ExamFX Practice test UPDATED Exam
Questions and CORRECT Answers
Agent/Producer - CORRECT ANSWER - a legal representative of an insurance company;
the classification of producer usually includes agents and brokers; agents are the agents of the
insurer
Applicant or proposed inured - CORRECT ANSWER - a person applying for insurance
Beneficiary - CORRECT ANSWER - a person who receives the benefits of an insurance
policy
Broker - CORRECT ANSWER - an insurance producer not appointed by an insurer and is
deemed to represent the client
Insurance policy - CORRECT ANSWER - a contract between a policyowner (and/or
insured) and an insurance company which agrees to pay the insured or the beneficiary for loss
caused by specific events
insured - CORRECT ANSWER - the person covered by the insurance policy. This person
may or may not be the policyowner.
insurer (principal) - CORRECT ANSWER - the company who issues an insurance policy
policyowner - CORRECT ANSWER - the person entitled to exercise the rights and
privileges in the policy
premium - CORRECT ANSWER - the money paid to the insurance company for the
insurance policy
,reciprocity/reciprocal - CORRECT ANSWER - a mutual interchange of rights and
privileges
Insurance - CORRECT ANSWER - is the transfer of risk of loss. The cost of an insured's
loss is transferred over to the insurer and spread among other insureds.
Risk - CORRECT ANSWER - refers to the situations that can only result in a loss or no
change
Pure risk - CORRECT ANSWER - refers to situations that can only result in a loss or no
change.
Speculative risk - CORRECT ANSWER - involves the opportunity for either loss or gain
Pure - CORRECT ANSWER - Only ______ risks are insurable
exposure - CORRECT ANSWER - is a unit of measure used to determine rates charged
for insurance coverage.
Determining rates - CORRECT ANSWER - age of insured, medical history, occupation,
and sex.
homogeneous - CORRECT ANSWER - a large number of units having the same or similar
exposure to loss
Hazards - CORRECT ANSWER - are conditions or situations that increase the probability
of an insured loss occurring.
Physical Hazard - CORRECT ANSWER - are individual characteristics that increase the
chances of the cause of loss, such as past medical history or a condition at birth.
,Moral Hazards - CORRECT ANSWER - are tendencies towards increased risk such as
lying on an application or submitting a fraudulent claim
Morale Hazards - CORRECT ANSWER - are similar to moral hazards, except that they
arise from a state of mind that causes indifference to loss, such as carelessness
Perils - CORRECT ANSWER - are causes of loss insured against in an insurance policy
Life Insurance - CORRECT ANSWER - insures against the financial loss caused by the
premature death of the insured
Health Insurance - CORRECT ANSWER - insures against the medical expenses and/or
loss of income caused by the insured's sickness or accidental injury
Property Insurance - CORRECT ANSWER - insures against the loss of physical property
or the loss of its income-producing abilities
Casualty Insurance - CORRECT ANSWER - insures against the loss and/or damage of
property and resulting liabilites
Loss - CORRECT ANSWER - defined as the reduction, decrease, or disappearance of
value of the person or property insured in a policy, cause by a named peril.
Risk - CORRECT ANSWER - A _______ is a chance that a loss will occur; a hazard
increases the probability of loss; a peril is the cause of loss
Risk Avoidance - CORRECT ANSWER - eliminating exposure to a loss
, Risk Retention - CORRECT ANSWER - the planned assumption of risk by an insured
through the use of deductibles, co-payments, or self-insurance.
Purpose of retention - CORRECT ANSWER - 1. To reduce expenses and improve cash
flow
2. To increase control of claim reserving and claims settlements
3. To fund for losses that cannot be insured
Sharing - CORRECT ANSWER - a method of dealing with risk for a group of individual
persons or business with the same or similar exposure to loss to share the losses that occur within
that group.
Reciprocal - CORRECT ANSWER - A _________ insurance exchange is a formal risk-
sharing agreement.
Reduction - CORRECT ANSWER - attempt to lessen the possibility or severity of a loss
such as, installing smoke detectors in our homes, or having an annual physical to detect health
problems early
Transfer - CORRECT ANSWER - The most effective way to handle risk is to _________
it so that the loss is borne by another.
Insurance - CORRECT ANSWER - ___________ is the most common method of
transferring risk from an individual or group to an insurance company.
