Chapter 1: Basic Insurance Concepts & Principles Quiz

A. The uncertainty of financial loss

1. Risk in insurance terminology refers to: A. The uncertainty of financial loss B. The cause of a peril C. The certainty of financial loss D. The hazard that causes a claim

B. Hazards

2. Conditions that increase the chances of an insured loss occurring are referred to as: A. Perils B. Hazards C. Exposures D. Risks

B. Date of application

3. When must insurable interest exist in life insurance? A. Death of the insured B. Date of application C. Policy delivery date D. Policy issue date

D. Utmost good faith.

4. The insurer must be able to rely on the statements in the application, and the insured must be able to rely on the insurer to pay valid claims. In the forming of an insurance contract, this is referred to as: A. A warranty B. An implied warranty C. Reasonable expectation D. Utmost good faith

B. Premiums

5. All of the following are examples of risk retention EXCEPT: A. Self-insurance B. Premiums C. Deductibles D. Copayments

D. Transfer

6. Which method of dealing with risk is applied when a person purchases insurance? A. Avoidance B. Reduction C. Sharing D. Transfer

C. Indemnity

7. Which provision 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. Limited benefit provision B. Reasonable expectations C. Indemnity D. No loss no gain

D. Exposure

8. Which of the following is NOT a type of hazard? A. Physical B. Moral C. Morale D. Exposure

A. The owner of a shop

9. Which of the following would NOT be eligible for coverage under key person insurance? A. The owner of a shop B. The manager of a small store C. The pharmacist in a drug store D. The executive officer of a company

B. The human life value approach

Which of the following methods of calculating the amount of life insurance needed takes into account the insured's salary and years until retirement? A. An estate planning approach B. The human life value approach C. The needs analysis approach D. A traditional planning approach