Section 1 practice quiz

Question 1

Insurance is a contract whereby one undertakes to indemnify another against:

Physical Hazard
Damage
Uncertainty
Exposure

Answer 1

According to the California Code of Insurance, insurance is a contract whereby one undertakes to indemnify another against loss, damage, or liability arising from a contingent or unknown event.

“DAMAGE”

Question 2

Type of loss exposure pertaining to land and structures attached to it is:

property loss exposure
personal loss exposure
liability loss exposure
financial loss exposure

Answer 2

Property loss exposure includes real (buildings & land) and personal property.

“PROPERTY LOSS EXPOSURE”

Question 3

When a right or privilege has been given up, a party cannot reassert that right or privilege. The process of preventing the party from reasserting that right or privilege is known as:

Indemnity
Waiver
Estoppel
Pro- Rata

Answer 3

his process of preventing a party from reasserting that right or privilege is known as “Estoppel”.

Question 3

Restoring the insured back to the condition he or she was in before the loss occurred is known as:

Restoration
Loss retention
Indemnification
Insurable interest

Answer 3

Indemnity is the insurer restoring the insured back to the condition they were in before the loss occurred. The insured should not gain or be in a better position than before.

“Indemnification”

Question 4

A peril is:

The actual cause of the loss
Anything that increases the chance of loss or severity of loss.
Pure and speculative.
A possibility of a loss.

Answer 4

A Peril is the actual cause of the loss. Some examples of common perils are fire, wind, hail, collision with another car, theft, etc.

Question 5

Which of the following is not a class of insurance?

Auto
Fire
Casualty
Marine

Answer 5

Casualty. Casualty is a label used to describe various liability and crime coverages.

Question 6

A hazard that deals with a person’s mental attitude, behavior and habits is an example of:

Morale hazard
Legal hazard
Moral hazard
Physical hazard

Answer 6

Moral hazards deal with a person’s mental attitudes, behaviors and habits. Some examples of moral hazards are drug abuse, dishonest claims, alcoholism, smoking, driving over the speed limit.

Question 7

Which of the following elements of a contract is/are the binding force?

Consideration
Offer and Acceptance
Legal Purpose
Competent Parties

Answer 7

Consideration is the binding force of a contract. What each party considers valuable is the consideration.

Question 8

Which of the following is the amount of money the insured pays before the insurer pays for the rest of the claim?

Deductible
Subrogation
Coinsurance
Premium

Answer 8

A deductible is the amount of money the insured pays before the insurer (company) pays the rest of the claim.

Question 9

Substitution of a small certain loss for a large uncertain loss is:

Law of large numbers
Insurance
A pure risk
An insurable event

Answer 9

This is the layman’s definition for insurance.

“Insurance”

Question 10

Which of the following describes when one party intentionally gives the other party false information in order to benefit from the unlawful gain.

Theft
Concealment
Misrepresentation
Fraud

Answer 10

Fraud occurs when one party intentionally gives the other party false information in order to benefit from the unlawful gain.

“FRAUD”

Question 11

The process of reviewing applications for insurance and the information on the application is:

Field Underwriting
The job of the agent before accepting or rejecting an application.
Underwriting
Evaluation

Answer 11

Underwriting is the process of reviewing applications for insurance and the information on the application.

“UNDERWRITING”

Question 12

Any contingent or unknown event, whether past or future, which may damnify a person having an insurable interest or create a liability against him/her, may be insured against. The more unpredictable a loss becomes:

the less it becomes insurable interest.
the less insurable it becomes.
the more it becomes insurable interest.
the more insurable it becomes.

Answer 12

The more predictable a loss becomes, the less insurable it becomes. The more unpredictable a loss becomes, the more insurable it becomes.

Question 13

According to the California insurance law, either party may rescind a contract for any of the following reasons EXCEPT:

One party intentionally or unintentionally hides material information.
Once a contract is signed, it can never be rescinded.
One party intentionally omits information from the other party.
If a representation is false in a material point, whether affirmative or promissory, the injured party is entitled to rescind the contract

Answer 13

Never? Always beware of this word.

“Once a contract is signed, it can never be rescinded.”

Question 14

The uncertainty or chance of a loss occurring is known as:

risk.
risk management.
pure risk.
speculative risk.

Answer 14

Risk is the uncertainty or chance of a loss occurring.

Question 15

Bob is thinking about obtaining insurance because he just found out he needs extensive surgery that will require several days in the hospital. This situation of waiting until the last minute to obtain insurance is known as:

Cost Effective Insurance
Ideally Insurable Risk
Adverse Selection
Spread of Risk

Answer 15

Adverse selection is when people seek insurance at the last minute when they really need it.

Question 16

A beautician stating that this conditioner fixes badly damaged hair is a:

expressed warranty
implied warranty
stated fact
representation

Answer 16

This statement would qualify as an implied warranty.

