CDI Site Commercial Insuranceination Exam
Question 1. Which of the following defines a pure risk in insurance?
A) Loss or no loss
B) Loss or gain
C) Only gain
D) Neither loss nor gain
Answer: A
Explanation: Pure risk involves situations that can only result in a loss or no change, never a gain, and is
the type of risk insurable by insurance policies.
Question 2. What type of insurer is owned by policyholders and returns profits in the form of dividends
or reduced premiums?
A) Stock insurer
B) Mutual insurer
C) Reciprocal insurer
D) Lloyd’s association
Answer: B
Explanation: Mutual insurers are owned by policyholders and may pay dividends or offer reduced
premiums if profits are made.
Question 3. The principle of indemnity in insurance means:
A) The insured will profit from a loss
B) The insured will be restored to the same financial position as before the loss
C) The insurer must always pay policy limits
D) The insurer pays only partial loss
Answer: B
Explanation: Indemnity means restoring the insured to their original financial position, not allowing
them to profit from insurance.
Question 4. Which is NOT an element required for a valid insurance contract?
A) Offer and acceptance
B) Consideration
C) Insurable interest
D) Warranty of merchantability
Answer: D
Explanation: Warranty of merchantability applies to goods, not insurance contracts; insurance contracts
require offer/acceptance, consideration, and insurable interest.
Question 5. The term “hazard” in insurance refers to:
A) The cause of loss
B) The chance of a loss occurring
C) A condition increasing the chance of loss
D) The amount paid for a loss
Answer: C
Explanation: Hazard is a condition that increases the likelihood or severity of a loss.
Question 6. Which of the following is a contract of adhesion?
A) Real estate contract
, CDI Site Commercial Insuranceination Exam
B) Insurance contract
C) Partnership agreement
D) Mortgage
Answer: B
Explanation: Insurance contracts are contracts of adhesion, meaning the insurer writes the contract and
the insured must "adhere" to its terms.
Question 7. What is subrogation?
A) Making a fraudulent claim
B) The insured’s right to sue the insurer
C) The insurer’s right to recover from a third party after paying a claim
D) The duty to disclose all facts
Answer: C
Explanation: Subrogation allows the insurer to pursue recovery from responsible third parties after
paying a loss to the insured.
Question 8. In commercial property insurance, which coverage form offers the broadest protection?
A) Basic Form
B) Broad Form
C) Special Form
D) Limited Form
Answer: C
Explanation: The Special Form covers all risks of direct physical loss except those specifically excluded.
Question 9. Which of the following is NOT typically covered under business personal property?
A) Inventory
B) Furniture
C) Automobiles held for sale
D) Machinery
Answer: C
Explanation: Automobiles held for sale are not covered; business personal property covers inventory,
furniture, and machinery.
Question 10. Coinsurance clauses in commercial property insurance require the insured to:
A) Pay claims in installments
B) Insure property to a specified percentage of its value
C) Pay higher premiums for lower coverage
D) Insure all property at actual cash value
Answer: B
Explanation: Coinsurance requires the insured to carry insurance equal to a specific percentage of the
property’s value to receive full coverage for partial losses.
Question 11. Which party in the insurance transaction is considered the “first named insured”?
A) The agent
B) The insurer
C) The primary person or entity listed on the policy
D) The adjuster
, CDI Site Commercial Insuranceination Exam
Answer: C
Explanation: The first named insured is the main individual or organization listed on the policy, with
certain rights and responsibilities.
Question 12. What does “proximate cause” refer to in insurance claims?
A) The closest adjuster to the loss
B) The direct and effective cause of the loss
C) The most recent insurance policy
D) The highest claim amount
Answer: B
Explanation: Proximate cause is the primary cause that sets other causes in motion, leading directly to
the loss.
Question 13. Which is a method of handling risk that involves shifting it to another party, especially an
insurer?
A) Retention
B) Avoidance
C) Transfer
D) Reduction
Answer: C
Explanation: Risk transfer is the core concept of insurance, shifting financial risk from the insured to the
insurer.
Question 14. In the insurance industry, a “direct writer” is:
A) A freelance insurance journalist
B) An insurer that sells policies through its own employees
C) An independent broker
D) An insurance underwriter
Answer: B
Explanation: Direct writers use salaried employees (not independent agents) to sell insurance directly to
consumers.
