ILLINOIS PROPERTY INSURANCE
EXAM - BASIC PRINCIPLES
QUESTIONS AND ANSWERS WITH
COMPLETE SOLUTIONS 100%
CORRECT RATED A+
An Insurance Policy – Answer ✔✔
A legal contract used to transfer risk from an individual or organization to an
insurance company; it only covers pure risks
Pure Risk – Answer ✔✔
A situation where only loss or no loss can occur if an event happens
Speculative Risk – Answer ✔✔
A type of risk where there is a chance of either loss or gain; not covered by
insurance
Pooling of Risks – Answer ✔✔
The practice of collecting premiums from many individuals to create a shared fund
used to pay losses
The Insured – Answer ✔✔
The individual or organization covered under an insurance policy, whose financial
risk is assumed by the insurer
The Premium – Answer ✔✔
The payment made by the insured to the insurer in exchange for coverage, used to
cover costs such as commissions, administration, marketing, and reserves
, A Lapse – Answer ✔✔
The termination of an insurance policy due to failure to pay the required premiums
An Endorsement -ANSWER ✔✔A form added to an insurance policy. It is usually
added for an additional premium charge to add additional coverage.
A Peril -ANSWER ✔✔An actual cause of loss than can be insured against. Most
Common = fire
A Hazard -ANSWER ✔✔A condition or operation in property which either creates
or increases the change of loss by a covered peril. Example = frayed wiring
Risk -ANSWER ✔✔The likelihood, probability or degree of uncertainty that a
covered peril will cause a loss
Actuarial Tables -ANSWER ✔✔Statistical tables used in calculating premium rate
tables. They tell the insurance companies how many people are likely to have
claims and how much the losses are likely to be.
Loss reserves -ANSWER ✔✔Money set aside to pay claims in accordance with the
actuarial tables
Actuary -ANSWER ✔✔An insurance company representative who keeps track of
loss statistics and calculates premium rate tables and loss reserves
Law of large numbers -ANSWER ✔✔The more people the insurance company
insures, the more accurate the actuarial tables will be
EXAM - BASIC PRINCIPLES
QUESTIONS AND ANSWERS WITH
COMPLETE SOLUTIONS 100%
CORRECT RATED A+
An Insurance Policy – Answer ✔✔
A legal contract used to transfer risk from an individual or organization to an
insurance company; it only covers pure risks
Pure Risk – Answer ✔✔
A situation where only loss or no loss can occur if an event happens
Speculative Risk – Answer ✔✔
A type of risk where there is a chance of either loss or gain; not covered by
insurance
Pooling of Risks – Answer ✔✔
The practice of collecting premiums from many individuals to create a shared fund
used to pay losses
The Insured – Answer ✔✔
The individual or organization covered under an insurance policy, whose financial
risk is assumed by the insurer
The Premium – Answer ✔✔
The payment made by the insured to the insurer in exchange for coverage, used to
cover costs such as commissions, administration, marketing, and reserves
, A Lapse – Answer ✔✔
The termination of an insurance policy due to failure to pay the required premiums
An Endorsement -ANSWER ✔✔A form added to an insurance policy. It is usually
added for an additional premium charge to add additional coverage.
A Peril -ANSWER ✔✔An actual cause of loss than can be insured against. Most
Common = fire
A Hazard -ANSWER ✔✔A condition or operation in property which either creates
or increases the change of loss by a covered peril. Example = frayed wiring
Risk -ANSWER ✔✔The likelihood, probability or degree of uncertainty that a
covered peril will cause a loss
Actuarial Tables -ANSWER ✔✔Statistical tables used in calculating premium rate
tables. They tell the insurance companies how many people are likely to have
claims and how much the losses are likely to be.
Loss reserves -ANSWER ✔✔Money set aside to pay claims in accordance with the
actuarial tables
Actuary -ANSWER ✔✔An insurance company representative who keeps track of
loss statistics and calculates premium rate tables and loss reserves
Law of large numbers -ANSWER ✔✔The more people the insurance company
insures, the more accurate the actuarial tables will be
