT ANSWER - Answer: A
5) Legally, insurance is a branch of:
A) contract law
B) tort law
C) Neither A nor B is correct.
D) Both A and B are correct. - CORRECT ANSWER - Answer: A
6) Participants in the private insurance market include all of the following except:
A) insurance buyers
B) insurance companies
C) insurance regulators
,MGRADES
D) the FDIC - CORRECT ANSWER - Answer: D
7) Which of the following is not provided on the private insurance market?
A) Bank deposit insurance
B) Life insurance
C) Health insurance
D) Commercial lines insurance - CORRECT ANSWER - Answer: A
10) Which of the following statements is not correct about the insurance premium?
A) The forecast of policyholders' losses is the starting point for the calculation of the risk
premium for an insurance policy.
B) The fair rate of return, which is a part of the insurance premium, is governed by law.
C) Loading expenses increase the insurance premium.
D) Most investment income of insurance companies comes from low risk investments, which
reduces the insurance premium. - CORRECT ANSWER - Answer: B
13) Which of the following is the correct calculation of the insurance premium?
A) Insured Loss Claims + Loading Expenses + Fair Rate of Return - Investment Income
B) Insured Loss Claims + Loading Expenses + Investment Income - Fair Rate of Return
C) Insured Loss Claims - Loading Expenses - Investment Income + Fair Rate of Return
D) Insured Loss Claims - Loading Expenses + Fair Rate of Return + Investment Income -
CORRECT ANSWER - Answer: A
14) The efficient insurance market requires all of the following conditions except:
A) numerous sellers and buyers
B) well-informed consumers
C) numerous purchase substitutes (homogeneity)
D) a government subsidy for lower-income citizens - CORRECT ANSWER - Answer: D
,MGRADES
17) Which of the following is a true statement?
A) Insurers are significant financial intermediaries in the U.S. economy.
B) Property insurers are prohibited from insuring commercial real estate.
C) The insurance companies in the U.S. are estimated to be very profitable.
D) Both A and C above are true statements. - CORRECT ANSWER - Answer: A
18) All of the following are perils except:
A) heart attack
B) theft
C) forgery and embezzlement
D) incorrect instructions on the label of a pesticide - CORRECT ANSWER - Answer: D
19) Proximate cause means:
A) the first insured peril in an unbroken chain of events leading to a loss
B) the event nearest the peril in time
C) the event nearest the peril in space
D) the event nearest the loss in time and space - CORRECT ANSWER - Answer: A
20) All of the following are costs to society arising from an insurance system's operation except:
A) payments for losses caused by fraudulent claims
B) payments for losses caused by exaggerated claims
C) use of land, labor and capital to operate the insurance companies
D) payments for losses caused by windstorms such as tornadoes - CORRECT ANSWER -
Answer: D
22) Which of the following is not a direct social benefit of the insurance mechanism?
A) Increased business and social stability
B) Better allocation of society's resources
, MGRADES
C) Better choice of optimum size of business operations
D) Lower federal and state income taxes - CORRECT ANSWER - Answer: D
25) Bodacious D, a famous singer, is performing at a concert. He does not have his body guards
and security team present for the concert. A crazed fan runs up on stage, declares her love for
Bodacious D, and throws herself at him. Bodacious D lands on the floor, and breaks his back.
Which of these is the HAZARD(S), and which is the PERIL?
A) The peril is not having a body guard present; the hazard is the crazed fan.
B) The peril is being attacked by the fan, and the hazard is not having a body guard present.
C) The peril is not having a body guard present, and the hazard is being pushed to the floor.
D) The peril is both the crazed fan and the lack of security; there is no hazard in this case. -
CORRECT ANSWER - Answer: B
26) Under an "open perils" insurance policy:
A) covered perils are spelled out, usually using a numbered list
B) any piece of property not excluded is covered
C) absolutely all risks of losses are covered, those having an illegal purpose
D) all perils not excluded are covered - CORRECT ANSWER - Answer: D
27) If insurance did not exist in the United States, which of the following might reasonably be
expected to happen?
A) Banks would lower their interest rates on home mortgages and auto loans.
B) Moral hazards would decrease.
C) The occurrence of perils would decrease.
D) In general, only large businesses would be able to survive. - CORRECT ANSWER -
Answer: D
30) Billy is driving to the beach for spring break. Before leaving on his trip, he takes some cold
medicine that makes him sleepy. He falls asleep at the wheel and collides with another car on the
highway and breaks his leg. In this context, which of the following is the hazard?
