Principles of Insurance Exam Questions and Answers Rated A+

Principles of Insurance Exam Questions and Answers Rated A+ With regard to insurance, risk can be defined as: A) uncertainty regarding loss. B) certainty regarding loss. C) uncertainty regarding financial gain. D) certainty regarding financial gain. Answer: A Risk refers to the uncertainty of financial loss. Insurance replaces the uncertainty of risk with certain guarantees of financial stability. A condition or situation that presents a possibility of loss is a (an): A) law of large numbers. B) named certainty. C) exposure. D) proximate cause. Answer: C A condition or situation that presents a possibility of loss is an exposure. Insurance policies are designed to cover loss, either a direct loss or an indirect loss. How is uncertainty regarding loss best described? A) Peril. B) Risk. C) Insurance. D) Hazard. Answer: B In the strict insurance definition, risk is the uncertainty regarding financial loss. Insurance is used to minimize the risk of uncertainty by spreading the risk over a large enough number of similar exposures to predict the individual chance of loss. A chance, possibility, or uncertainty of loss is known as a: A) hazard. B) peril. C) proximate cause. D) risk. Answer: D Risk is the uncertainty regarding the occurrence of financial loss. A peril is the actual cause of a loss and is specifically identified in the policy. A hazard is a situation or condition that may increase the possibility of a loss occurring. Proximate cause is the action that produces a loss through an unbroken ch