New Mexico Life and Health Exam Questions with Detailed Verified Answers

Question: Insurance Ans: A method of spreading the result of financial loss among a large number people. Question: Life Insurance Ans: A contract under which one party (the insurer) in consideration of the premium payment, agrees to pay an amount stipulated in the contract to a designated person (the beneficiary) upon the occurrence of a contingency defined in the contract (usually that of death). Question: Indemnity Ans: The concept that insurance should restore the insured, in whole or in part, to the condition he enjoyed before the loss. Question: Risk Ans: The uncertainty of financial loss. Question: The 3 Types of Risk Page | 2 Ans: 1) Pure Risk - there is only a chance of loss and there is no possibility of gain. 2) Speculative Risk - involves both an uncertainty of loss and of gain. 3) Insurable Risk Question: Insurable Risk Ans: The more closely a risk align with the following characteristics, the more insurable it is: Due to chance, measurable/predictable, it is based upon a large enough pool, so that the law of large numbers allows for the accurate prediction of loss, and there must be a significant potential for economic loss. Question: Methods of Handling Risk Ans: -Avoidance -Retention -Sharing -Reduction Question: Exposure Ans: A measure of vulnerability of loss, usually expressed in dollars or units, to which an insurance rate is applied. Page | 3 Question: Hazard Ans: A specific situation that introduces or increases the probability of occurrence of a loss. Question: The conditions that increase risk or the chance of a loss occurring: Ans: Physical - arise from material, structural, or operation features of a risk situation. Moral - The Insured's habits. Morale - Careless attitude on the part of the insured that increased the chance of loss. Legal - Court of legislative actions increases the risk of loss. Question: Peril