NY Series 17-55 Life, Accident, and Health Insurance
Agent/Broker Actual Exam – New York State Department of
Financial Services (NYDFS) – 2026/2027 Academic Year –
Verified Questions and Answers for Professional Insurance
Agent and Broker Candidates
New York State Department of Financial Services (NYDFS) | Verified Q&A |
Professional Insurance Agent and Broker Candidates
Academic Year: 2026/2027
Domain 1: General Insurance Concepts (Questions 1-10)
Question 1
What is the principal purpose of insurance?
A) To transfer the financial risk of a covered loss from an individual to an insurer
B) To guarantee investment profit
C) To replace all personal savings
D) To eliminate every possible loss
Correct Answer: A
Rationale: Insurance transfers specified financial risk in exchange for premium. It
does not guarantee returns, replace savings, or eliminate all possible losses. The
fundamental purpose is risk transfer from the insured to the insurer.
Question 2
Which of the following best defines a pure risk?
A) A risk that offers the possibility of profit or loss
B) A risk that only involves the possibility of loss
C) A risk that is always covered by insurance
D) A risk that cannot be insured
Correct Answer: B
,Rationale: Pure risk involves only the possibility of loss or no loss—there is no
opportunity for gain. Speculative risk offers the possibility of profit or loss. Pure
risks are typically insurable, while speculative risks generally are not.
Question 3
An insurer seeks to reduce its exposure to catastrophic losses by transferring a
portion of its risk to another insurer. This arrangement is best described as:
A) Coinsurance
B) Reinsurance
C) Retrocession
D) Pooling
Correct Answer: B
Rationale: Reinsurance is the transfer of risk from one insurer (the ceding
company) to another insurer (the reinsurer). Coinsurance involves sharing risk
among insurers for a single policy. Retrocession is the reinsurance of a reinsurer's
risk. Pooling refers to a group of insurers sharing risk collectively.
Question 4
Adverse selection most directly affects which aspect of an insurance market?
A) Insurers selecting only low-risk individuals to insure
B) Higher-risk individuals being more likely to purchase insurance than lower-risk
individuals
C) Insurers charging higher premiums to individuals with pre-existing conditions
D) The tendency for insurance policies to attract fraudulent claims
Correct Answer: B
Rationale: Adverse selection occurs when those with higher risk are more
motivated to seek insurance, leading to an imbalance in the risk pool. This is a
fundamental concept in risk classification and underwriting.
Question 5
,Under the principle of indemnity, which of the following statements is TRUE
regarding the measure of recovery for a loss?
A) The insured may recover more than the actual cash value to account for
sentimental loss
B) The insured is entitled to recover the full replacement cost regardless of
depreciation
C) The insured should be restored to the same financial position as before the loss,
not better
D) The insured may recover the policy face amount even if the loss is less
Correct Answer: C
Rationale: Indemnity aims to prevent the insured from profiting from a loss,
restoring them to their pre-loss financial condition. Actual cash value accounts for
depreciation, not full replacement cost. Sentimental value is not insurable.
Question 6
Which of the following is NOT an element of an insurable risk?
A) The loss must be measurable
B) The loss must be catastrophic in nature
C) The loss must be definable
D) The loss must be accidental and unintentional
Correct Answer: B
Rationale: While insurable risks can include catastrophic losses, the loss does not
have to be catastrophic. Elements of insurable risk include: the loss must be
measurable, definable, accidental, and large enough to cause financial hardship.
Catastrophic losses are actually a concern for insurers, as they may exceed
capacity.
Question 7
Which of the following can be defined as "the potential for loss"?
A) Peril
B) Hazard
, C) Risk
D) Exposure
Correct Answer: C
Rationale: Risk is defined as the potential for loss. Peril is the cause of loss (e.g.,
fire, theft). Hazard is a condition that increases the chance of loss. Exposure is the
state of being subject to the possibility of loss.
Question 8
The law of large numbers helps insurers to:
A) Predict exact catastrophic events
B) Distribute risk among a large number of similar policies
C) Guarantee profits
D) Eliminate all risk
Correct Answer: B
Rationale: The law of large numbers states that as the number of similar but
independent exposure units increases, the actual loss experience will more closely
approach the expected loss experience. This allows insurers to predict future losses
with greater accuracy.
Question 9
Which of the following best describes a hazard in insurance terminology?
A) The cause of a loss
B) A condition that increases the chance of a loss
C) The potential for loss
D) The amount of loss
Correct Answer: B
Rationale: A hazard is a condition that increases the probability or severity of a
loss. Physical hazards (e.g., icy sidewalks), moral hazards (dishonest tendencies),
and morale hazards (carelessness) are all types of hazards. Peril is the cause of
loss.
