Risk Management Practice Test UPDATED
ACTUAL Exam Questions and CORRECT
Answers
An insurer has 100,000 covered automobiles in both Atlanta and Memphis. The chance of
accidents in each city is 3%. For the years 2006-2009, Atlanta had 350, 300, and 250 accidents
while Memphis experienced 300, 280, and 320 accidents. Which city is riskier?
a) Atlanta
b) Memphis
c) the risk is equal between the two cities
d) additional information is required to answer this question - CORRECT ANSWER - a)
Atlanta
The spreading of losses incurred by the few over the entire group, so that in the process, average
loss is substituted for actual loss is defined as which of the following?
a) indemnification
b) insurance
c) pooling
d) underwriting - CORRECT ANSWER - c) pooling
Which of the following statements is false regarding insurance versus gambling?
a) insurance creates a new risk
b) gambling creates a new risk
c) gambling creates a situation where one party gains at another's expense
d) insurance aligns the incentives between insurer and insured - CORRECT ANSWER - a)
insurance creates a new risk
Which of the following is not a benefit of insurance?
, a) indemnification for loss
b) source of investment funds
c) expense loadings
d) enhancement of credit - CORRECT ANSWER - c) expense loadings
Which of the following is not a pre-loss objective of risk management?
a) meeting legal obligations
b) survival of the firm
c) reducing anxiety
d) preparing for losses in an economical way - CORRECT ANSWER - b) survival of the
firm
Retention, transfer, and commercial insurance are examples of which of the following?
a) risk control
b) risk financing
c) both a and b
d) none of the above - CORRECT ANSWER - b) risk financing
Which of the following terms best describe the phenomenon by which the insurer agrees to pay
no more than the actual amount of a loss?
a) principle of utmost good faith
b) principle of indemnity
c) adverse selection
d) none of the above - CORRECT ANSWER - b) principle of indemnity
Ashley's laptop is destroyed by a power surge. She purchased the laptop 1 year ago. The laptop
cost $1400 and was expected to last for 4 years. A comparable laptop today would cost $950.
What is the actual cash value (ACV)?
a) $712.50
ACTUAL Exam Questions and CORRECT
Answers
An insurer has 100,000 covered automobiles in both Atlanta and Memphis. The chance of
accidents in each city is 3%. For the years 2006-2009, Atlanta had 350, 300, and 250 accidents
while Memphis experienced 300, 280, and 320 accidents. Which city is riskier?
a) Atlanta
b) Memphis
c) the risk is equal between the two cities
d) additional information is required to answer this question - CORRECT ANSWER - a)
Atlanta
The spreading of losses incurred by the few over the entire group, so that in the process, average
loss is substituted for actual loss is defined as which of the following?
a) indemnification
b) insurance
c) pooling
d) underwriting - CORRECT ANSWER - c) pooling
Which of the following statements is false regarding insurance versus gambling?
a) insurance creates a new risk
b) gambling creates a new risk
c) gambling creates a situation where one party gains at another's expense
d) insurance aligns the incentives between insurer and insured - CORRECT ANSWER - a)
insurance creates a new risk
Which of the following is not a benefit of insurance?
, a) indemnification for loss
b) source of investment funds
c) expense loadings
d) enhancement of credit - CORRECT ANSWER - c) expense loadings
Which of the following is not a pre-loss objective of risk management?
a) meeting legal obligations
b) survival of the firm
c) reducing anxiety
d) preparing for losses in an economical way - CORRECT ANSWER - b) survival of the
firm
Retention, transfer, and commercial insurance are examples of which of the following?
a) risk control
b) risk financing
c) both a and b
d) none of the above - CORRECT ANSWER - b) risk financing
Which of the following terms best describe the phenomenon by which the insurer agrees to pay
no more than the actual amount of a loss?
a) principle of utmost good faith
b) principle of indemnity
c) adverse selection
d) none of the above - CORRECT ANSWER - b) principle of indemnity
Ashley's laptop is destroyed by a power surge. She purchased the laptop 1 year ago. The laptop
cost $1400 and was expected to last for 4 years. A comparable laptop today would cost $950.
What is the actual cash value (ACV)?
a) $712.50
