ARKANSAS PERSONAL LINES LICENSE INSURANCE EXAM
QUESTIONS WITH CORRECT ANSWERS 2025/2026
What is insurance? - CORRECT ANSWER -Protection against loss
What are the two specific classes of insurance? - CORRECT ANSWER -Property and casualty
What are the learning objectives of this chapter? - CORRECT ANSWER -Recognize definitions,
understand concepts, identify characteristics, recognize role, define insurable interest, identify
regulations
What is risk? - CORRECT ANSWER -Chance of potential loss
What is pure risk? - CORRECT ANSWER -Results in loss or no change in status
What is speculative risk? - CORRECT ANSWER -May result in gain or loss
What is an insurer? - CORRECT ANSWER -Provides protection in exchange for premiums
What is a policy? - CORRECT ANSWER -Contract between insurer and insured
What is a premium? - CORRECT ANSWER -Payment made by insured to insurer
What is a deductible? - CORRECT ANSWER -Amount paid by insured before insurer pays
What is subrogation? - CORRECT ANSWER -Insurer's right to recover from third party
What is underwriting? - CORRECT ANSWER -Process of evaluating risk for insurance
,What is a claim? - CORRECT ANSWER -Request for payment for a loss
What is a loss? - CORRECT ANSWER -Reduction in value due to damage or destruction
What is liability? - CORRECT ANSWER -Legal responsibility for one's actions
What is an adjuster? - CORRECT ANSWER -Evaluates and settles insurance claims
What is an endorsement? - CORRECT ANSWER -Amendment to insurance policy
What is a binder? - CORRECT ANSWER -Temporary insurance until policy is issued
What is a grace period? - CORRECT ANSWER -Time after premium due date to pay without
penalty
What is a lapse? - CORRECT ANSWER -Termination of insurance due to non-payment
Pure risk - CORRECT ANSWER -Risk of loss only
Insurance coverage - CORRECT ANSWER -Protects against pure risk only
What is a pure risk? - CORRECT ANSWER -A risk that only involves the possibility of loss.
What is a speculative risk? - CORRECT ANSWER -A risk that may result in financial gain.
,What is a loss? - CORRECT ANSWER -A reduction, decrease, or disappearance in value that
affects someone's property or financial position.
What is exposure? - CORRECT ANSWER -The condition of being at risk for a loss, whether or not
an actual loss occurs.
What is a peril? - CORRECT ANSWER -The cause of a loss.
What are some common perils covered by insurance policies? - CORRECT ANSWER -Fire,
lightning, wind, death, and disability.
What is a hazard? - CORRECT ANSWER -A specific condition that increases the probability or
likelihood that a loss will occur from a peril.
What are the three types of hazards? - CORRECT ANSWER -Physical, moral, and morale.
What is a physical hazard? - CORRECT ANSWER -A physical condition that increases the
probability of loss, including the use, condition, or occupancy of property.
What are some examples of physical hazards? - CORRECT ANSWER -Flammable material stored
near a furnace or an icy sidewalk.
What is a moral hazard? - CORRECT ANSWER -Dishonest tendencies that increase the
probability of loss.
What is a morale hazard? - CORRECT ANSWER -A condition of carelessness or indifference that
increases the frequency or severity of loss.
, What is an insurance contract? - CORRECT ANSWER -A legal agreement between an insurance
company and a policyholder.
What is a premium? - CORRECT ANSWER -The amount of money paid by a policyholder to an
insurance company in exchange for insurance coverage.
What is a deductible? - CORRECT ANSWER -The amount of money that a policyholder must pay
out of pocket before an insurance company will pay a claim.
What is liability insurance? - CORRECT ANSWER -Insurance that provides protection against
claims resulting from injuries and damage to people and/or property.
What is collision insurance? - CORRECT ANSWER -Insurance that covers damage to a
policyholder's vehicle in the event of a collision with another vehicle or object.
What is comprehensive insurance? - CORRECT ANSWER -Insurance that covers damage to a
policyholder's vehicle from non-collision incidents such as theft, vandalism, or natural disasters.
What is underwriting? - CORRECT ANSWER -The process of evaluating and determining the risk
of insuring a particular person or asset.
What are moral hazards? - CORRECT ANSWER -Intentional actions that increase the probability
of loss.
What are some examples of moral hazards? - CORRECT ANSWER -Burning down own house or
faking an injury to collect insurance payout.
What is the relationship between moral hazards and lying, cheating, or stealing? - CORRECT
ANSWER -Moral hazards are most closely related to lying, cheating, or stealing.
