LOMA 281 MODULE 1 2026/2027 | RISK AND INSURANCE STUDY
GUIDE, EXAM REVIEW & PRACTICE QUESTIONS
Risk - Correct answer ✔✔ the possibility of an unexpected result.
Premium - Correct answer ✔✔ A specified amount of money an insurer charges in exchange for
its agreement to pay a policy benefit when a specific loss occurs.
Insurance company - Correct answer ✔✔ A company that provides protection against the risk of
financial loss caused by specific events.
Life insurance - Correct answer ✔✔ A type of insurance under which the insurer promises to
pay a death benefit upon the death of a named person.
Annuity - Correct answer ✔✔ A financial product by which an insurer, in return for receiving a
premium, promises to make periodic payments to a named person or entity.
Applicant - Correct answer ✔✔ The person or entity that applies for an insurance policy.
Policyowner - Correct answer ✔✔ The person or entity that owns the issued policy.
Insured - Correct answer ✔✔ The person whose life or health the policy insures.
Beneficiary - Correct answer ✔✔ The person named to receive the policy benefit if the insured
event occurs.
Third party policy - Correct answer ✔✔ A policy one person purchases that insures the life of
another person.
, Speculative risks - Correct answer ✔✔ A risk that involves three possible outcomes: loss, gain,
or no change.
Pure risk - Correct answer ✔✔ A risk that involves no possibility of gain; either a loss occurs or
no loss occurs.
Contracts of indemnity - Correct answer ✔✔ Health insurance; An insurance policy under which
the amount of the policy benefit payable for a covered loss is based on the actual amount of
financial loss that results from the loss, as determined at the time of the loss.
Valued contract - Correct answer ✔✔ Life insurance; An insurance policy that specifies the
amount of the policy benefit that will be payable when a covered loss occurs, regardless of the
actual amount of the loss the was incurred.
Face amount - Correct answer ✔✔ the amount of the policy benefit listed on the first page of a
life insurance policy.
Law of large numbers - Correct answer ✔✔ A theory of probability which states that, typically,
the more times we observe a particular event, the more likely it is that our observed results will
approximate the 'true' probability that the event will occur.
Reinsurance - Correct answer ✔✔ Insurance that one insurance company, known as the direct
writer, purchases from another insurance company, known as the reinsurer, to transfer risk on
insurance policies that the direct writer has issued.
Retention limit - Correct answer ✔✔ The maximum amount of insurance that an insurer is
willing to carry at its own risk on any one life. The direct writer cedes anything above that limit
to a reinsurer in a reinsurance transaction or through other risk transfer mechanisms.
GUIDE, EXAM REVIEW & PRACTICE QUESTIONS
Risk - Correct answer ✔✔ the possibility of an unexpected result.
Premium - Correct answer ✔✔ A specified amount of money an insurer charges in exchange for
its agreement to pay a policy benefit when a specific loss occurs.
Insurance company - Correct answer ✔✔ A company that provides protection against the risk of
financial loss caused by specific events.
Life insurance - Correct answer ✔✔ A type of insurance under which the insurer promises to
pay a death benefit upon the death of a named person.
Annuity - Correct answer ✔✔ A financial product by which an insurer, in return for receiving a
premium, promises to make periodic payments to a named person or entity.
Applicant - Correct answer ✔✔ The person or entity that applies for an insurance policy.
Policyowner - Correct answer ✔✔ The person or entity that owns the issued policy.
Insured - Correct answer ✔✔ The person whose life or health the policy insures.
Beneficiary - Correct answer ✔✔ The person named to receive the policy benefit if the insured
event occurs.
Third party policy - Correct answer ✔✔ A policy one person purchases that insures the life of
another person.
, Speculative risks - Correct answer ✔✔ A risk that involves three possible outcomes: loss, gain,
or no change.
Pure risk - Correct answer ✔✔ A risk that involves no possibility of gain; either a loss occurs or
no loss occurs.
Contracts of indemnity - Correct answer ✔✔ Health insurance; An insurance policy under which
the amount of the policy benefit payable for a covered loss is based on the actual amount of
financial loss that results from the loss, as determined at the time of the loss.
Valued contract - Correct answer ✔✔ Life insurance; An insurance policy that specifies the
amount of the policy benefit that will be payable when a covered loss occurs, regardless of the
actual amount of the loss the was incurred.
Face amount - Correct answer ✔✔ the amount of the policy benefit listed on the first page of a
life insurance policy.
Law of large numbers - Correct answer ✔✔ A theory of probability which states that, typically,
the more times we observe a particular event, the more likely it is that our observed results will
approximate the 'true' probability that the event will occur.
Reinsurance - Correct answer ✔✔ Insurance that one insurance company, known as the direct
writer, purchases from another insurance company, known as the reinsurer, to transfer risk on
insurance policies that the direct writer has issued.
Retention limit - Correct answer ✔✔ The maximum amount of insurance that an insurer is
willing to carry at its own risk on any one life. The direct writer cedes anything above that limit
to a reinsurer in a reinsurance transaction or through other risk transfer mechanisms.
