FLORIDA 2-20 AGENTS LICENSE EXAM
Test Questions and Correct Answers
(Verified Answers) plus Rationales
2025/2026 Q&A | Instant Download Pdf
Question 1
What is the primary purpose of insurance?
A. To generate investment income
B. To transfer risk of financial loss
C. To eliminate all risks
D. To increase property value
Correct Answer: B. To transfer risk of financial loss
Rationale: Insurance allows individuals and businesses to transfer the financial
consequences of certain risks to an insurer in exchange for a premium.
Question 2
An insurance policy is a:
A. Warranty
B. Lease agreement
C. Contract
D. Loan
Correct Answer: C. Contract
Rationale: An insurance policy is a legally enforceable contract between the
insurer and the insured.
Question 3
,Which element is required for a valid insurance contract?
A. Advertisement
B. Consideration
C. Arbitration
D. Appraisal
Correct Answer: B. Consideration
Rationale: Consideration consists of the insured's premium payment and the
insurer's promise to pay covered claims.
Question 4
The party that purchases an insurance policy is known as the:
A. Beneficiary
B. Adjuster
C. Insurer
D. Insured
Correct Answer: D. Insured
Rationale: The insured is the individual or entity covered under the insurance
contract.
Question 5
The insurance company is called the:
A. Beneficiary
B. Insurer
C. Producer
D. Claimant
Correct Answer: B. Insurer
Rationale: The insurer assumes the risk and provides coverage under the policy.
,Question 6
Risk that involves only the possibility of loss is called:
A. Speculative risk
B. Pure risk
C. Investment risk
D. Business risk
Correct Answer: B. Pure risk
Rationale: Pure risk offers no opportunity for gain, only the possibility of loss or
no loss.
Question 7
Which risk is generally insurable?
A. Gambling loss
B. Stock market loss
C. Pure risk
D. Speculative risk
Correct Answer: C. Pure risk
Rationale: Insurers typically insure pure risks because losses can be predicted
using statistical methods.
Question 8
The sharing of losses among many insureds is known as:
A. Reinsurance
B. Pooling
C. Arbitration
D. Appraisal
Correct Answer: B. Pooling
, Rationale: Insurance operates by pooling risks and spreading losses among a large
group.
Question 9
The law of large numbers helps insurers:
A. Avoid paying claims
B. Increase deductibles
C. Predict losses more accurately
D. Eliminate risk
Correct Answer: C. Predict losses more accurately
Rationale: Larger groups provide more reliable statistical data for estimating
future losses.
Question 10
A situation that increases the chance of loss is called a:
A. Peril
B. Hazard
C. Deductible
D. Premium
Correct Answer: B. Hazard
Rationale: Hazards increase the likelihood or severity of a loss.
Question 11
Fire is an example of a:
A. Hazard
B. Exposure
C. Peril
D. Warranty
Test Questions and Correct Answers
(Verified Answers) plus Rationales
2025/2026 Q&A | Instant Download Pdf
Question 1
What is the primary purpose of insurance?
A. To generate investment income
B. To transfer risk of financial loss
C. To eliminate all risks
D. To increase property value
Correct Answer: B. To transfer risk of financial loss
Rationale: Insurance allows individuals and businesses to transfer the financial
consequences of certain risks to an insurer in exchange for a premium.
Question 2
An insurance policy is a:
A. Warranty
B. Lease agreement
C. Contract
D. Loan
Correct Answer: C. Contract
Rationale: An insurance policy is a legally enforceable contract between the
insurer and the insured.
Question 3
,Which element is required for a valid insurance contract?
A. Advertisement
B. Consideration
C. Arbitration
D. Appraisal
Correct Answer: B. Consideration
Rationale: Consideration consists of the insured's premium payment and the
insurer's promise to pay covered claims.
Question 4
The party that purchases an insurance policy is known as the:
A. Beneficiary
B. Adjuster
C. Insurer
D. Insured
Correct Answer: D. Insured
Rationale: The insured is the individual or entity covered under the insurance
contract.
Question 5
The insurance company is called the:
A. Beneficiary
B. Insurer
C. Producer
D. Claimant
Correct Answer: B. Insurer
Rationale: The insurer assumes the risk and provides coverage under the policy.
,Question 6
Risk that involves only the possibility of loss is called:
A. Speculative risk
B. Pure risk
C. Investment risk
D. Business risk
Correct Answer: B. Pure risk
Rationale: Pure risk offers no opportunity for gain, only the possibility of loss or
no loss.
Question 7
Which risk is generally insurable?
A. Gambling loss
B. Stock market loss
C. Pure risk
D. Speculative risk
Correct Answer: C. Pure risk
Rationale: Insurers typically insure pure risks because losses can be predicted
using statistical methods.
Question 8
The sharing of losses among many insureds is known as:
A. Reinsurance
B. Pooling
C. Arbitration
D. Appraisal
Correct Answer: B. Pooling
, Rationale: Insurance operates by pooling risks and spreading losses among a large
group.
Question 9
The law of large numbers helps insurers:
A. Avoid paying claims
B. Increase deductibles
C. Predict losses more accurately
D. Eliminate risk
Correct Answer: C. Predict losses more accurately
Rationale: Larger groups provide more reliable statistical data for estimating
future losses.
Question 10
A situation that increases the chance of loss is called a:
A. Peril
B. Hazard
C. Deductible
D. Premium
Correct Answer: B. Hazard
Rationale: Hazards increase the likelihood or severity of a loss.
Question 11
Fire is an example of a:
A. Hazard
B. Exposure
C. Peril
D. Warranty