Question 15. The “aleatory” nature of insurance contracts means:
A) The contract is always binding
B) The contract involves an unequal exchange of value
C) The contract is voidable by the insured
D) The contract must be notarized
Answer: B
Explanation: Aleatory contracts involve unequal values exchanged; the insured may pay little and
receive a large claim payment, or vice versa.
Question 16. What is NOT a function of an insurance broker?
A) Representing the insured’s interests
B) Binding coverage on behalf of the insurer
C) Finding suitable insurance policies
D) Negotiating with multiple insurers
Answer: B
, CDI Site Commercial Insuranceination Exam
Explanation: Brokers do not bind coverage; they represent the insured and negotiate with insurers but
cannot commit the insurer.
Question 17. Which of the following is a peril?
A) Wet floors
B) Fire
C) Poor lighting
D) Smoking
Answer: B
Explanation: A peril is the actual cause of a loss, such as fire or theft.
Question 18. Which legal principle requires both parties to an insurance contract to act honestly and
disclose all material facts?
A) Indemnity
B) Subrogation
C) Utmost good faith
D) Warranty
Answer: C
Explanation: The principle of "uberrimae fidei" or utmost good faith requires honesty and full disclosure
by both insurer and insured.
Question 19. A “fraternal insurer” is best described as:
A) A government insurer
B) An insurer owned by stockholders
C) An insurer providing insurance to members of a social or religious organization
D) A foreign insurer
Answer: C
Explanation: Fraternal insurers are typically nonprofit organizations providing insurance to their
members.
Question 20. Which of the following would NOT be considered a hazard?
A) Frayed electrical wiring
B) Smoking in bed
C) Faulty fire alarm
D) Fire
Answer: D
Explanation: Fire is a peril, not a hazard. Hazards are conditions increasing the chance of a peril causing
loss.
Question 21. In a Commercial General Liability (CGL) policy, Coverage A provides protection for:
A) Bodily injury and property damage
B) Personal and advertising injury
C) Medical payments
D) Employee theft
Answer: A
Explanation: Coverage A covers claims for bodily injury or property damage caused by the insured’s
operations or premises.
Question 1. Which of the following defines a pure risk in insurance?
A) Loss or no loss
B) Loss or gain
C) Only gain
D) Neither loss nor gain
Answer: A
Explanation: Pure risk involves situations that can only result in a loss or no change, never a gain, and is
the type of risk insurable by insurance policies.
Question 2. What type of insurer is owned by policyholders and returns profits in the form of dividends
or reduced premiums?
A) Stock insurer
B) Mutual insurer
C) Reciprocal insurer
D) Lloyd’s association
Answer: B
Explanation: Mutual insurers are owned by policyholders and may pay dividends or offer reduced
premiums if profits are made.
Question 3. The principle of indemnity in insurance means:
A) The insured will profit from a loss
B) The insured will be restored to the same financial position as before the loss
C) The insurer must always pay policy limits
D) The insurer pays only partial loss
Answer: B
Explanation: Indemnity means restoring the insured to their original financial position, not allowing
them to profit from insurance.
Question 4. Which is NOT an element required for a valid insurance contract?
A) Offer and acceptance
B) Consideration
C) Insurable interest
D) Warranty of merchantability
Answer: D
Explanation: Warranty of merchantability applies to goods, not insurance contracts; insurance contracts
require offer/acceptance, consideration, and insurable interest.
Question 5. The term “hazard” in insurance refers to:
A) The cause of loss
B) The chance of a loss occurring
C) A condition increasing the chance of loss
D) The amount paid for a loss
Answer: C
Explanation: Hazard is a condition that increases the likelihood or severity of a loss.
Question 6. Which of the following is a contract of adhesion?
A) Real estate contract
, CDI Site Commercial Insuranceination Exam
B) Insurance contract
C) Partnership agreement
D) Mortgage
Answer: B
Explanation: Insurance contracts are contracts of adhesion, meaning the insurer writes the contract and
the insured must "adhere" to its terms.
Question 7. What is subrogation?
A) Making a fraudulent claim
B) The insured’s right to sue the insurer
C) The insurer’s right to recover from a third party after paying a claim
D) The duty to disclose all facts
Answer: C
Explanation: Subrogation allows the insurer to pursue recovery from responsible third parties after
paying a loss to the insured.
