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Insurance Defined; The Laws of large numbers; The Principle of Indemnity; Insurable Interest;
The Principle of Risk; Peril vs Hazard; Risk Management; Underwriting; Reinsurance correct
answers
1: Which of the following best demonstrates a moral Hazard? correct answers A recent purchaser
of auto insurance drives less carefully, knowing that the insurer will cover any losses that occur
2: Risk is best defined as: correct answers An uncertainty of a loss
3: Which of the following is most likely to be uninsurable? correct answers The purchaser of a
new home wants to protect herself from a possible drop in housing prices
4: Which of the following most accurately describes reinsurance correct answers When an
insurance company buys insurance for some of the risks for which it has issued coverage
5: The attempt to restore an insured to his or her financial condition before a loss occurred is best
describes as correct answers Indemnification
6: A risk where both profit and loss are possible is known as correct answers Speculative
7: Which of the following is a true statement regarding the Law of Large Numbers correct
answers The L of L #'s states that as the number of insured unit's increases, the ability to predict
losses increase
8: Which of the following is true regarding pure and speculative risks correct answers With pure
risk there is only the possibility of loss
9: An insurance contract must comply with the "Principle of Indemnity" Jarron's friend Nick
accidentally destroys Jarron"s laptop computer. Nick pays Jarron for the damages, but Jarron
also submits a claim to his insurance company for the laptop. The claim will be: correct answers
Denied because Jarron has already been paid for the damage
10: Which of the following would be an example of a moral hazard? correct answers
Embezzlement
11: Adverse selection occurs when correct answers Applicants are accepted by the insurer with
little or no attention given to underwriting
12: A church has had the woodwork in the building refinished and new stain and varnish has
been applied. The workers placed the rags and brushes that were used to apply the varnish in a
small closet and closed the door, creating the possibility of spontaneous combustion. Which of
the following terms best describes this condition? correct answers Hazard
,13: Meg has been in very good health in the past 3 years. She has been exercising, her blood
pressure is at a perfect level and her cholesterol is the envy of all her friends. Because Meg is
feeling so healthy, she decides to cancel her health insurance policy. This is an example of which
of the following risk management methods correct answers Risk retention
14: Which of the following statements is not true concerning the Law of Large numbers? correct
answers The size of the sample group is not relevant to the accuracy of the results
15: Which of the following is not a hazard correct answers A fire started in a wastebasket
16: Max lives in a large apartment complex where there is no guard station or gate. Several
hundred people live in the complex so it's very easy to determine the work schedules of the
neighbors living around him. One morning Max leaves for work at 6:30am as he usually does,
but he forgets to lock the front door. Later that morning someone comes into the apartment and
steals Max's computer. What was the peril in this situation? correct answers The theft of the
computer
17: Horatio is a business owner who is part of a business owners group that is buying old
commercial buildings in their small city and refurbishing them. Horatio has bought a beautiful
historical building made mostly of wood. He knows that he should install a sprinkler system right
away to prevent a fire. What risk management strategy is Horatio using? correct answers Risk
reduction
18: All of the following are characteristics of an insurable risk, EXCEPT? correct answers The
loss must be catastrophic in nature
19: When a person purchases several insurance policies to provide more coverage on a risk than
the value of the possible loss, it is known as? correct answers Over insurance
20: A slippery floor is an example of? correct answers A physical hazard
21: The principle of indemnity is illustrated by which of the following? correct answers Restores
an insured to the same condition enjoyed before a loss
An insured has fabricated a claim so that it would appear to be legitimate. This would be? correct
answers Moral hazard
23: Which of the following is not a common risk management technique? correct answers
Multiply the risk by engaging in hazardous activities
24: Which of the following is the primary source of information used by insurance companies
during the underwriting process correct answers The application for insurance
A 100 year flood is an example of what type of Risk correct answers Static Risk
,Elements of a Valid Contract; Parties to a Contract; Characteristics of a Contract; Legal
Interpretations Affecting a Contract correct answers
1: Which of the following terms is used to describe a contract where the insurance company is
the only party that is legally bound to perform its part of the agreement? correct answers
Unilateral
2: A warranty in insurance is best described as which of the following? correct answers A
guarantee that the statements made by the applicant are completely true and untrue statements
can void the coverage
3: Milton agrees to steal and wreck Albert's car for $4000.00, so that Albert can collect $8000.00
under his auto insurance policy. Which of the elements of a valid contract are missing in this
agreement? correct answers Legal purpose
4: Vanessa states on an application for personal automobile insurance, that she has had no car
accidents within the past 3 years. She later remembers an accident and corrects this statement to
include an accident that occurred 2 years ago. Vanessa's original statement can be describes as?
