CDI Site Casualty Broker-Agentination Exam
Revision Notes and Self-Assessment
CDI CALIFORNIA CASUALTY BROKER-AGENT EXAM ORIGINAL
PRACTICE QUESTIONS Based on Verified PSI Exam Content Outline Answers
+ Detailed Rationales
SECTION 1: BASIC INSURANCE CONCEPTS & PRINCIPLES
QUESTION 1
Which of the following best defines a "hazard" in insurance?
A) The cause of a potential loss
B) A condition that increases the likelihood or severity of a loss
C) The amount of loss that the insured is willing to retain
D) The maximum amount the insurer will pay under a policy
Correct Answer: B
1
,Rationale: A hazard is a condition that increases the likelihood or severity of a loss.
It is a key concept in risk assessment and underwriting . Hazards can be physical,
moral, or legal.
QUESTION 2
The principle of "utmost good faith" (uberrimae fidei) requires the insured to:
A) Pay premiums promptly
B) Disclose all material facts that could affect the insurer's decision to accept the
risk or set the premium
C) File claims within a reasonable time
D) Accept any settlement offer made by the insurer
Correct Answer: B
Rationale: Utmost good faith obligates both parties to act honestly and disclose all
material information; concealment of material facts can void the contract . This is a
foundational principle of insurance contracts.
QUESTION 3
"Retention" as a risk management technique means:
2
,A) Transferring the risk to an insurer through a policy
B) Avoiding the risk altogether by not engaging in the activity
C) Keeping the risk and paying any losses out of the organization's own funds
D) Sharing the risk with other parties through joint ventures
Correct Answer: C
Rationale: Retention involves accepting the financial consequences of loss, often
used for low-frequency, low-severity risks . It's the opposite of transferring risk to
an insurer.
QUESTION 4
Which of the following is a characteristic of a "stock" insurance company?
A) Policyholders are also the owners and share in profits
B) The company is owned by shareholders who may not be policyholders
C) It operates only in surplus-lines markets
D) It is required to distribute all profits to policyholders annually
Correct Answer: B
3
, Rationale: Stock insurers are owned by shareholders who may or may not be
policyholders; profits are distributed to shareholders . Mutual insurers are owned
by policyholders.
QUESTION 5
Which of the following best describes a "mutual" insurance company?
A) The company is owned by shareholders who may not be policyholders
B) The company is owned by its policyholders who may receive dividends
C) The company is a non-profit organization
D) The company only writes surplus lines insurance
Correct Answer: B
Rationale: Mutual insurers are owned by their policyholders. Policyholders may
receive dividends as a return of unused premiums . Stock insurers are owned by
shareholders.
QUESTION 6
Which of the following best describes "adverse selection" in insurance?
4
Revision Notes and Self-Assessment
CDI CALIFORNIA CASUALTY BROKER-AGENT EXAM ORIGINAL
PRACTICE QUESTIONS Based on Verified PSI Exam Content Outline Answers
+ Detailed Rationales
SECTION 1: BASIC INSURANCE CONCEPTS & PRINCIPLES
QUESTION 1
Which of the following best defines a "hazard" in insurance?
A) The cause of a potential loss
B) A condition that increases the likelihood or severity of a loss
C) The amount of loss that the insured is willing to retain
D) The maximum amount the insurer will pay under a policy
Correct Answer: B
1
,Rationale: A hazard is a condition that increases the likelihood or severity of a loss.
It is a key concept in risk assessment and underwriting . Hazards can be physical,
moral, or legal.
QUESTION 2
The principle of "utmost good faith" (uberrimae fidei) requires the insured to:
A) Pay premiums promptly
B) Disclose all material facts that could affect the insurer's decision to accept the
risk or set the premium
C) File claims within a reasonable time
D) Accept any settlement offer made by the insurer
Correct Answer: B
Rationale: Utmost good faith obligates both parties to act honestly and disclose all
material information; concealment of material facts can void the contract . This is a
foundational principle of insurance contracts.
QUESTION 3
"Retention" as a risk management technique means:
2
,A) Transferring the risk to an insurer through a policy
B) Avoiding the risk altogether by not engaging in the activity
C) Keeping the risk and paying any losses out of the organization's own funds
D) Sharing the risk with other parties through joint ventures
Correct Answer: C
Rationale: Retention involves accepting the financial consequences of loss, often
used for low-frequency, low-severity risks . It's the opposite of transferring risk to
an insurer.
QUESTION 4
Which of the following is a characteristic of a "stock" insurance company?
A) Policyholders are also the owners and share in profits
B) The company is owned by shareholders who may not be policyholders
C) It operates only in surplus-lines markets
D) It is required to distribute all profits to policyholders annually
Correct Answer: B
3
, Rationale: Stock insurers are owned by shareholders who may or may not be
policyholders; profits are distributed to shareholders . Mutual insurers are owned
by policyholders.
QUESTION 5
Which of the following best describes a "mutual" insurance company?
A) The company is owned by shareholders who may not be policyholders
B) The company is owned by its policyholders who may receive dividends
C) The company is a non-profit organization
D) The company only writes surplus lines insurance
Correct Answer: B
Rationale: Mutual insurers are owned by their policyholders. Policyholders may
receive dividends as a return of unused premiums . Stock insurers are owned by
shareholders.
QUESTION 6
Which of the following best describes "adverse selection" in insurance?
4
