AIC 300 COMPLETE EXAMINATION DOCUMENT WITH ALL QUESTIONS
AND ANSWERS MARKED CORRECT, FULLY UPDATED TO THE LATEST
VERSION (PASS GUARANTEE)
1. Q: What is insurance? ANSWER Insurance is a contract whereby one party
(the insurer) agrees to indemnify another party (the insured) against financial
loss arising from specified uncertain events in exchange for a premium.
2. Q: What are the essential elements of an insurance contract? ANSWER
The essential elements are: offer and acceptance, consideration (premium), legal
capacity, legal purpose, utmost good faith, insurable interest, and indemnity.
3. Q: Define insurable interest. ANSWER Insurable interest is the legal right
to insure arising from a financial relationship between the insured and the
subject matter of insurance, whereby the insured benefits from its preservation
or suffers from its loss.
4. Q: What is the principle of utmost good faith? ANSWER Utmost good
faith (uberrimae fidei) requires both parties to an insurance contract to disclose
all material facts honestly and not misrepresent any information relevant to the
risk assessment.
5. Q: Explain the principle of indemnity. ANSWER Indemnity means that
insurance seeks to place the insured in the same financial position after a loss as
they were immediately before the loss occurred, without allowing profit.
6. Q: What is a material fact in insurance? ANSWER A material fact is any
circumstance that would influence the judgment of a prudent insurer in
determining whether to accept a risk and on what terms.
7. Q: Define premium. ANSWER Premium is the consideration paid by the
insured to the insurer in exchange for the insurance coverage and the insurer's
promise to indemnify against covered losses.
8. Q: What is subrogation? ANSWER Subrogation is the right of the insurer,
after paying a claim, to step into the shoes of the insured and pursue recovery
from third parties responsible for the loss.
,9. Q: Explain contribution in insurance. ANSWER Contribution is the right
of an insurer who has paid a claim to recover a proportionate amount from other
insurers who are equally liable for the same loss under different policies.
10. Q: What is proximate cause? ANSWER Proximate cause is the active,
efficient cause that sets in motion a chain of events leading to a loss without the
intervention of any independent force.
11. Q: Define peril. ANSWER A peril is the actual cause of loss, such as fire,
theft, flood, or collision.
12. Q: What is a hazard? ANSWER A hazard is a condition that increases the
likelihood or potential severity of a loss, such as slippery floors or flammable
materials.
13. Q: Differentiate between physical and moral hazards. ANSWER
Physical hazards are tangible conditions (e.g., defective wiring), while moral
hazards relate to dishonest tendencies or character flaws that increase the
likelihood of fraud or intentional loss.
14. Q: What is a morale hazard? ANSWER Morale hazard refers to
carelessness or indifference to loss because insurance exists, leading to less care
in preventing losses.
15. Q: Define risk in insurance terms. ANSWER Risk is the uncertainty
concerning the possibility of loss, or the variation between actual and expected
outcomes.
16. Q: What are the two types of risk? ANSWER The two types are pure risk
(only possibility of loss or no loss) and speculative risk (possibility of gain, loss,
or no change).
17. Q: What is risk management? ANSWER Risk management is the
systematic process of identifying, analyzing, evaluating, treating, and
monitoring risks to minimize their adverse effects.
18. Q: List the four methods of handling risk. ANSWER The four methods
are: avoidance, reduction/control, retention, and transfer (including insurance).
19. Q: What is self-insurance? ANSWER Self-insurance is a risk retention
strategy where an organization sets aside funds to cover potential losses instead
of purchasing insurance.
20. Q: Define loss prevention. ANSWER Loss prevention involves measures
taken to reduce the frequency of losses before they occur.
, 21. Q: What is loss reduction? ANSWER Loss reduction (or loss control)
refers to measures that minimize the severity or impact of losses after they
occur.
22. Q: Explain the law of large numbers. ANSWER The law of large
numbers states that as the number of exposure units increases, the actual loss
experience will more closely approximate the expected loss experience.
23. Q: What is an exposure unit? ANSWER An exposure unit is the basic
measure used to determine insurance rates, such as per vehicle for auto
insurance or per $1,000 of coverage for property insurance.
24. Q: Define underwriting. ANSWER Underwriting is the process of
evaluating, selecting, classifying, and pricing risks to determine whether to
accept them and on what terms.
25. Q: What is a deductible? ANSWER A deductible is the amount of loss the
insured must bear before the insurer becomes liable to pay under the policy.
26. Q: Explain co-insurance. ANSWER Co-insurance is a clause requiring the
insured to maintain coverage equal to a specified percentage of the property's
value; failing to do so results in a penalty at the time of loss.
27. Q: What is reinsurance? ANSWER Reinsurance is insurance purchased
by an insurance company from another insurer to transfer part of its risk
portfolio.
28. Q: Define facultative reinsurance. ANSWER Facultative reinsurance is a
type where the reinsurer evaluates and accepts or rejects each risk individually.
29. Q: What is treaty reinsurance? ANSWER Treaty reinsurance is an
automatic agreement where the reinsurer agrees to accept all risks within a
defined category that the ceding company submits.
30. Q: Explain the difference between proportional and non-proportional
reinsurance. ANSWER Proportional reinsurance involves sharing premiums
and losses in agreed proportions, while non-proportional reinsurance activates
only when losses exceed a specified threshold.
31. Q: What is a policy? ANSWER A policy is the written contract between
the insurer and insured that sets out the terms, conditions, coverage, and
exclusions of the insurance agreement.
32. Q: Define policy conditions. ANSWER Policy conditions are provisions in
the insurance contract that specify the duties and rights of both parties, and non-
compliance may void coverage.
