Quiz: Basic Insurance Principals and Concepts

Peril is most easily defined as A Something that increases the chance of loss. B The cause of loss insured against. C An unhealthy attitude about safety. D The chance of a loss occurring.

B The cause of loss insured against.

Adverse Selection is a concept best described as A. Risks with higher probability of loss seeking insurance more often than other risks B. Underwriters slanting the odds in favor of the company C. Poor choices of applicants to be covered D. Only offering coverage to good risks

A. Risks with higher probability of loss seeking insurance more often than other risks

A person who does not lock the doors or does not repair leaks shows an indifferent attitude. This person represents what type of hazard? A. Legal B. Physical C. Morale D. Moral

C. Morale

Which of the following is NOT a goal of risk retention? A. To increase control of claim reserving and claims settlements B. To fund losses that cannot be insured C. To minimize the insured's level of liability in the event of a loss D. To reduce expenses and improve cash flow

C. To minimize the insured's level of liability in the event of a loss

The causes of loss insured against in an insurance policy are known as A. Losses B. Risks C. Hazards D. Perils

D. Perils

Which insurance principle states that if a policy allows for greater compensation than the financial loss incurred, the insured may only receive benefits for the amount lost? A. Indemnity B. Stop-loss C. Consideration D. Reasonable expectations

A. Indemnity

The insurer may suspect that a moral hazard exists if the policyholder A. Is prone to depression B. Is indifferent to activities that may be dangerous C. Always drives over the speed limit D. Is not honest about his health on an application for insurance

D. Is not honest about his health on an application for insurance

Events in which a person has both the chance of winning or losing are classified as A. Speculative Risk B. Insurable C. Pure Risk D. Retained Risk

A. Speculative Risk

When an individual purchases insurance, what risk management technique is he or she practicing? A. Sharing B. Retention C. Transfer D. Avoidance

C. Transfer

Which of the following individuals must have insurable interest in the insured? A. Underwriter B. Producer C. Policyowner D. Beneficiary

C. Policyowner

What do individuals use to transfer their risk of loss to a larger group? A. Insurance B. Insurable Interest C. Exposure D. Indemnity

A. Insurance

Which of the following factors is NOT considered by an underwriter when determining the premium rate for an individual seeking insurance? A. Sex B. Race C. Age D. Medical History

B. Race