Week 1 Exam

Question 1

Which item, although still insurable, would violate the Law of Large Numbers?

a. Insurance on an original Van Gogh painting
b. Insurance on a tract house
c. Insurance on a 1977 Chevrolet
d. Insurance on a Sony TV

Answer 1

A. Insurance on an original Van Gogh

Question 2

Which of the following is NOT included in the definition of Insurance?

a. Transfer of risk to a Third party
b. Accumulation of a fund to pay losses
c. Underwriting standards
d. A large number of similar exposure units

Answer 2

C. Underwriting Standards

Question 3

The chance than an economic loss will occur is a definition of:

a. Peril
b. Risk
c. Hazard
d. Insurance

Answer 3

B. Risk

Question 4

Which of the following best describes Indemnity?
a. Money paid in exchange for insurance protection
B. Reimbursement to the same financial position as before the loss
c. Damage or destruction of property or person
d. A cause of loss

Answer 4

B. Reimbursement to the same financial condition as before the loss

Question 5

Which definition best describes a hazard?

a. A condition that increases the chance of loss
b. The chance of loss
c. The uncertainty of whether a loss will or will not occur
d. The cause of loss

Answer 5

A. A condition that increases the chance of loss

Question 6

A nuclear explosion is generally considered an uninsurable exposure because:

a. The loss would not be accidental
b. There would be no way to assess monetary damages
c. It would be a catastrophic event
d. The loss would not be definite in time and place

Answer 6

C. It would be a catastrophic event

Question 7

Insurable interest is:
a. The subject of an insurance policy
b. Ownership of property
c. Financial interest in property
D. The person insured

Answer 7

C. Financial interest in property

Question 8

Which of the following is NOT insured by an Ocean Marine policy?

a. A ship’s hull
b. A ship’s cargo
c. A ship’s routes
d. A ship’s freight

Answer 8

C. A ship’s routes

Question 9

Which of the following is NOT a potential advantage to a company when creating a self-insurance program?

a. The company may incur lower costs than purchasing commercial insurance
b. The premiums are a tax deduction for the company
c. The company maintains more control over its finances
d. The company maintains more control over its operations

Answer 9

B. The premiums are tax deductible for the company

Question 10

The retail businesses in a small community unite and agree to pay each other’s theft losses. This arrangement is:

a. a risk retention group
b. a reciprocal
c. a mutual insurer
d. a stock insurer

Answer 10

b. a reciprocal

Question 11

An insurer that is owned by its policyholders is:

a. A stock insurer
b. A reciprocal
c. An inter-insurance exchange
d. A mutual insurer

Answer 11

D. A mutual insurer

Question 12

An insurer that is publicly traded is called:

a. A mutual
b. A reciprocal
c. An inter-insurance exchange
d. A stock company

Answer 12

D. A stock company

Question 13

When a company sells off a danger operation, it is using which risk management technique?

a. Control
b. Non-insurance Transfer
c. Avoidance
d. Retention

Answer 13

C. Avoidance

Question 14

The part of the insurance policy that contains the “who is insured, what is insured and the premium” is called:

a. Declarations
b. Exclusions
c. Conditions
d. Endorsements

Answer 14

A. Declarations

Question 15

The part of the insurance policy that spells out the insurer’s promise is called:

a. Declarations
b. Exclusions
c. Insuring Agreement
d. Conditions

Answer 15

C. Insuring Agreement

Question 16

An endorsement to an insurance policy:

a. Lists the causes of loss covered by the policy
b. Provides a way to tailor a policy to the specific needs of an insured
c. Spells out the rules and procedures that the insured and insurer must follow
d. Enumerates the causes of loss not covered by the policy

Answer 16

B. Provides a way to tailor a policy to the specific needs of an insured

Question 17

Arson committed by an insured to his own premises is not insurable because:

a. The loss is not accidental
b. There would be no way to assess the monetary damages
c. It would be a catastrophic event
d. The loss would not be definite

Answer 17

A. the loss is not accidental

Question 18

John is an insurance agent who represents three carriers. He wants to represent ABC insurance but does not yet have a contract. However, he does have material from ABC, including brochures and posters in his office. What is the term given to a situation where a customer of John might assume he DOES have a contract with ABC?

a. Express authority
b. Emergency authority
c. Apparent authority
d. Contractual authority

Answer 18

C. Apparent authority

Question 19

In which of the following distribution systems is the agent a salaried employee of the insurer?

a. Direct writing system
b. American agency system
c. Exclusive agency system
d. Captive system

Answer 19

A. Direct writing system

Question 20

While an Insurance Agent is an agent of an insurance company, an Insurance Broker prefers to describe him/herself as:

a. An agent of the insurer
b. An insurance company employee
c. An agent of the insured
d. An exclusive agent

Answer 20

C. An agent of the insured