AND ANSWERS MARKED CORRECT, FULLY UPDATED TO THE LATEST
VERSION (PASS GUARANTEE)
1. Q: What is insurance? ANSWER Insurance is a contract whereby one party
(the insurer) agrees to indemnify another party (the insured) against financial
loss arising from specified uncertain events in exchange for a premium.
2. Q: What are the essential elements of an insurance contract? ANSWER
The essential elements are: offer and acceptance, consideration (premium), legal
capacity, legal purpose, utmost good faith, insurable interest, and indemnity.
3. Q: Define insurable interest. ANSWER Insurable interest is the legal right
to insure arising from a financial relationship between the insured and the
subject matter of insurance, whereby the insured benefits from its preservation
or suffers from its loss.
4. Q: What is the principle of utmost good faith? ANSWER Utmost good
faith (uberrimae fidei) requires both parties to an insurance contract to disclose
all material facts honestly and not misrepresent any information relevant to the
risk assessment.
5. Q: Explain the principle of indemnity. ANSWER Indemnity means that
insurance seeks to place the insured in the same financial position after a loss as
they were immediately before the loss occurred, without allowing profit.
6. Q: What is a material fact in insurance? ANSWER A material fact is any
circumstance that would influence the judgment of a prudent insurer in
determining whether to accept a risk and on what terms.
7. Q: Define premium. ANSWER Premium is the consideration paid by the
insured to the insurer in exchange for the insurance coverage and the insurer's
promise to indemnify against covered losses.
8. Q: What is subrogation? ANSWER Subrogation is the right of the insurer,
after paying a claim, to step into the shoes of the insured and pursue recovery
from third parties responsible for the loss.
,9. Q: Explain contribution in insurance. ANSWER Contribution is the right
of an insurer who has paid a claim to recover a proportionate amount from other
insurers who are equally liable for the same loss under different policies.
10. Q: What is proximate cause? ANSWER Proximate cause is the active,
efficient cause that sets in motion a chain of events leading to a loss without the
intervention of any independent force.
11. Q: Define peril. ANSWER A peril is the actual cause of loss, such as fire,
theft, flood, or collision.
12. Q: What is a hazard? ANSWER A hazard is a condition that increases the
likelihood or potential severity of a loss, such as slippery floors or flammable
materials.
13. Q: Differentiate between physical and moral hazards. ANSWER
Physical hazards are tangible conditions (e.g., defective wiring), while moral
hazards relate to dishonest tendencies or character flaws that increase the
likelihood of fraud or intentional loss.
14. Q: What is a morale hazard? ANSWER Morale hazard refers to
carelessness or indifference to loss because insurance exists, leading to less care
in preventing losses.
15. Q: Define risk in insurance terms. ANSWER Risk is the uncertainty
concerning the possibility of loss, or the variation between actual and expected
outcomes.
16. Q: What are the two types of risk? ANSWER The two types are pure risk
(only possibility of loss or no loss) and speculative risk (possibility of gain, loss,
or no change).
17. Q: What is risk management? ANSWER Risk management is the
systematic process of identifying, analyzing, evaluating, treating, and
monitoring risks to minimize their adverse effects.
18. Q: List the four methods of handling risk. ANSWER The four methods
are: avoidance, reduction/control, retention, and transfer (including insurance).
19. Q: What is self-insurance? ANSWER Self-insurance is a risk retention
strategy where an organization sets aside funds to cover potential losses instead
of purchasing insurance.
20. Q: Define loss prevention. ANSWER Loss prevention involves measures
taken to reduce the frequency of losses before they occur.
, 21. Q: What is loss reduction? ANSWER Loss reduction (or loss control)
refers to measures that minimize the severity or impact of losses after they
occur.
22. Q: Explain the law of large numbers. ANSWER The law of large
numbers states that as the number of exposure units increases, the actual loss
experience will more closely approximate the expected loss experience.
23. Q: What is an exposure unit? ANSWER An exposure unit is the basic
measure used to determine insurance rates, such as per vehicle for auto
insurance or per $1,000 of coverage for property insurance.
24. Q: Define underwriting. ANSWER Underwriting is the process of
evaluating, selecting, classifying, and pricing risks to determine whether to
accept them and on what terms.
25. Q: What is a deductible? ANSWER A deductible is the amount of loss the
insured must bear before the insurer becomes liable to pay under the policy.
26. Q: Explain co-insurance. ANSWER Co-insurance is a clause requiring the
insured to maintain coverage equal to a specified percentage of the property's
value; failing to do so results in a penalty at the time of loss.
27. Q: What is reinsurance? ANSWER Reinsurance is insurance purchased
by an insurance company from another insurer to transfer part of its risk
portfolio.
28. Q: Define facultative reinsurance. ANSWER Facultative reinsurance is a
type where the reinsurer evaluates and accepts or rejects each risk individually.
29. Q: What is treaty reinsurance? ANSWER Treaty reinsurance is an
automatic agreement where the reinsurer agrees to accept all risks within a
defined category that the ceding company submits.
30. Q: Explain the difference between proportional and non-proportional
reinsurance. ANSWER Proportional reinsurance involves sharing premiums
and losses in agreed proportions, while non-proportional reinsurance activates
only when losses exceed a specified threshold.
31. Q: What is a policy? ANSWER A policy is the written contract between
the insurer and insured that sets out the terms, conditions, coverage, and
exclusions of the insurance agreement.
32. Q: Define policy conditions. ANSWER Policy conditions are provisions in
the insurance contract that specify the duties and rights of both parties, and non-
compliance may void coverage.