correct answers A representation
5: Which of the following best demonstrates the meaning of "contract of adhesion"? correct
answers Since the insurance company formulates the policy language, the courts usually will
resolve any ambiguities in the insured's favor
6: Which of the following would not have the capacity to enter into an insurance contract correct
answers A person who is under the influence of drugs at the time the agreement was made
7: Which of the following is a statement that is guaranteed to be the truth throughout the duration
of the policy correct answers A warranty
8: Which of the following statements best describes a "Representation" made in an insurance
application correct answers A representation is a statement made by the applicant that he
believes to be true when made, but which might prove to be false
An applicant fails to disclose known facts when completing an application for insurance. This is
known as? correct answers Concealment
10: Any intentional misinformation provide by an applicant for an insurance policy that would
have kept the insurance company from issuing the policy had that information been known is?
correct answers A material misrepresentational
11: Which of the following parts of the insurance contract contains the "contractual agreement"
between the insurance company and the insured? correct answers The insuring agreement
12: In order for a contract to be binding in a court of law, it must be designed for: correct
answers Legal purposes
, 13: An intentional act designed to deceive and induce another party to part with something of
value is known as? correct answers Legal purposes
14: Which of the following best describes the purpose of the "insuring agreement" contained in
an insurance policy? correct answers The insuring agreement
14: Which of the following best describes the purpose of the "insuring agreement" contained in
an insurance policy? correct answers To the insurer's promise to pay in case of a loss
15: An element of a valid contract must involve an offer and an acceptance. Sebastian completes
an application for auto insurance and submits it to Indemnify Insurance Company. Who made
the offer? correct answers Sebastian
16: The conditions section of an insurance policy sets forth the? correct answers Duties of the
insured and the insurance company
17: Estoppel is best exemplified by which of the following? correct answers An insurer is
prohibited from denying a claim because its appointed producer advised the insured the claim
covered
18: In which part of an insurance contract would you expect to find a description of the duties
and obligations of the insured? correct answers The Conditions
19: Which of the following people is committing "hard fraud" correct answers Ally wants her
insurer to buy her a new truck, so she pushes her current truck off a cliff and files an auto
accident claim
20: An insurance contract is considered to be an aleatory contract. All of the following are
characteristics of an aleatory contract except? correct answers
The contract allows the insured to receive a return in claims payments that is nearly equal to the
amount paid in premium correct answers The contract allows the insured to receive a return in
claims payments that is nearly equal to the amount paid in premium
21: The law recognizes 2 types of waivers. They are? correct answers Express/ Implied
22: The doctrine that states an insured's policy should provide the coverage that a sensible and
prudent person would expect is? correct answers The Reasonable expectations doctrine
23: The Declarations page of an insurance policy contains? correct answers The name and
address of the insured and duration of the policy
24: An agent, insured, or claimant has intentionally deceived an insurer for financial gain. Such
an act is known as? correct answers Fraud
Insurance Defined; The Laws of large numbers; The Principle of Indemnity; Insurable Interest;
The Principle of Risk; Peril vs Hazard; Risk Management; Underwriting; Reinsurance correct
answers
1: Which of the following best demonstrates a moral Hazard? correct answers A recent purchaser
of auto insurance drives less carefully, knowing that the insurer will cover any losses that occur
2: Risk is best defined as: correct answers An uncertainty of a loss
3: Which of the following is most likely to be uninsurable? correct answers The purchaser of a
new home wants to protect herself from a possible drop in housing prices
4: Which of the following most accurately describes reinsurance correct answers When an
insurance company buys insurance for some of the risks for which it has issued coverage
5: The attempt to restore an insured to his or her financial condition before a loss occurred is best
describes as correct answers Indemnification
6: A risk where both profit and loss are possible is known as correct answers Speculative
7: Which of the following is a true statement regarding the Law of Large Numbers correct
answers The L of L #'s states that as the number of insured unit's increases, the ability to predict
losses increase
8: Which of the following is true regarding pure and speculative risks correct answers With pure
risk there is only the possibility of loss
9: An insurance contract must comply with the "Principle of Indemnity" Jarron's friend Nick
accidentally destroys Jarron"s laptop computer. Nick pays Jarron for the damages, but Jarron
also submits a claim to his insurance company for the laptop. The claim will be: correct answers
Denied because Jarron has already been paid for the damage
10: Which of the following would be an example of a moral hazard? correct answers
Embezzlement
11: Adverse selection occurs when correct answers Applicants are accepted by the insurer with
little or no attention given to underwriting
12: A church has had the woodwork in the building refinished and new stain and varnish has
been applied. The workers placed the rags and brushes that were used to apply the varnish in a
small closet and closed the door, creating the possibility of spontaneous combustion. Which of
the following terms best describes this condition? correct answers Hazard
,13: Meg has been in very good health in the past 3 years. She has been exercising, her blood
pressure is at a perfect level and her cholesterol is the envy of all her friends. Because Meg is
feeling so healthy, she decides to cancel her health insurance policy. This is an example of which
of the following risk management methods correct answers Risk retention
14: Which of the following statements is not true concerning the Law of Large numbers? correct
answers The size of the sample group is not relevant to the accuracy of the results
15: Which of the following is not a hazard correct answers A fire started in a wastebasket