A) Spring break
RMI Exam UPDATED ACTUAL Exam
Questions and CORRECT Answers
3) The Financial Definition of insurance:
A) is that insurance is a contract in which one party agrees to compensate another party for
losses covered by the contract
B) is that insurance is a financial agreement that transfers the risk of insured losses to an insurer
C) differs from state to state
D) is that it is any pool for which the insurance mechanism works - CORRECT
ANSWER - Answer: B
4) The Legal Definition of insurance:
A) is that insurance is a contract in which one party agrees to compensate another party for
losses covered by the contract
B) is that insurance is a financial agreement that transfers the risk of insured losses to a risk pool
by an insurer
C) differs from state to state
D) originally comes from tort law - CORRECT ANSWER - Answer: A
5) Legally, insurance is a branch of:
A) contract law
B) tort law
C) Neither A nor B is correct.
D) Both A and B are correct. - CORRECT ANSWER - Answer: A
6) Participants in the private insurance market include all of the following except:
A) insurance buyers
B) insurance companies
C) insurance regulators
,MGRADES
D) the FDIC - CORRECT ANSWER - Answer: D
7) Which of the following is not provided on the private insurance market?
A) Bank deposit insurance
B) Life insurance
C) Health insurance
D) Commercial lines insurance - CORRECT ANSWER - Answer: A
10) Which of the following statements is not correct about the insurance premium?
A) The forecast of policyholders' losses is the starting point for the calculation of the risk
premium for an insurance policy.
B) The fair rate of return, which is a part of the insurance premium, is governed by law.
C) Loading expenses increase the insurance premium.
D) Most investment income of insurance companies comes from low risk investments, which
reduces the insurance premium. - CORRECT ANSWER - Answer: B
13) Which of the following is the correct calculation of the insurance premium?
A) Insured Loss Claims + Loading Expenses + Fair Rate of Return - Investment Income
B) Insured Loss Claims + Loading Expenses + Investment Income - Fair Rate of Return
C) Insured Loss Claims - Loading Expenses - Investment Income + Fair Rate of Return
D) Insured Loss Claims - Loading Expenses + Fair Rate of Return + Investment Income -
CORRECT ANSWER - Answer: A
14) The efficient insurance market requires all of the following conditions except:
A) numerous sellers and buyers
B) well-informed consumers
C) numerous purchase substitutes (homogeneity)
D) a government subsidy for lower-income citizens - CORRECT ANSWER - Answer: D
,MGRADES
17) Which of the following is a true statement?
A) Insurers are significant financial intermediaries in the U.S. economy.
B) Property insurers are prohibited from insuring commercial real estate.
C) The insurance companies in the U.S. are estimated to be very profitable.
D) Both A and C above are true statements. - CORRECT ANSWER - Answer: A
18) All of the following are perils except:
A) heart attack
B) theft
C) forgery and embezzlement
D) incorrect instructions on the label of a pesticide - CORRECT ANSWER - Answer: D
19) Proximate cause means:
A) the first insured peril in an unbroken chain of events leading to a loss
B) the event nearest the peril in time
C) the event nearest the peril in space
D) the event nearest the loss in time and space - CORRECT ANSWER - Answer: A
20) All of the following are costs to society arising from an insurance system's operation except:
A) payments for losses caused by fraudulent claims
B) payments for losses caused by exaggerated claims
C) use of land, labor and capital to operate the insurance companies
D) payments for losses caused by windstorms such as tornadoes - CORRECT ANSWER -
Answer: D
22) Which of the following is not a direct social benefit of the insurance mechanism?
A) Increased business and social stability
B) Better allocation of society's resources
, MGRADES
C) Better choice of optimum size of business operations
D) Lower federal and state income taxes - CORRECT ANSWER - Answer: D
25) Bodacious D, a famous singer, is performing at a concert. He does not have his body guards
and security team present for the concert. A crazed fan runs up on stage, declares her love for
Bodacious D, and throws herself at him. Bodacious D lands on the floor, and breaks his back.
Which of these is the HAZARD(S), and which is the PERIL?
A) The peril is not having a body guard present; the hazard is the crazed fan.
B) The peril is being attacked by the fan, and the hazard is not having a body guard present.
C) The peril is not having a body guard present, and the hazard is being pushed to the floor.
D) The peril is both the crazed fan and the lack of security; there is no hazard in this case. -
CORRECT ANSWER - Answer: B
26) Under an "open perils" insurance policy:
A) covered perils are spelled out, usually using a numbered list
B) any piece of property not excluded is covered
C) absolutely all risks of losses are covered, those having an illegal purpose
D) all perils not excluded are covered - CORRECT ANSWER - Answer: D
27) If insurance did not exist in the United States, which of the following might reasonably be
expected to happen?
A) Banks would lower their interest rates on home mortgages and auto loans.
B) Moral hazards would decrease.
C) The occurrence of perils would decrease.
D) In general, only large businesses would be able to survive. - CORRECT ANSWER -
Answer: D
30) Billy is driving to the beach for spring break. Before leaving on his trip, he takes some cold
medicine that makes him sleepy. He falls asleep at the wheel and collides with another car on the
highway and breaks his leg. In this context, which of the following is the hazard?
A) Spring break