Agent/Broker Actual Exam – New York State Department of
Financial Services (NYDFS) – 2026/2027 Academic Year –
Verified Questions and Answers for Professional Insurance
Agent and Broker Candidates
New York State Department of Financial Services (NYDFS) | Verified Q&A |
Professional Insurance Agent and Broker Candidates
Academic Year: 2026/2027
Domain 1: General Insurance Concepts (Questions 1-10)
Question 1
What is the principal purpose of insurance?
A) To transfer the financial risk of a covered loss from an individual to an insurer
B) To guarantee investment profit
C) To replace all personal savings
D) To eliminate every possible loss
Correct Answer: A
Rationale: Insurance transfers specified financial risk in exchange for premium. It
does not guarantee returns, replace savings, or eliminate all possible losses. The
fundamental purpose is risk transfer from the insured to the insurer.
Question 2
Which of the following best defines a pure risk?
A) A risk that offers the possibility of profit or loss
B) A risk that only involves the possibility of loss
C) A risk that is always covered by insurance
D) A risk that cannot be insured
Correct Answer: B
,Rationale: Pure risk involves only the possibility of loss or no loss—there is no
opportunity for gain. Speculative risk offers the possibility of profit or loss. Pure
risks are typically insurable, while speculative risks generally are not.
Question 3
An insurer seeks to reduce its exposure to catastrophic losses by transferring a
portion of its risk to another insurer. This arrangement is best described as:
A) Coinsurance
B) Reinsurance
C) Retrocession
D) Pooling
Correct Answer: B
Rationale: Reinsurance is the transfer of risk from one insurer (the ceding
company) to another insurer (the reinsurer). Coinsurance involves sharing risk
among insurers for a single policy. Retrocession is the reinsurance of a reinsurer's
risk. Pooling refers to a group of insurers sharing risk collectively.
Question 4
Adverse selection most directly affects which aspect of an insurance market?
A) Insurers selecting only low-risk individuals to insure
B) Higher-risk individuals being more likely to purchase insurance than lower-risk
individuals
C) Insurers charging higher premiums to individuals with pre-existing conditions
D) The tendency for insurance policies to attract fraudulent claims
Correct Answer: B
Rationale: Adverse selection occurs when those with higher risk are more
motivated to seek insurance, leading to an imbalance in the risk pool. This is a
fundamental concept in risk classification and underwriting.
Question 5
,Under the principle of indemnity, which of the following statements is TRUE
regarding the measure of recovery for a loss?
A) The insured may recover more than the actual cash value to account for
sentimental loss
B) The insured is entitled to recover the full replacement cost regardless of
depreciation
C) The insured should be restored to the same financial position as before the loss,
not better
D) The insured may recover the policy face amount even if the loss is less
Correct Answer: C
Rationale: Indemnity aims to prevent the insured from profiting from a loss,
restoring them to their pre-loss financial condition. Actual cash value accounts for
depreciation, not full replacement cost. Sentimental value is not insurable.
Question 6
Which of the following is NOT an element of an insurable risk?
A) The loss must be measurable
B) The loss must be catastrophic in nature
C) The loss must be definable
D) The loss must be accidental and unintentional
Correct Answer: B
Rationale: While insurable risks can include catastrophic losses, the loss does not
have to be catastrophic. Elements of insurable risk include: the loss must be
measurable, definable, accidental, and large enough to cause financial hardship.
Catastrophic losses are actually a concern for insurers, as they may exceed
capacity.
Question 7
Which of the following can be defined as "the potential for loss"?
A) Peril
B) Hazard
, C) Risk
D) Exposure
Correct Answer: C
Rationale: Risk is defined as the potential for loss. Peril is the cause of loss (e.g.,
fire, theft). Hazard is a condition that increases the chance of loss. Exposure is the
state of being subject to the possibility of loss.
Question 8
The law of large numbers helps insurers to:
A) Predict exact catastrophic events
B) Distribute risk among a large number of similar policies
C) Guarantee profits
D) Eliminate all risk
Correct Answer: B
Rationale: The law of large numbers states that as the number of similar but
independent exposure units increases, the actual loss experience will more closely
approach the expected loss experience. This allows insurers to predict future losses
with greater accuracy.
Question 9
Which of the following best describes a hazard in insurance terminology?
A) The cause of a loss
B) A condition that increases the chance of a loss
C) The potential for loss
D) The amount of loss
Correct Answer: B
Rationale: A hazard is a condition that increases the probability or severity of a
loss. Physical hazards (e.g., icy sidewalks), moral hazards (dishonest tendencies),
and morale hazards (carelessness) are all types of hazards. Peril is the cause of
loss.