Question 8. In commercial property insurance, which coverage form offers the broadest protection?
A) Basic Form
B) Broad Form
C) Special Form
D) Limited Form
Answer: C
Explanation: The Special Form covers all risks of direct physical loss except those specifically excluded.
Question 9. Which of the following is NOT typically covered under business personal property?
A) Inventory
B) Furniture
C) Automobiles held for sale
D) Machinery
Answer: C
Explanation: Automobiles held for sale are not covered; business personal property covers inventory,
furniture, and machinery.
Question 10. Coinsurance clauses in commercial property insurance require the insured to:
A) Pay claims in installments
B) Insure property to a specified percentage of its value
C) Pay higher premiums for lower coverage
D) Insure all property at actual cash value
Answer: B
Explanation: Coinsurance requires the insured to carry insurance equal to a specific percentage of the
property’s value to receive full coverage for partial losses.
Question 11. Which party in the insurance transaction is considered the “first named insured”?
A) The agent
B) The insurer
C) The primary person or entity listed on the policy
D) The adjuster
, CDI Site Commercial Insuranceination Exam
Answer: C
Explanation: The first named insured is the main individual or organization listed on the policy, with
certain rights and responsibilities.
Question 12. What does “proximate cause” refer to in insurance claims?
A) The closest adjuster to the loss
B) The direct and effective cause of the loss
C) The most recent insurance policy
D) The highest claim amount
Answer: B
Explanation: Proximate cause is the primary cause that sets other causes in motion, leading directly to
the loss.
Question 13. Which is a method of handling risk that involves shifting it to another party, especially an
insurer?
A) Retention
B) Avoidance
C) Transfer
D) Reduction
Answer: C
Explanation: Risk transfer is the core concept of insurance, shifting financial risk from the insured to the
insurer.
Question 14. In the insurance industry, a “direct writer” is:
A) A freelance insurance journalist
B) An insurer that sells policies through its own employees
C) An independent broker
D) An insurance underwriter
Answer: B
Explanation: Direct writers use salaried employees (not independent agents) to sell insurance directly to
consumers.
Question 15. The “aleatory” nature of insurance contracts means:
A) The contract is always binding
B) The contract involves an unequal exchange of value
C) The contract is voidable by the insured
D) The contract must be notarized
Answer: B
Explanation: Aleatory contracts involve unequal values exchanged; the insured may pay little and
receive a large claim payment, or vice versa.
Question 16. What is NOT a function of an insurance broker?
A) Representing the insured’s interests
B) Binding coverage on behalf of the insurer
C) Finding suitable insurance policies
D) Negotiating with multiple insurers
Answer: B
, CDI Site Commercial Insuranceination Exam
Explanation: Brokers do not bind coverage; they represent the insured and negotiate with insurers but
cannot commit the insurer.
Question 17. Which of the following is a peril?
A) Wet floors
B) Fire
C) Poor lighting
D) Smoking
Answer: B
Explanation: A peril is the actual cause of a loss, such as fire or theft.
Question 18. Which legal principle requires both parties to an insurance contract to act honestly and
disclose all material facts?
A) Indemnity
B) Subrogation
C) Utmost good faith
D) Warranty
Answer: C
Explanation: The principle of "uberrimae fidei" or utmost good faith requires honesty and full disclosure
by both insurer and insured.
Question 19. A “fraternal insurer” is best described as:
A) A government insurer
B) An insurer owned by stockholders
C) An insurer providing insurance to members of a social or religious organization
D) A foreign insurer
Answer: C
Explanation: Fraternal insurers are typically nonprofit organizations providing insurance to their
members.
Question 20. Which of the following would NOT be considered a hazard?
A) Frayed electrical wiring
B) Smoking in bed
C) Faulty fire alarm
D) Fire
Answer: D
Explanation: Fire is a peril, not a hazard. Hazards are conditions increasing the chance of a peril causing
loss.
Question 21. In a Commercial General Liability (CGL) policy, Coverage A provides protection for:
A) Bodily injury and property damage
B) Personal and advertising injury
C) Medical payments
D) Employee theft
Answer: A
Explanation: Coverage A covers claims for bodily injury or property damage caused by the insured’s
operations or premises.
