"Master CA Insurance Code for A&H: 100 Exam-
Style Questions with Rationales"
1. Which of the following is considered a pure risk?
A) Investing in the stock market
B) The possibility of loss from a house fire
C) Starting a new business
D) Gambling at a casino
Answer: B
Rationale: Pure risk involves only the possibility of loss or no loss (e.g., fire, accident, death). Speculative
risk involves the possibility of both gain and loss (e.g., investing, gambling).
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2. The term "peril" in insurance refers to:
A) A condition that increases the chance of loss
B) The cause of a loss
C) The probability of a loss occurring
D) The amount of a loss
Answer: B
Rationale: A peril is the immediate cause of a loss (e.g., fire, windstorm, theft). A hazard is a condition
that increases the chance of loss.
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3. Which type of hazard involves the insured's careless behavior?
A) Physical hazard
,B) Moral hazard
C) Morale hazard
D) Legal hazard
Answer: C
Rationale: A morale hazard is a condition of carelessness or indifference that increases the chance of
loss (e.g., leaving doors unlocked because "insurance will cover it"). Moral hazard involves dishonesty or
fraud.
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4. The principle of indemnity means that:
A) The insured must pay a premium
B) The insurer will restore the insured to their pre-loss financial position
C) The insurer will pay regardless of loss
D) The insured can profit from a loss
Answer: B
Rationale: Indemnity ensures that the insured is restored to the same financial position they were in
before the loss, without profiting from the insurance.
---
5. In insurance, "adverse selection" occurs when:
A) The insurer selects only healthy applicants
B) Those with higher risk are more likely to purchase insurance
C) The agent selects which policies to sell
D) The state selects insurance carriers
Answer: B
,Rationale: Adverse selection is the tendency of those with greater-than-average risk to seek insurance
coverage, which can lead to higher claim costs for the insurer.
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6. What is the primary purpose of insurance?
A) To eliminate all risk
B) To spread risk among a large group of people
C) To create profit for policyholders
D) To replace government programs
Answer: B
Rationale: The primary purpose of insurance is to pool risks and spread the financial burden of losses
among a large group of insureds.
---
7. Which of the following describes a "hazard"?
A) The cause of a loss
B) A condition that increases the chance or severity of a loss
C) The probability of a loss
D) The actual loss amount
Answer: B
Rationale: A hazard is any condition that increases the chance of loss or the severity of a loss. Perils are
the causes of loss.
---
8. A "fortuitous" loss is one that:
, A) Is certain to occur
B) Is accidental and unforeseen
C) Is caused intentionally
D) Is expected by the insured
Answer: B
Rationale: Insurance covers fortuitous losses—those that are accidental, unexpected, and beyond the
insured's control.
---
9. The law of large numbers allows insurers to:
A) Predict losses with greater accuracy
B) Avoid paying claims
C) Insure only low-risk individuals
D) Eliminate all risk
Answer: A
Rationale: The law of large numbers states that as the number of exposure units increases, the more
accurate the prediction of future losses becomes, allowing insurers to calculate premiums more
precisely.
---
10. Which of the following is NOT a characteristic of an ideally insurable risk?
A) Large number of similar exposure units
B) Definite and measurable loss
C) Loss must be catastrophic
D) Loss must be accidental
Style Questions with Rationales"
1. Which of the following is considered a pure risk?
A) Investing in the stock market
B) The possibility of loss from a house fire
C) Starting a new business
D) Gambling at a casino
Answer: B
Rationale: Pure risk involves only the possibility of loss or no loss (e.g., fire, accident, death). Speculative
risk involves the possibility of both gain and loss (e.g., investing, gambling).
---
2. The term "peril" in insurance refers to:
A) A condition that increases the chance of loss
B) The cause of a loss
C) The probability of a loss occurring
D) The amount of a loss
Answer: B
Rationale: A peril is the immediate cause of a loss (e.g., fire, windstorm, theft). A hazard is a condition
that increases the chance of loss.
---
3. Which type of hazard involves the insured's careless behavior?
A) Physical hazard
,B) Moral hazard
C) Morale hazard
D) Legal hazard
Answer: C
Rationale: A morale hazard is a condition of carelessness or indifference that increases the chance of
loss (e.g., leaving doors unlocked because "insurance will cover it"). Moral hazard involves dishonesty or
fraud.
---
4. The principle of indemnity means that:
A) The insured must pay a premium
B) The insurer will restore the insured to their pre-loss financial position
C) The insurer will pay regardless of loss
D) The insured can profit from a loss
Answer: B
Rationale: Indemnity ensures that the insured is restored to the same financial position they were in
before the loss, without profiting from the insurance.
---
5. In insurance, "adverse selection" occurs when:
A) The insurer selects only healthy applicants
B) Those with higher risk are more likely to purchase insurance
C) The agent selects which policies to sell
D) The state selects insurance carriers
Answer: B
,Rationale: Adverse selection is the tendency of those with greater-than-average risk to seek insurance
coverage, which can lead to higher claim costs for the insurer.
---
6. What is the primary purpose of insurance?
A) To eliminate all risk
B) To spread risk among a large group of people
C) To create profit for policyholders
D) To replace government programs
Answer: B
Rationale: The primary purpose of insurance is to pool risks and spread the financial burden of losses
among a large group of insureds.
---
7. Which of the following describes a "hazard"?
A) The cause of a loss
B) A condition that increases the chance or severity of a loss
C) The probability of a loss
D) The actual loss amount
Answer: B
Rationale: A hazard is any condition that increases the chance of loss or the severity of a loss. Perils are
the causes of loss.
---
8. A "fortuitous" loss is one that:
, A) Is certain to occur
B) Is accidental and unforeseen
C) Is caused intentionally
D) Is expected by the insured
Answer: B
Rationale: Insurance covers fortuitous losses—those that are accidental, unexpected, and beyond the
insured's control.
---
9. The law of large numbers allows insurers to:
A) Predict losses with greater accuracy
B) Avoid paying claims
C) Insure only low-risk individuals
D) Eliminate all risk
Answer: A
Rationale: The law of large numbers states that as the number of exposure units increases, the more
accurate the prediction of future losses becomes, allowing insurers to calculate premiums more
precisely.
---
10. Which of the following is NOT a characteristic of an ideally insurable risk?
A) Large number of similar exposure units
B) Definite and measurable loss
C) Loss must be catastrophic
D) Loss must be accidental
