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AD BANKER PROPERTY & CASUALTY ACTUAL
EXAM – COMPREHENSIVE NEWEST QUESTION
REVIEW WITH VERIFIED ANSWERS | 2026
EDITION | GUARANTEED PASS
PREPARATION| PDF
Q1. Which of the following best describes “pure risk”?
A) A risk that involves both the possibility of loss and the
possibility of gain
B) A risk that involves only the possibility of loss or no loss (no
gain)
C) A risk that is uninsurable by private insurers
D) A risk that can be completely eliminated through loss control
✅ Answer: B – A risk that involves only the possibility of loss
or no loss (no gain)
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Rationale: Pure risk involves the chance of loss without any
chance of gain (e.g., fire, theft, accident). Speculative risk
involves both loss and gain (e.g., investing in stocks). Pure risks
are typically insurable; speculative risks generally are not.
Q2. Which principle states that the greater the number of similar
exposure units, the more accurately an insurer can predict future
losses?
A) The Law of Averages
B) The Principle of Indemnity
C) The Law of Large Numbers
D) The Doctrine of Reasonable Expectations
✅ Answer: C – The Law of Large Numbers
Rationale: The Law of Large Numbers is the foundation of
insurance. It allows insurers to predict losses more accurately as
the number of similar exposure units increases, which in turn
permits the calculation of premiums.
,Page 3 of 175
Q3. Which of the following is considered a “physical hazard”?
A) An insured’s careless attitude about locking doors
B) An insured’s history of filing fraudulent claims
C) A pile of oily rags stored near a furnace
D) An applicant’s poor driving record
✅ Answer: C – A pile of oily rags stored near a furnace
Rationale: A physical hazard is a tangible, physical condition
that increases the chance of loss. Oily rags near a furnace are a
physical fire hazard. A careless attitude is a morale hazard;
fraud is a moral hazard; a poor driving record is a historical
indicator of risk but not a physical hazard.
Q4. In insurance, the term “peril” refers to:
A) The cause of a loss
B) The chance of a loss occurring
C) A condition that increases the chance of loss
D) The reduction of loss through safety measures
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✅ Answer: A – The cause of a loss
Rationale: A peril is the actual cause of a loss, such as fire,
windstorm, theft, or collision. A hazard is a condition that
increases the chance of loss. Risk is the uncertainty of loss.
Q5. “Adverse selection” occurs when:
A) The insurer selects only the healthiest applicants
B) Applicants with a higher-than-average risk of loss are more
likely to purchase insurance
C) The state insurance department approves a new policy form
D) An insured fails to disclose a material fact on an application
✅ Answer: B – Applicants with a higher-than-average risk of
loss are more likely to purchase insurance
Rationale: Adverse selection refers to the tendency of higher-risk
individuals to seek or maintain insurance more actively than
lower-risk individuals, which can upset the insurer’s risk pool and
lead to higher premiums.
AD BANKER PROPERTY & CASUALTY ACTUAL
EXAM – COMPREHENSIVE NEWEST QUESTION
REVIEW WITH VERIFIED ANSWERS | 2026
EDITION | GUARANTEED PASS
PREPARATION| PDF
Q1. Which of the following best describes “pure risk”?
A) A risk that involves both the possibility of loss and the
possibility of gain
B) A risk that involves only the possibility of loss or no loss (no
gain)
C) A risk that is uninsurable by private insurers
D) A risk that can be completely eliminated through loss control
✅ Answer: B – A risk that involves only the possibility of loss
or no loss (no gain)
,Page 2 of 175
Rationale: Pure risk involves the chance of loss without any
chance of gain (e.g., fire, theft, accident). Speculative risk
involves both loss and gain (e.g., investing in stocks). Pure risks
are typically insurable; speculative risks generally are not.
Q2. Which principle states that the greater the number of similar
exposure units, the more accurately an insurer can predict future
losses?
A) The Law of Averages
B) The Principle of Indemnity
C) The Law of Large Numbers
D) The Doctrine of Reasonable Expectations
✅ Answer: C – The Law of Large Numbers
Rationale: The Law of Large Numbers is the foundation of
insurance. It allows insurers to predict losses more accurately as
the number of similar exposure units increases, which in turn
permits the calculation of premiums.
,Page 3 of 175
Q3. Which of the following is considered a “physical hazard”?
A) An insured’s careless attitude about locking doors
B) An insured’s history of filing fraudulent claims
C) A pile of oily rags stored near a furnace
D) An applicant’s poor driving record
✅ Answer: C – A pile of oily rags stored near a furnace
Rationale: A physical hazard is a tangible, physical condition
that increases the chance of loss. Oily rags near a furnace are a
physical fire hazard. A careless attitude is a morale hazard;
fraud is a moral hazard; a poor driving record is a historical
indicator of risk but not a physical hazard.
Q4. In insurance, the term “peril” refers to:
A) The cause of a loss
B) The chance of a loss occurring
C) A condition that increases the chance of loss
D) The reduction of loss through safety measures
, Page 4 of 175
✅ Answer: A – The cause of a loss
Rationale: A peril is the actual cause of a loss, such as fire,
windstorm, theft, or collision. A hazard is a condition that
increases the chance of loss. Risk is the uncertainty of loss.
Q5. “Adverse selection” occurs when:
A) The insurer selects only the healthiest applicants
B) Applicants with a higher-than-average risk of loss are more
likely to purchase insurance
C) The state insurance department approves a new policy form
D) An insured fails to disclose a material fact on an application
✅ Answer: B – Applicants with a higher-than-average risk of
loss are more likely to purchase insurance
Rationale: Adverse selection refers to the tendency of higher-risk
individuals to seek or maintain insurance more actively than
lower-risk individuals, which can upset the insurer’s risk pool and
lead to higher premiums.
