215 Insurance License Exam
Questions and Correct Accurate
Solutions
risk pooling - correct answer ✔✔spreading risk over a large group of people
law of large numbers - correct answer ✔✔larger the group, the more certain the predictions
speculative risk - correct answer ✔✔not insurable - involves both chance of loss or gain
pure risk - correct answer ✔✔insurable - involves chance of loss, never gain or profit
peril - correct answer ✔✔event causing loss
Ex: fire, death, accident, windstorm, disease
hazard - correct answer ✔✔any factor that gives rise to peril or increase likelihood of a loss
from a peril
physical hazard - correct answer ✔✔slippery floor, blindness, deafness, past medical history
moral hazard - correct answer ✔✔intentional act, tendencies to take risks;
Ex: alcoholism, drugs, dishonesty
morale hazard - correct answer ✔✔carelessness, indifference
Ex: driving recklessly with no fear of injury
, risk avoidance - correct answer ✔✔avoiding the risk, don't do anything
Ex: choosing not to drive, fly or invest (not practical)
risk reduction - correct answer ✔✔reducing the risk of a loss
Ex: installing smoke detectors, quit smoking, don't test and drive
risk retention - correct answer ✔✔self-insure, setting up fund to offset your losses; should be
limited to what you can easily afford to pay
risk transfer - correct answer ✔✔purchasing insurance, best way; transferring risk from an
individual to an insurance company
adverse selection - correct answer ✔✔tendency for less favorable insurance risks to seek and
continue insurance to greater extent than other risks
Ex: people in poor health
human life value - correct answer ✔✔economic value measured in part by future earnings
potential
needs base approach - correct answer ✔✔how much money needed if death occurs today
stock insurers - correct answer ✔✔private organization owned by stockholders; in business to
make profit for stockholders
mutual insurers - correct answer ✔✔corporation owned by policyholders; issue participating
policies that pay policy dividends
Questions and Correct Accurate
Solutions
risk pooling - correct answer ✔✔spreading risk over a large group of people
law of large numbers - correct answer ✔✔larger the group, the more certain the predictions
speculative risk - correct answer ✔✔not insurable - involves both chance of loss or gain
pure risk - correct answer ✔✔insurable - involves chance of loss, never gain or profit
peril - correct answer ✔✔event causing loss
Ex: fire, death, accident, windstorm, disease
hazard - correct answer ✔✔any factor that gives rise to peril or increase likelihood of a loss
from a peril
physical hazard - correct answer ✔✔slippery floor, blindness, deafness, past medical history
moral hazard - correct answer ✔✔intentional act, tendencies to take risks;
Ex: alcoholism, drugs, dishonesty
morale hazard - correct answer ✔✔carelessness, indifference
Ex: driving recklessly with no fear of injury
, risk avoidance - correct answer ✔✔avoiding the risk, don't do anything
Ex: choosing not to drive, fly or invest (not practical)
risk reduction - correct answer ✔✔reducing the risk of a loss
Ex: installing smoke detectors, quit smoking, don't test and drive
risk retention - correct answer ✔✔self-insure, setting up fund to offset your losses; should be
limited to what you can easily afford to pay
risk transfer - correct answer ✔✔purchasing insurance, best way; transferring risk from an
individual to an insurance company
adverse selection - correct answer ✔✔tendency for less favorable insurance risks to seek and
continue insurance to greater extent than other risks
Ex: people in poor health
human life value - correct answer ✔✔economic value measured in part by future earnings
potential
needs base approach - correct answer ✔✔how much money needed if death occurs today
stock insurers - correct answer ✔✔private organization owned by stockholders; in business to
make profit for stockholders
mutual insurers - correct answer ✔✔corporation owned by policyholders; issue participating
policies that pay policy dividends
