Insurance MCQ

An example of a morale hazard in relation to a life insurance application would be: A) An individual has an indifferent attitude about participating in activities that may be damaging to his health. B) misstating your health history to an insurance company C) A person suffering bouts of sever depression. D) The insured is color blind. Answer: A) An individual has an indifferent attitude about participating in activities that may be damaging to his health.

An example of a moral hazard in relation to a life insurance application would be: A) An individual has an indifferent attitude about participating in activities that may be damaging to his health. B) misstating your health history to an insurance company C) A person suffering bouts of sever depression. D) Someone who often drives at excessively high rates of speed. Answer: B) misstating your health history to an insurance company

The best description of a hazard is a/an: A) Condition that may increase the chance that a loss may occur B) cause of a loss C) Pure risk D) Uncertainty of a financial loss Answer: A) Condition that may increase the chance that a loss may occur

How would a 'peril' best be defined? A) Reason for the loss B) Result of the loss C) Required to increase the likelihood of a loss occurring D) Remaining hazards after a loss occurs Answer: A) Reason for the loss

From the choices below, select the best description of a speculative risk. A) Insuring someone over the age of 90 B) involving the possibility of a gain in addition to the uncertainty of loss c) insuring against a situation that offers no possibility of gain. d) the purchase of an insurance policy to protect from gambling losses. Answer: B) involving the possibility of a gain in addition to the uncertainty of loss

How would a "pure" risk best be described? A) Winning at the poker tables in Las Vegas B) Experiencing a loss in the stock market C) Losing some pay from work because of an injury d) the fluctuations of international currency Answer: C) Losing some pay from work because of an injury

Insurance negatively affects society in all of the following ways EXCEPTS: A) Takes qualified labor away from other parts of society B) To earn more money insureds inflate claims C) Takes away capital that could be used for other things D) Paid claims do not actually replace the damages as a whole Answer: C) Takes away capital that could be used for other things

As defined by the California insurance code, "insurance" is a: A) peril b) Contract C) Risk D) Gamble Answer: b) Contract

The principle of indemnification is best described below as: A) Protecting from any past legal situation B) a hazard not specifically defined in the code. c) A form of insurance that insurance companies buy to decrease exposure from investment losses. C) Restoring an individual to a condition they enjoyed in the past, thus making them whole. Answer: C) Restoring an individual to a condition they enjoyed in the past, thus making them whole.

Which of these is the best way to define the concept of "indemnity?" A) It's only when concealed facts are material that an insurer can rescind or cancel a policy. B) Only the insurance company makes a legally enforceable promise. C) An insured cannot receive more than an actual economic loss in the event of a claim. D) If there is an unclear statement in a contract of insurance the courts will rule in favor of the insured. C) An insured cannot receive more than an actual economic loss in the event of a claim. Answer: The concept of indemnity is to "make whole" or to be brought back to the same condition as before the loss. It is neither to make a gain nor to have a loss.

A written contract attempts to indemnify another party against loss, damage, or liability arising from a contingent or unknown event. This describes: A) Incontestability B) A provision C) Insurance D) An illegal contract in California Answer: C) Insurance

For any type of risk exposure to be considered an "ideally insurable risk", which of the following characteristics does not have to exist? A) The risk has to be part of a group that has the same or very similar characteristics B) The value of a loss must be able to be measured financially C) the event that causes the loss has to be accidental D) there is very little if any, chance of a loss happening during the policy period Answer: D) there is very little if any, chance of a loss happening during the policy period

According to the definition of an ideally insurable risk, which of the following is not a requirement? A) Loss must be accidental B) Loss must be the result of a catastrophic event C) Loss exposure must be part of a similar group of exposures D) Loss must be measurable in monetary value Answer: B) Loss must be the result of a catastrophic event

As an employer, the sudden death of an employee is considered a: A) Body Loss B) Personnel Loss c) Personal Loss D) Human Loss Answer: B) Personnel Loss

In life insurance, the loss of key employee is considered a: A) Body Loss B) Personnel Loss c) Personal Loss D) Human Loss Answer: B) Personnel Loss

All of the following would be considered one of the three major types of loss exposures, except: a) Liability loss exposure b) Financial loss exposure c) Human and personnel loss exposure d) Property loss exposure Answer: b) Financial loss exposure

Any situation that presents the possibility of a loss is known as: a) A covered loss b) A loss exposure c) Risk potential d) Consideration Answer: b) A loss exposure

The industry's application of the Law of Large Numbers is beneficial to insureds because it enables the insurers to increase the accuracy of their predictions for the loss experience of an individual. Answer: T/F

The Maple Insurance has only the Milehigh Manufacturing account for disability income insurance for all of Milehigh's employees. A high concentration of these insured is in one location. Oak Grove Insurance Company previously had the account along with many other large manufacturing companies around the country. Choose from below the correct statement(s) regarding the "law of large numbers" as it relates to these two insurers: 1. Oak Grove can use the law of large numbers better than Maple 2. Catastrophic loss exposure was the same for both insurers 3. The more employees insured, the better a company can predict the injury of any one employee Answer: 1 

The mathematical rule that says that as the number of individual but similar exposure units increases the easier it is to predict losses is which of the following? A) Insurable interest standard b) Contract law c) The law of large numbers d) Materiality Answer: c) The law of large numbers