MI Life, Accident and Health Producer - M
Exam
Question 1. What is the primary purpose of insurance?
A) To eliminate risk
B) To transfer risk
C) To increase risk
D) To retain risk
Answer: B
Explanation: Insurance is designed to transfer risk from an individual or
business to an insurance company.
Question 2. Which of the following is an example of pure risk?
A) Investing in stocks
B) Gambling at a casino
C) The possibility of a house fire
D) Starting a new business
Answer: C
Explanation: Pure risk involves only the chance of loss, such as a house
fire; speculative risk involves the chance of gain or loss.
Question 3. What is a hazard in insurance terminology?
, MI Life, Accident and Health Producer - M
Exam
A) The cause of a loss
B) A condition that increases the chance of loss
C) The actual loss itself
D) The amount paid for a claim
Answer: B
Explanation: A hazard is a condition that increases the chance of a peril
happening.
Question 4. The Law of Large Numbers allows insurers to:
A) Predict future losses more accurately
B) Eliminate all risks
C) Increase premiums for high-risk individuals
D) Guarantee profit
Answer: A
Explanation: By pooling many similar risks, insurers can better predict
losses and set appropriate premiums.
Question 5. Adverse selection refers to:
A) Insurers selectively paying claims
, MI Life, Accident and Health Producer - M
Exam
B) High-risk individuals seeking insurance more often than low-risk
individuals
C) Insurance companies refusing to pay claims
D) The process of underwriting
Answer: B
Explanation: Adverse selection is when those most likely to experience
a loss are more likely to seek insurance coverage.
Question 6. What is the principle of indemnity?
A) To provide profit to the insured
B) To restore the insured to their original financial position after a loss
C) To pay double the amount of the loss
D) To ensure all risks are covered
Answer: B
Explanation: Indemnity means making the insured whole again, not
profiting from insurance.
Question 7. Which statement best describes a stock insurance
company?
, MI Life, Accident and Health Producer - M
Exam
A) Owned by policyholders
B) Owned by stockholders and may pay dividends to them
C) Operated by the federal government
D) Only sells life insurance
Answer: B
Explanation: Stock companies are owned by stockholders who may
receive dividends.
Question 8. Mutual insurance companies are:
A) Owned by stockholders
B) Owned by policyholders and may pay dividends to them
C) Owned by the government
D) For-profit only
Answer: B
Explanation: Mutual companies are owned by policyholders who may
receive dividends.
Question 9. Fraternal benefit societies are best described as:
A) For-profit insurance companies
Exam
Question 1. What is the primary purpose of insurance?
A) To eliminate risk
B) To transfer risk
C) To increase risk
D) To retain risk
Answer: B
Explanation: Insurance is designed to transfer risk from an individual or
business to an insurance company.
Question 2. Which of the following is an example of pure risk?
A) Investing in stocks
B) Gambling at a casino
C) The possibility of a house fire
D) Starting a new business
Answer: C
Explanation: Pure risk involves only the chance of loss, such as a house
fire; speculative risk involves the chance of gain or loss.
Question 3. What is a hazard in insurance terminology?
, MI Life, Accident and Health Producer - M
Exam
A) The cause of a loss
B) A condition that increases the chance of loss
C) The actual loss itself
D) The amount paid for a claim
Answer: B
Explanation: A hazard is a condition that increases the chance of a peril
happening.
Question 4. The Law of Large Numbers allows insurers to:
A) Predict future losses more accurately
B) Eliminate all risks
C) Increase premiums for high-risk individuals
D) Guarantee profit
Answer: A
Explanation: By pooling many similar risks, insurers can better predict
losses and set appropriate premiums.
Question 5. Adverse selection refers to:
A) Insurers selectively paying claims
, MI Life, Accident and Health Producer - M
Exam
B) High-risk individuals seeking insurance more often than low-risk
individuals
C) Insurance companies refusing to pay claims
D) The process of underwriting
Answer: B
Explanation: Adverse selection is when those most likely to experience
a loss are more likely to seek insurance coverage.
Question 6. What is the principle of indemnity?
A) To provide profit to the insured
B) To restore the insured to their original financial position after a loss
C) To pay double the amount of the loss
D) To ensure all risks are covered
Answer: B
Explanation: Indemnity means making the insured whole again, not
profiting from insurance.
Question 7. Which statement best describes a stock insurance
company?
, MI Life, Accident and Health Producer - M
Exam
A) Owned by policyholders
B) Owned by stockholders and may pay dividends to them
C) Operated by the federal government
D) Only sells life insurance
Answer: B
Explanation: Stock companies are owned by stockholders who may
receive dividends.
Question 8. Mutual insurance companies are:
A) Owned by stockholders
B) Owned by policyholders and may pay dividends to them
C) Owned by the government
D) For-profit only
Answer: B
Explanation: Mutual companies are owned by policyholders who may
receive dividends.
Question 9. Fraternal benefit societies are best described as:
A) For-profit insurance companies
