Insurance MCQ

An insurer having a large number of similar exposure units is considered important because A) the insurer can decrease its reserves B) the greater the number insured, the more accurately the insurer can predict losses and set appropriate premiums C) its financial rating will improve D) the greater the number insured, the more premiums it collects Answer: B) the greater the number insured, the more accurately the insurer can predict losses and set appropriate premiums

People with higher loss exposure have the tendency to purchase insurance more often than those at average risk. This is called A) risk retention B) preexisting conditions C) law of large numbers D) adverse selection Answer: D) adverse selection

An individual who removes the risk of losing money in the stock market by never purchasing stocks is said to be engaging in  A) Risk reduction B) Risk transference C) Risk avoidance D) Risk retention Answer: C) Risk avoidance

Which of the following is NOT considered a definition of risk?  A) The potential for loss B) The cause of a loss C) Exposure to danger D) Uncertainty Answer: B) The cause of a loss

Which type of risk is gambling?  A) Pure risk B) Risk transfer C) Risk pooling D) Speculative risk Answer: D) Speculative risk

Which of the following describes the increase in the probability of a loss due to an insured's dishonest tendencies?  A) Morale hazard B) Physical hazard C) Moral hazard D) Speculative hazard Answer: C) Moral hazard

Which of the following would NOT be accomplished with the purchase of an insurance policy?  A) Greater peace of mind B) Risk is eliminated C) Payment made for covered losses D) Uncertainty is reduced Answer: B) Risk is eliminated

A hazard can be best described as A) the potential for loss B) the tendency for poorer than average risks to seek out insurance C) a condition that may increase the likelihood of a loss occurring D) a risk that has the potential for both loss and gain Answer: C) a condition that may increase the likelihood of a loss occurirng

The cause of a loss is referred to as a(n)  A) hazard B) adversity C) peril D) risk Answer: C) peril

Which of the following refers to a condition that may increase the chance of a loss?  A) Adverse selection B) Hazard C) Risk D) Peril Answer: B) Hazard

Restoring an insured to the same condition as before a loss is known as A) Law of large numbers B) Fiduciary retention C) Adverse selection D) Principle of indemnity Answer: D) Principle of indemnity

An example of risk sharing would be A) Adding more security to a high-risk building B) Choosing not to invest in the stock market C) Doctors pooling their money to cover malpractice exposures D) Buying an insurance policy to cover potential liabilities Answer: C) Doctors pooling their money to cover malpractice exposures

A situation in which there is ONLY a chance of loss or no loss is a A) pure risk B) particular risk C) speculative risk D) fundamental risk Answer: A) pure risk

All of the following circumstances must be met for loss retention to be an effective risk management technique, EXCEPT A) Loss cannot be catastrophic B) Probability of loss is unknown C) Highly predictable losses D) Loss must be measurable Answer: B) Probability of loss is unknown

Which of the following is NOT an element of an insurable risk? A) Loss must be due to chance B) Loss frequency must be predictable C) Loss must be measurable D) Loss must be catastrophic Answer: D) Loss must be catastrophic

Moral hazard is described as the A) increased chance of loss because of an insured's recklessness B) increased ability to predict loss because a higher exposure to loss C) increased risk of adverse selection D) increased chance of a loss because of an insured's dishonest tendencies Answer: D) increased chance of a loss because of an insured's dishonest tendencies

All of the following are examples of pure risk EXCEPT A) Losing money at a casino B) Injured while playing football C) Falling at a casino and breaking a hip D) Jewelry stolen during a home robbery Answer: A) Losing money at a casino

Insurance companies determine risk exposure by which of the following? A) Insurable interest B) Insurance exchanges C) Law of large numbers and risk poolings D) Population table data Answer: C) Law of large numbers and risk poolings

Which of the following best describes the statement "The more times an event is repeated, the more predictable the outcome becomes"?  A) Law of large numbers B) Adverse selection C) Average variance D) Speculative retention Answer: A) Law of large numbers

What is known as the immediate specific event causing loss and giving rise to risk? A) Peril B) Hazard C) Loss factor D) Liability Answer: A) Peril