PRACTICE EXAM QUESTIONS AND
CORRECT ANSWERS (VERIFIED
ANSWERS) PLUS RATIONALES 2025
1. What is the primary purpose of insurance?
A. To create wealth
B. To transfer risk
C. To avoid risk
D. To eliminate risk
Insurance transfers financial risk from an individual to an insurer.
2. A life insurance policy that builds cash value and allows policyholders to
borrow against it is:
A. Term life insurance
B. Credit life insurance
C. Whole life insurance
D. Group life insurance
, Whole life insurance provides lifelong coverage with a savings
component.
3. Which of the following is NOT a typical use of life insurance?
A. Estate planning
B. Income replacement
C. Gambling profits
D. Mortgage protection
Life insurance is not used to fund speculative activities like gambling.
4. In health insurance, what is a deductible?
A. The amount paid by the insurer
B. The amount the insured must pay before benefits begin
C. The premium payment
D. The benefit limit
The deductible is the out-of-pocket expense before the insurer pays.
5. What type of insurer is owned by policyholders?
A. Stock insurer
B. Mutual insurer
C. Lloyd’s association
D. Fraternal benefit society
Mutual insurers are owned by their policyholders and may pay dividends.
6. Which of the following best defines a "premium"?
A. The benefit amount
B. The periodic payment for insurance coverage
C. The claims payout