LOMA 281 Exam Questions and Answers
100% Solved | Graded A+
Pure risk - ✔✔Risks that involve either a loss or no loss
Speculative risk - ✔✔Risk that can result in a loss, gain or no change
Insurance - ✔✔A method for transferring risk from an individual to an
insurance company
Premium - ✔✔The amount that the insured pays in exchange for a promise
of money
Risk pooling - ✔✔Insurers collect premiums from all insured people and
spread the cost of the relatively few anticipated losses among all insureds
Annuity - ✔✔A financial product under which an insurer promises to make
a series of periodic payments to a named person or entity in exchange for a
premium or series of premiums
Policy benefit - ✔✔The amount of money that an insurer promises to pay if
a covered loss occurs
1
©JOSHCLAY 2024/2025. YEAR PUBLISHED 2024.
,Third Party Policy - ✔✔An insurance policy that one person purchases on
the life of another person
Contract of indemnity - ✔✔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 covered event, as determined at the
time of the event
Valued contracts - ✔✔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 that was incurred
Face amount (face value) - ✔✔The amount of the policy benefit that is
payable if the insured dies while the policy is in force
Law of large numbers - ✔✔Mathematical theory 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 - ✔✔Insurance that one insurance company (the direct writer)
purchases from another insurance company (the reinsurer) to transfer all or
part of the risk on insurance policies that the direct writer has insured
2
©JOSHCLAY 2024/2025. YEAR PUBLISHED 2024.
,Retention limit - ✔✔The maximum amount of insurance that an insurer is
willing to carry at its own risk without transferring some of the risk to a
reinsurer. The direct writer cedes anything above that limit to a reinsurer in
a reinsurance transaction of other risk transfer mechanisms
Direct writer - ✔✔The insurance company that purchases reinsurance to
transfer all or part of the risks on insurance policies the company issued
Retrocessionaire - ✔✔A reinsurance company that accepts risks
transferred from another reinsurer in a reinsurance transaction
Medical risk factor - ✔✔A physical or psychological characteristic that may
increase the likelihood of loss
Moral hazard - ✔✔A characteristic that exists when the reputation, financial
position, or criminal record of an application or a proposed insured
indicates that the person may act dishonestly in the insurance transaction
Antiselection - ✔✔The tendency of individuals who believe they have a
greater than average likelihood of loss to seek insurance protection to a
greater extent than do other individuals
Risk class - ✔✔A grouping of insureds who represent a similar level of risk
to the insurer
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©JOSHCLAY 2024/2025. YEAR PUBLISHED 2024.
, Preferred Risks - ✔✔A proposed insured who presents a significantly lower
than average likelihood of loss
Substandard risk - ✔✔A proposed insured who has a significantly greater
than average likelihood of loss but is still found to be insurable
Substandard premium rates - ✔✔A higher than standard premium rate
charged insureds who are classified as substandard rates
Preferred premium rates - ✔✔A lower than standard premium rate charged
insureds who are classified as preferred risks
Declined risks - ✔✔A proposed insured who is considered to present a risk
that is too great for the insurer to cover
Stock insurer - ✔✔Can issue shares of stock, owned by stockholders who
have voting rights in the company, stockholders may receive shares of
operating profits (stock dividends)
Mutual insurer - ✔✔Owned by policy owners, policy owners have
membership rights (voting rights), policy owners may periodically receive
an amount of money known as a policy dividend
Fraternal benefit society - ✔✔Owned by members of a fraternal lodge
system, provides social and insurance benefits only to fraternal members
4
©JOSHCLAY 2024/2025. YEAR PUBLISHED 2024.
100% Solved | Graded A+
Pure risk - ✔✔Risks that involve either a loss or no loss
Speculative risk - ✔✔Risk that can result in a loss, gain or no change
Insurance - ✔✔A method for transferring risk from an individual to an
insurance company
Premium - ✔✔The amount that the insured pays in exchange for a promise
of money
Risk pooling - ✔✔Insurers collect premiums from all insured people and
spread the cost of the relatively few anticipated losses among all insureds
Annuity - ✔✔A financial product under which an insurer promises to make
a series of periodic payments to a named person or entity in exchange for a
premium or series of premiums
Policy benefit - ✔✔The amount of money that an insurer promises to pay if
a covered loss occurs
1
©JOSHCLAY 2024/2025. YEAR PUBLISHED 2024.
,Third Party Policy - ✔✔An insurance policy that one person purchases on
the life of another person
Contract of indemnity - ✔✔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 covered event, as determined at the
time of the event
Valued contracts - ✔✔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 that was incurred
Face amount (face value) - ✔✔The amount of the policy benefit that is
payable if the insured dies while the policy is in force
Law of large numbers - ✔✔Mathematical theory 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 - ✔✔Insurance that one insurance company (the direct writer)
purchases from another insurance company (the reinsurer) to transfer all or
part of the risk on insurance policies that the direct writer has insured
2
©JOSHCLAY 2024/2025. YEAR PUBLISHED 2024.
,Retention limit - ✔✔The maximum amount of insurance that an insurer is
willing to carry at its own risk without transferring some of the risk to a
reinsurer. The direct writer cedes anything above that limit to a reinsurer in
a reinsurance transaction of other risk transfer mechanisms
Direct writer - ✔✔The insurance company that purchases reinsurance to
transfer all or part of the risks on insurance policies the company issued
Retrocessionaire - ✔✔A reinsurance company that accepts risks
transferred from another reinsurer in a reinsurance transaction
Medical risk factor - ✔✔A physical or psychological characteristic that may
increase the likelihood of loss
Moral hazard - ✔✔A characteristic that exists when the reputation, financial
position, or criminal record of an application or a proposed insured
indicates that the person may act dishonestly in the insurance transaction
Antiselection - ✔✔The tendency of individuals who believe they have a
greater than average likelihood of loss to seek insurance protection to a
greater extent than do other individuals
Risk class - ✔✔A grouping of insureds who represent a similar level of risk
to the insurer
3
©JOSHCLAY 2024/2025. YEAR PUBLISHED 2024.
, Preferred Risks - ✔✔A proposed insured who presents a significantly lower
than average likelihood of loss
Substandard risk - ✔✔A proposed insured who has a significantly greater
than average likelihood of loss but is still found to be insurable
Substandard premium rates - ✔✔A higher than standard premium rate
charged insureds who are classified as substandard rates
Preferred premium rates - ✔✔A lower than standard premium rate charged
insureds who are classified as preferred risks
Declined risks - ✔✔A proposed insured who is considered to present a risk
that is too great for the insurer to cover
Stock insurer - ✔✔Can issue shares of stock, owned by stockholders who
have voting rights in the company, stockholders may receive shares of
operating profits (stock dividends)
Mutual insurer - ✔✔Owned by policy owners, policy owners have
membership rights (voting rights), policy owners may periodically receive
an amount of money known as a policy dividend
Fraternal benefit society - ✔✔Owned by members of a fraternal lodge
system, provides social and insurance benefits only to fraternal members
4
©JOSHCLAY 2024/2025. YEAR PUBLISHED 2024.