16: Max lives in a large apartment complex where there is no guard station or gate. Several
hundred people live in the complex so it's very easy to determine the work schedules of the
neighbors living around him. One morning Max leaves for work at 6:30am as he usually does,
but he forgets to lock the front door. Later that morning someone comes into the apartment and
steals Max's computer. What was the peril in this situation? correct answers The theft of the
computer
17: Horatio is a business owner who is part of a business owners group that is buying old
commercial buildings in their small city and refurbishing them. Horatio has bought a beautiful
historical building made mostly of wood. He knows that he should install a sprinkler system right
away to prevent a fire. What risk management strategy is Horatio using? correct answers Risk
reduction
18: All of the following are characteristics of an insurable risk, EXCEPT? correct answers The
loss must be catastrophic in nature
19: When a person purchases several insurance policies to provide more coverage on a risk than
the value of the possible loss, it is known as? correct answers Over insurance
20: A slippery floor is an example of? correct answers A physical hazard
21: The principle of indemnity is illustrated by which of the following? correct answers Restores
an insured to the same condition enjoyed before a loss
An insured has fabricated a claim so that it would appear to be legitimate. This would be? correct
answers Moral hazard
23: Which of the following is not a common risk management technique? correct answers
Multiply the risk by engaging in hazardous activities
24: Which of the following is the primary source of information used by insurance companies
during the underwriting process correct answers The application for insurance
A 100 year flood is an example of what type of Risk correct answers Static Risk
,Elements of a Valid Contract; Parties to a Contract; Characteristics of a Contract; Legal
Interpretations Affecting a Contract correct answers
1: Which of the following terms is used to describe a contract where the insurance company is
the only party that is legally bound to perform its part of the agreement? correct answers
Unilateral
2: A warranty in insurance is best described as which of the following? correct answers A
guarantee that the statements made by the applicant are completely true and untrue statements
can void the coverage
3: Milton agrees to steal and wreck Albert's car for $4000.00, so that Albert can collect $8000.00
under his auto insurance policy. Which of the elements of a valid contract are missing in this
agreement? correct answers Legal purpose
4: Vanessa states on an application for personal automobile insurance, that she has had no car
accidents within the past 3 years. She later remembers an accident and corrects this statement to
include an accident that occurred 2 years ago. Vanessa's original statement can be describes as?
correct answers A representation
5: Which of the following best demonstrates the meaning of "contract of adhesion"? correct
answers Since the insurance company formulates the policy language, the courts usually will
resolve any ambiguities in the insured's favor
6: Which of the following would not have the capacity to enter into an insurance contract correct
answers A person who is under the influence of drugs at the time the agreement was made
7: Which of the following is a statement that is guaranteed to be the truth throughout the duration
of the policy correct answers A warranty
8: Which of the following statements best describes a "Representation" made in an insurance
application correct answers A representation is a statement made by the applicant that he
believes to be true when made, but which might prove to be false
An applicant fails to disclose known facts when completing an application for insurance. This is
known as? correct answers Concealment
10: Any intentional misinformation provide by an applicant for an insurance policy that would
have kept the insurance company from issuing the policy had that information been known is?
correct answers A material misrepresentational
11: Which of the following parts of the insurance contract contains the "contractual agreement"
between the insurance company and the insured? correct answers The insuring agreement
12: In order for a contract to be binding in a court of law, it must be designed for: correct
answers Legal purposes
, 13: An intentional act designed to deceive and induce another party to part with something of
value is known as? correct answers Legal purposes
14: Which of the following best describes the purpose of the "insuring agreement" contained in
an insurance policy? correct answers The insuring agreement
14: Which of the following best describes the purpose of the "insuring agreement" contained in
an insurance policy? correct answers To the insurer's promise to pay in case of a loss
15: An element of a valid contract must involve an offer and an acceptance. Sebastian completes
an application for auto insurance and submits it to Indemnify Insurance Company. Who made
the offer? correct answers Sebastian
16: The conditions section of an insurance policy sets forth the? correct answers Duties of the
insured and the insurance company
17: Estoppel is best exemplified by which of the following? correct answers An insurer is
prohibited from denying a claim because its appointed producer advised the insured the claim
covered
18: In which part of an insurance contract would you expect to find a description of the duties
and obligations of the insured? correct answers The Conditions
19: Which of the following people is committing "hard fraud" correct answers Ally wants her
insurer to buy her a new truck, so she pushes her current truck off a cliff and files an auto
accident claim
20: An insurance contract is considered to be an aleatory contract. All of the following are
characteristics of an aleatory contract except? correct answers
The contract allows the insured to receive a return in claims payments that is nearly equal to the
amount paid in premium correct answers The contract allows the insured to receive a return in
claims payments that is nearly equal to the amount paid in premium
21: The law recognizes 2 types of waivers. They are? correct answers Express/ Implied
22: The doctrine that states an insured's policy should provide the coverage that a sensible and
prudent person would expect is? correct answers The Reasonable expectations doctrine
23: The Declarations page of an insurance policy contains? correct answers The name and
address of the insured and duration of the policy
24: An agent, insured, or claimant has intentionally deceived an insurer for financial gain. Such
an act is known as? correct answers Fraud
