Michigan Property & Casualty Insurance Exam
Review Questions with Correct A+ Answers
Risk - Answer The possibility that a loss will occur
Speculative Risk - Answer Chance of loss or gain
Pure Risk - Answer only the possibility of loss
Peril - Answer cause of loss
Exposure - Answer The potential for accidents and other losses
Direct Loss - Answer Loss that is a direct result of a peril, such as fire.
Indirect Loss - Answer Loss that is a result or consequence of a direct loss
Moral Hazard - Answer Arise from a person's character (dishonesty)
Morale Hazard - Answer A condition of carelessness or indifference that increases the frequency or
severity of loss.
Physical Hazard - Answer a physical condition that increases the frequency or severity of loss
Sharing risk - Answer Two or more individuals share risk
transfer risk - Answer The purpose of insurance
Avoidance - Answer eliminating certain risk by not engaging in certain activity
, Retention - Answer Self-insurance, person will pay for loss
Reduction - Answer Lessening the possibility or severity of a loss.
Law of Large Numbers - Answer A principle stating that the larger the number of similar exposure units
considered, the more closely the losses reported will equal the underlying probability of loss.
Elements of Insurable Risk - Answer Calculable
Affordable
Non-catastrophic
Homogeneous
Accidental
Measurable
Adverse Selection - Answer risks that have a greater than average chance of loss
Reinsurancd - Answer Transfers risk from one insurer to another
Stock Insurer - Answer Owned by stockholders
Mutual Insurer - Answer owned by policyholders
Fraternal Benefit Society - Answer An insurance company formed to provide insurance for members of
an affiliated lodge, religious, or fraternal organization with a representative form of government.
Reciprocal Insurers - Answer are unincorporated groups of individual members that provide insurance
for other members through indemnity contracts. Each member acts as both insurer and insured and are
managed by Attorney in Fact.
Review Questions with Correct A+ Answers
Risk - Answer The possibility that a loss will occur
Speculative Risk - Answer Chance of loss or gain
Pure Risk - Answer only the possibility of loss
Peril - Answer cause of loss
Exposure - Answer The potential for accidents and other losses
Direct Loss - Answer Loss that is a direct result of a peril, such as fire.
Indirect Loss - Answer Loss that is a result or consequence of a direct loss
Moral Hazard - Answer Arise from a person's character (dishonesty)
Morale Hazard - Answer A condition of carelessness or indifference that increases the frequency or
severity of loss.
Physical Hazard - Answer a physical condition that increases the frequency or severity of loss
Sharing risk - Answer Two or more individuals share risk
transfer risk - Answer The purpose of insurance
Avoidance - Answer eliminating certain risk by not engaging in certain activity
, Retention - Answer Self-insurance, person will pay for loss
Reduction - Answer Lessening the possibility or severity of a loss.
Law of Large Numbers - Answer A principle stating that the larger the number of similar exposure units
considered, the more closely the losses reported will equal the underlying probability of loss.
Elements of Insurable Risk - Answer Calculable
Affordable
Non-catastrophic
Homogeneous
Accidental
Measurable
Adverse Selection - Answer risks that have a greater than average chance of loss
Reinsurancd - Answer Transfers risk from one insurer to another
Stock Insurer - Answer Owned by stockholders
Mutual Insurer - Answer owned by policyholders
Fraternal Benefit Society - Answer An insurance company formed to provide insurance for members of
an affiliated lodge, religious, or fraternal organization with a representative form of government.
Reciprocal Insurers - Answer are unincorporated groups of individual members that provide insurance
for other members through indemnity contracts. Each member acts as both insurer and insured and are
managed by Attorney in Fact.