Pure risks Insurable characteristics - CORRECT ANSWER - -Due to chance
-Definite and measurable
-Statistically predictable
-Not catastrophic
-Randomly selected and large loss exposure
Questions and CORRECT Answers
Agent/Producer - CORRECT ANSWER - a legal representative of an insurance company;
the classification of producer usually includes agents and brokers; agents are the agents of the
insurer
Applicant or proposed inured - CORRECT ANSWER - a person applying for insurance
Beneficiary - CORRECT ANSWER - a person who receives the benefits of an insurance
policy
Broker - CORRECT ANSWER - an insurance producer not appointed by an insurer and is
deemed to represent the client
Insurance policy - CORRECT ANSWER - a contract between a policyowner (and/or
insured) and an insurance company which agrees to pay the insured or the beneficiary for loss
caused by specific events
insured - CORRECT ANSWER - the person covered by the insurance policy. This person
may or may not be the policyowner.
insurer (principal) - CORRECT ANSWER - the company who issues an insurance policy
policyowner - CORRECT ANSWER - the person entitled to exercise the rights and
privileges in the policy
premium - CORRECT ANSWER - the money paid to the insurance company for the
insurance policy
,reciprocity/reciprocal - CORRECT ANSWER - a mutual interchange of rights and
privileges
Insurance - CORRECT ANSWER - is the transfer of risk of loss. The cost of an insured's
loss is transferred over to the insurer and spread among other insureds.
Risk - CORRECT ANSWER - refers to the situations that can only result in a loss or no
change
Pure risk - CORRECT ANSWER - refers to situations that can only result in a loss or no
change.
Speculative risk - CORRECT ANSWER - involves the opportunity for either loss or gain
Pure - CORRECT ANSWER - Only ______ risks are insurable
exposure - CORRECT ANSWER - is a unit of measure used to determine rates charged
for insurance coverage.
Determining rates - CORRECT ANSWER - age of insured, medical history, occupation,
and sex.
homogeneous - CORRECT ANSWER - a large number of units having the same or similar
exposure to loss
Hazards - CORRECT ANSWER - are conditions or situations that increase the probability
of an insured loss occurring.
Physical Hazard - CORRECT ANSWER - are individual characteristics that increase the
chances of the cause of loss, such as past medical history or a condition at birth.
,Moral Hazards - CORRECT ANSWER - are tendencies towards increased risk such as
lying on an application or submitting a fraudulent claim
Morale Hazards - CORRECT ANSWER - are similar to moral hazards, except that they
arise from a state of mind that causes indifference to loss, such as carelessness
Perils - CORRECT ANSWER - are causes of loss insured against in an insurance policy
Life Insurance - CORRECT ANSWER - insures against the financial loss caused by the
premature death of the insured
Health Insurance - CORRECT ANSWER - insures against the medical expenses and/or
loss of income caused by the insured's sickness or accidental injury
Property Insurance - CORRECT ANSWER - insures against the loss of physical property
or the loss of its income-producing abilities
Casualty Insurance - CORRECT ANSWER - insures against the loss and/or damage of
property and resulting liabilites
Loss - CORRECT ANSWER - defined as the reduction, decrease, or disappearance of
value of the person or property insured in a policy, cause by a named peril.
Risk - CORRECT ANSWER - A _______ is a chance that a loss will occur; a hazard
increases the probability of loss; a peril is the cause of loss
Risk Avoidance - CORRECT ANSWER - eliminating exposure to a loss
, Risk Retention - CORRECT ANSWER - the planned assumption of risk by an insured
through the use of deductibles, co-payments, or self-insurance.
Purpose of retention - CORRECT ANSWER - 1. To reduce expenses and improve cash
flow
2. To increase control of claim reserving and claims settlements
3. To fund for losses that cannot be insured
Sharing - CORRECT ANSWER - a method of dealing with risk for a group of individual
persons or business with the same or similar exposure to loss to share the losses that occur within
that group.
Reciprocal - CORRECT ANSWER - A _________ insurance exchange is a formal risk-
sharing agreement.
Reduction - CORRECT ANSWER - attempt to lessen the possibility or severity of a loss
such as, installing smoke detectors in our homes, or having an annual physical to detect health
problems early
Transfer - CORRECT ANSWER - The most effective way to handle risk is to _________
it so that the loss is borne by another.
Insurance - CORRECT ANSWER - ___________ is the most common method of
transferring risk from an individual or group to an insurance company.
Pure risks Insurable characteristics - CORRECT ANSWER - -Due to chance
-Definite and measurable
-Statistically predictable
-Not catastrophic
-Randomly selected and large loss exposure