QUESTIONS WITH CORRECT ANSWERS 2025/2026
What is insurance? - CORRECT ANSWER -Protection against loss
What are the two specific classes of insurance? - CORRECT ANSWER -Property and casualty
What are the learning objectives of this chapter? - CORRECT ANSWER -Recognize definitions,
understand concepts, identify characteristics, recognize role, define insurable interest, identify
regulations
What is risk? - CORRECT ANSWER -Chance of potential loss
What is pure risk? - CORRECT ANSWER -Results in loss or no change in status
What is speculative risk? - CORRECT ANSWER -May result in gain or loss
What is an insurer? - CORRECT ANSWER -Provides protection in exchange for premiums
What is a policy? - CORRECT ANSWER -Contract between insurer and insured
What is a premium? - CORRECT ANSWER -Payment made by insured to insurer
What is a deductible? - CORRECT ANSWER -Amount paid by insured before insurer pays
What is subrogation? - CORRECT ANSWER -Insurer's right to recover from third party
What is underwriting? - CORRECT ANSWER -Process of evaluating risk for insurance
,What is a claim? - CORRECT ANSWER -Request for payment for a loss
What is a loss? - CORRECT ANSWER -Reduction in value due to damage or destruction
What is liability? - CORRECT ANSWER -Legal responsibility for one's actions
What is an adjuster? - CORRECT ANSWER -Evaluates and settles insurance claims
What is an endorsement? - CORRECT ANSWER -Amendment to insurance policy
What is a binder? - CORRECT ANSWER -Temporary insurance until policy is issued
What is a grace period? - CORRECT ANSWER -Time after premium due date to pay without
penalty
What is a lapse? - CORRECT ANSWER -Termination of insurance due to non-payment
Pure risk - CORRECT ANSWER -Risk of loss only
Insurance coverage - CORRECT ANSWER -Protects against pure risk only
What is a pure risk? - CORRECT ANSWER -A risk that only involves the possibility of loss.
What is a speculative risk? - CORRECT ANSWER -A risk that may result in financial gain.
,What is a loss? - CORRECT ANSWER -A reduction, decrease, or disappearance in value that
affects someone's property or financial position.
What is exposure? - CORRECT ANSWER -The condition of being at risk for a loss, whether or not
an actual loss occurs.
What is a peril? - CORRECT ANSWER -The cause of a loss.
What are some common perils covered by insurance policies? - CORRECT ANSWER -Fire,
lightning, wind, death, and disability.
What is a hazard? - CORRECT ANSWER -A specific condition that increases the probability or
likelihood that a loss will occur from a peril.
What are the three types of hazards? - CORRECT ANSWER -Physical, moral, and morale.
What is a physical hazard? - CORRECT ANSWER -A physical condition that increases the
probability of loss, including the use, condition, or occupancy of property.
What are some examples of physical hazards? - CORRECT ANSWER -Flammable material stored
near a furnace or an icy sidewalk.
What is a moral hazard? - CORRECT ANSWER -Dishonest tendencies that increase the
probability of loss.
What is a morale hazard? - CORRECT ANSWER -A condition of carelessness or indifference that
increases the frequency or severity of loss.
, What is an insurance contract? - CORRECT ANSWER -A legal agreement between an insurance
company and a policyholder.
What is a premium? - CORRECT ANSWER -The amount of money paid by a policyholder to an
insurance company in exchange for insurance coverage.
What is a deductible? - CORRECT ANSWER -The amount of money that a policyholder must pay
out of pocket before an insurance company will pay a claim.
What is liability insurance? - CORRECT ANSWER -Insurance that provides protection against
claims resulting from injuries and damage to people and/or property.
What is collision insurance? - CORRECT ANSWER -Insurance that covers damage to a
policyholder's vehicle in the event of a collision with another vehicle or object.
What is comprehensive insurance? - CORRECT ANSWER -Insurance that covers damage to a
policyholder's vehicle from non-collision incidents such as theft, vandalism, or natural disasters.
What is underwriting? - CORRECT ANSWER -The process of evaluating and determining the risk
of insuring a particular person or asset.
What are moral hazards? - CORRECT ANSWER -Intentional actions that increase the probability
of loss.
What are some examples of moral hazards? - CORRECT ANSWER -Burning down own house or
faking an injury to collect insurance payout.
What is the relationship between moral hazards and lying, cheating, or stealing? - CORRECT
ANSWER -Moral hazards are most closely related to lying, cheating, or stealing.
