Principals of Insurance Test

Question 1

Risk is defined as;

Answer 1

Chance of Loss

Question 2

What is the purpose of the law of large numbers?

Answer 2

Predict losses and spread out the risk.

Question 3

All of these are direct losses except;
A. An insured’s car
B. An office building
C. An airplane on international flights
D. Loss of income

Answer 3

D. Loss of income

Question 4

The main classifications of insurers are;
A. Mutual & closely held
B. Stock & non-for-profit
C. Stock & for-profit
D. Stock & Mutual

Answer 4

D. Stock & Mutual

Question 5

What can happen in a town mutual?

Answer 5

Members may be assessed if the claims exceed the reserves.

Question 6

In a (pure or speculative risk) there is a chance of loss or profit

Answer 6

Speculative Risk

Question 7

A (pure or speculative risk) would include investing in the stock market

Answer 7

Speculative Risk

Question 8

Gambling is an example of a (pure or speculative risk)

Answer 8

Speculative Risk

Question 9

Disability of an individual is a (pure or speculative risk)

Answer 9

Pure Risk

Question 10

Injury to another from an automobile accident is a (pure or speculative risk)

Answer 10

Pure Risk

Question 11

Investing in the stock market is a (pure or speculative risk)

Answer 11

Speculative Risk

Question 12

A direct loss to your home is a (pure or speculative risk)

Answer 12

Pure Risk

Question 13

Loss of money due to a competition is a (pure or speculative risk)

Answer 13

Speculative Risk

Question 14

Early death of an individual is a (pure or speculative risk)

Answer 14

Pure Risk

Question 15

Professional misconduct is a (pure or speculative risk)

Answer 15

Pure Risk

Question 16

The premature death of the head of household

Answer 16

Personal Risk

Question 17

This term states that only a loss may be produced; there may be no profit

Answer 17

Insurable Risk

Question 18

An insurance company transfers part of the risk to another insurer

Answer 18

Reinsurance

Question 19

The approach to the problem of dealing with the risks faced by individuals & businesses

Answer 19

Risk Management

Question 20

Free trade restrictions, gambling & fashion changes are examples of this

Answer 20

Non-insurable Risk

Question 21

A profit making organization that is owned by stockholders

Answer 21

Stock Insurance Company

Question 22

What kind of insurance company is designed to insure members of a specific organization, such as people of Catholic or Lutheran faith?

Answer 22

Fraternal

Question 23

What is it called when we spread the loss among many people?

Answer 23

Law of Large Numbers

Question 24

Insurance is what kind of risk?

Answer 24

Transfer Risk

Question 25

What kind of company may be an assessable company?

Answer 25

Town Mutual

Question 26

True or False:
A risk is defined as the certainty of loss

Answer 26

False

Question 27

True or False:
A town mutual insurance policy is non-assessable

Answer 27

False

Question 28

True or False:
If an insurance company has reinsurance, this means they have adequate reserves to cover any or all losses of their policyholders

Answer 28

False

Question 29

True or False:
A stock company may not issue policies to any kind of peril

Answer 29

True

Question 30

True or False:
The law of large numbers applies to any kind of peril

Answer 30

True

Question 31

True or False:
A mutual insurance company is owned by the stockholders, while a stock company is owned by the policyholders

Answer 31

False

Question 32

True or False:
A stock insurance company is owned by the stockholders, while a mutual company is owned by the policyholders

Answer 32

True