Insurance MCQ

Coverage for money, securities, and other property from various causes of loss such as burglary, robbery, theft, and employee dishonesty typically is provided by A. Professional liability insurance. B. Ocean marine insurance. C. Commercial crime insurance. D. Inland marine insurance. Answer: C. Coverage for money, securities, and other property from various causes of loss such as burglary, robbery, theft, and employee dishonesty typically is provided by commercial crime insurance.

Which one of the following statements is correct with respect to characteristics of insurable loss exposures?  A. If the insured has control over whether or when a loss will occur, the risk is attractive to insure. B. If losses are not fortuitous, premiums could increase for all policyholders. C. If a loss is fortuitous, the chance of loss could increase as soon as a policy is issued. D. Private insurance is suitable for risks where the probability and timing of loss is known. Answer: B. If losses are not fortuitous, premiums could increase for all policyholders.

Retention is often used in combination with insurance as a way of treating loss exposures. One of the major downsides of individuals using retention alone is  A. The unavailability of insurer loss control services. B. The potential for financial ruin. C. The record keeping associated with retained losses. D. Availability of insurer loss settlement services. Answer: B. Correct. One of the major downsides of individuals using retention alone is the potential for financial ruin.

Which one of the following is an example of a fortuitous loss?  A. Insureds intentionally set a fire and burn their house down. B. An insured demolishes a deck that has been allowed to rot. C. An unknown vandal spray-paints graffiti on the insured's garage. D. The value of an insured's home decreases due to a lack of maintenance. Answer: C. An example of a fortuitous loss is when an unknown vandal spray-paints graffiti on the insured's garage.

Bill has a custom-built vehicle looks like a sausage sandwich on wheels. He plans to drive it to special events at schools around the country where it will serve as a mobile billboard to promote his product. Bill is surprised to learn that insurers are reluctant to insure his vehicle because it fails to meet one of the ideal characteristics of an insurable risk. Which characteristic is Bill's vehicle least likely to meet?  A. Definite and measurable B. Independent and not catastrophic C. Large number of similar exposure units D. Pure risk Answer: C. Since Bill's vehicle is custom-made and used for an unusual purpose, there are not a large number of similar exposure units.

Which one of the following statements is correct?  A. Contractors must usually provide evidence of liability insurance before a construction contract is granted. B. Insurers generally do not provide incentives to organizations to implement risk control measures. C. Insurance policies typically cannot be used to provide evidence of financial resources. D. One disadvantage of insurance is that it promotes inefficient use of policyholders' funds. Answer: A. Contractors must usually provide evidence of liability insurance before a construction contract is granted.

If a customer slips and falls in an insured's store, which one of the following would provide protection in the event of a lawsuit? A. Commercial property insurance B. Workers compensation insurance C. Commercial crime insurance D. Commercial general liability (CGL) insurance Answer: D. liability loss exposures faced by an organization, including its premises, operations, and products.

As a single mother on a very tight budget, Ciara is tempted to skimp on her insurance. However, her friend Mehmet tells her not to skimp on insurance, because it will help manage her cash flows. Which one of the following examples best illustrates Mehmet's point?  A. Ciara finds it difficult to come up with a $787 auto insurance premium every six months. B. Ciara needs her car to get to her job, and she needs her job to make car payments and pay for her car insurance. C. When her car's transmission goes out a month after the warranty expires, Ciara is faced with an $1,100 repair bill. D. When her car's windshield breaks, Ciara has to pay only $100 of the $600 cost of replacing it. Answer: D. Since the windshield loss is covered, the financial effect on Ciara's cash flow is reduced to the amount of her deductible.

Insurance deals primarily with loss exposures that are fortuitous. Which one of the following statements best characterizes fortuitous losses?  A. Fortuitous losses are beyond the insured's control. B. Fortuitous loss exposures are expected. C. Fortuitous loss exposures are generally predictable. D. Fortuitous losses are intentional. Answer: A. Fortuitous losses are beyond the insured's control.

Which one of the following is true regarding a homeowners policy? A. It only provides property coverage. B. It only provides liability coverage. C. Most include coverage for theft of contents within the home. D. It excludes losses caused by wind and lightning. Answer: C. A homeowners policy provides both property and liability coverage. This includes coverage for theft of personal property as well as perils such as wind and lightning.

Which one of the following is an operating cost of insurers? A. An insured's funds that could be invested elsewhere if purchasing insurance were not necessary B. Producers' commissions C. Increased property losses because people have insurance D. Increased liability loss payments because people have insurance Answer: B. Producers' commissions are among the operating costs of insurers.

All of the following are types of property insurance, EXCEPT: A. Fire and allied lines B. Crime C. Business income D. Directors and officers Answer: D. Only directors and officers insurance is not a property insurance coverage.

Which one of the following statements is correct regarding characteristics of ideally insurable loss exposures? A. Ideally, loss exposures should be spread across a large number of similar exposure units within the same period. B. Intertemporal risk transfer, the spreading of risk through time, requires a large number of similar exposure units. C. One requirement of the law of large numbers is that past events occur under different circumstances in the future. D. Loss exposures such as homes and automobiles generally will not meet the ideally insurable requirement that the exposure be of a large number of similar exposure units. Answer: A. Ideally, loss exposures should be spread across a large number of similar exposure units within the same period.

Claim buildup is considered to be among which one of the following costs of insurance? A. Premiums paid B. Operating costs C. Opportunity costs D. Increased losses Answer: D. Claim buildup is considered to be among the increased losses costs of insurance.

Term life insurance A. Provides lifetime protection. B. Accrues a cash value. C. Provides protection for a specified period with no cash value. D. Allows the policyholder to borrow against policy savings. Answer: C. Term life insurance provides protection for a specified period with no cash value.

Which one of the following statements is correct? A. Insurers are prohibited from investing in social projects. B. Insurance provides a source of investment funds for insurers but not for policyholders. C. Insurers cannot invest premium income because it must be available to pay claims. D. Insurers' investment income helps keep premiums at a reasonable level. Answer: D. Insurers' investment income helps keep premiums at a reasonable level.

Life insurance that provides coverage for a specified period with no cash value is called A. Universal life. B. Term life insurance. C. Whole life. D. Long-term care insurance. Answer: B. Life insurance that provides coverage for a specified period with no cash value is called term insurance.

The primary role of insurance is to A. Make a profit for the insurance company's shareholders. B. Educate individuals and organizations about loss prevention. C. Indemnify individuals and organizations for covered losses. D. Sell insurance policies to individuals and organizations. Answer: C. The primary role of insurance is to indemnify individuals and organizations for covered losses.

Commercial general liability insurance policies written on an occurrence basis apply to bodily injury and property damage that occurs during the policy period. This provision supports the principle that insurable loss exposures must ideally be A. Definite. B. Fortuitous. C. Independent. D. Pure risks. Answer: A. Losses that occur during the policy period are definite in time.

Another name for liability insurance is A. First-party insurance. B. Second-party insurance. C. Third-party insurance. D. Multiple-party insurance. Answer: C. Liability insurance involves a third party, the claimant.