Question 17

Which of the following is NOT a known private insurer?

Stock Insurance Companies
Mutual Insurance Companies
Bond Insurance Companies
Reciprocal Insurance Exchanges

Answer 17

Bond insurance companies are not considered insurers.

Question 18

Punishment for twisting or misrepresentation would be:

up to 1 year in jail
up to $25,000
neither are correct
both are correct

Answer 18

Punishment is fine or imprisonment.

Question 19

Which of the following is NOT required for a risk to be ideally insurable?

The loss must be definite and measurable.
The loss must occur on the insured`s property.
The loss must create economic hardship.
The loss must be an accident.

Answer 19

A loss may not occur on the insured’s property, such as a liability claim.

Question 20

Materiality is determined by the disadvantage placed on the other party and:

not by the event
the influence of the facts
neither are correct
both are correct

Answer 20

Materiality is not judged by the event but by the influence of the facts.

“Both are correct”

Question 21

Which of the following is an example of an adverse underwriting decision?

Rejecting the risk
Issuing with limitations
All of these are examples
Charging a higher rate

Answer 21

These decisions allow the underwriter to keep losses within a normal range.

Question 22

Which of the following statements is true about reinsurance?

Reinsurance is when the insured allows a policy to lapse for nonpayment. Later, if the insured makes the payment, the policy is reinsured.

Property and casualty insurers use reinsurance, life insurers do not.

When an insurer obtains reinsurance, it has sold the contract to another insurer, and no longer has direct responsibility for the policy.

You Selected This AnswerReinsurance is the process whereby the insurer transfers all or part of the risk to another company.

Answer 22

Reinsurance is the process of the insurer transferring all or part of Reinsurance is the process whereby the insurer transfers all or part of the risk to another insurer so they share the risk together.

Question 23

Loss control refers to:

taking measures to prevent further damage during a loss.

a combination of risk control techniques with risk financing techniques.

preventing a loss from becoming catastrophic.

taking the necessary precautions that will reduce the risk of a loss.

Answer 23

Loss control refers to taking necessary precautions to reduce the risk of a loss.

Question 24

The state of being subject to a loss is considered:

risk
insurance
exposure
hazard

Answer 24

The state of being, or possibility of loss, is the definition of loss exposure.

Question 25

What are the two types of torts?

Pure & Speculative
Legal & Non-Legal
Intentional & Unintentional
Broad & Basic

Answer 25

Torts are classified as intentional or unintentional (referred to as negligence).

Question 26

When an insured rejects uninsured motorist in writing this is considered:

modification
a rescission
a waiver
an example of estoppel

Answer 26

A waiver. The insured gave up the right to pursue any uninsured motorist claim.

Question 27

Which of the following are the main types of risks?

Speculative and pure
Sharing and Transfer
Pure and Transfer
Avoidance and Retention

Answer 27

There are two main types of risk: pure risk and speculative risk.

Question 28

The degree of loss a person/organization faces from suits brought by a third party refers to:

Human Personnel Loss Exposure
Property Exposure
Loss Exposure
Liability Loss Exposure

Answer 28

Liability Loss Exposure is the degree of loss a person/organization faces from suits brought by a third party.

Question 29

Performance depends upon an uncertain future event is the feature:

conditional
aleatory
adhesion
unilateral

Answer 29

This is the contract feature known as aleatory.

Question 29

The law of large numbers is a principal that basically says:

the larger the number of people in an insurance company, the more stable it is.
the more insurance you have, the more protected you are.
the larger the amount of information gathered, the more reliable that information will be.
the larger the possibility of a loss, the greater the exposure.

Answer 29

The law of large numbers is a principle that basically says, the larger the amount of information gathered, the more reliable that information will be.

Question 30

The term loss exposure refers to:

the possibility of a loss.
the actual cause of the loss.
the increase in the possibility of a loss.
the uncertainty of a loss occurring.

Answer 30

Exposure means there is a possibility of a loss. Loss Exposure is the degree to which a person or their property is at risk for loss.

Question 31

Examples of tort law include all of the following EXCEPT:

Bodily injury
Libel and slander
Personal injury
Breach of contract

Answer 31

Tort law includes bodily injury, property damage and personal injury, which includes libel and slander. However, although you can be sued for financial damages due to breach of contract, it is not a tort. The most common tort is negligence, which is defined as the failure to act as reasonable and prudent person.

Question 32

A hazard is best defined as:

anything that increases the chance of loss or severity of loss due to a peril.
risk shifted from one to another.
a possibility of a loss.
any action from a court that increases the likelihood or size of a loss.

Answer 32

A Hazard is anything that increases the chance of loss or severity of loss due to a peril.

Question 33

Which of the following is defined as an agreement between two or more parties enforceable by law?

Tort
Agreement Clause
Contract
Insurance Policy

Answer 33

A contract is defined as an agreement between two or more parties enforceable by law.