Insurance Principles Practice Exam Quiz
What is the primary purpose of insurance?
To avoid risk
B. To transfer risk
C. To eliminate risk
D. To create risk
Which of the following is NOT a principle of insurance?
Utmost good faith
B. Indemnity
C. Risk elimination
D. Insurable interest
What does the term “premium” refer to in insurance?
The cost of purchasing insurance coverage
B. The total payout after a claim
C. The interest earned on investments
D. The profit made by insurance companies
The concept of “insurable interest” requires the policyholder to:
Be related to the insured
B. Have a financial stake in the insured item
C. Own the insurance company
D. Pay higher premiums
Which type of insurance covers damages to third parties caused by the insured?
Life insurance
B. Liability insurance
C. Health insurance
D. Property insurance
What does the principle of indemnity ensure?
The insured profits from a loss
B. The insured is restored to their original financial position
C. The insured pays higher premiums for repeated claims
D. The insured cannot file claims for natural disasters
A contract of insurance is considered void if:
The insured pays the premium late
B. There is a breach of utmost good faith
C. The insured does not file a claim
D. The insured changes their address
What does a deductible represent in an insurance policy?
The amount the insurer will pay for a claim
B. The amount the insured must pay before coverage applies
C. The refund for unused coverage
D. The interest rate on the policy
What is reinsurance?
Insurance purchased by an insurer to cover their risks
B. A secondary policy for the same insured item
C. A form of life insurance
D. Insurance for policyholders with bad credit
What is a “rider” in an insurance policy?
An extra coverage provision
B. A policy cancellation clause
C. A discount for long-term customers
D. The insurance agent’s commission
Which type of life insurance has both an investment component and coverage?
Whole life insurance
B. Term life insurance
C. Accidental death insurance
D. Universal life insurance
The process of assessing an applicant’s risk is known as:
Risk pooling
B. Underwriting
C. Claims adjustment
D. Premium setting
The pooling of risks in insurance refers to:
Collecting similar risks to distribute losses
B. Offering discounts for high-risk individuals
C. Allowing insured parties to share premiums
D. Reducing premiums for low-risk individuals
Which type of insurance is designed to replace income after an injury or illness?
Life insurance
B. Health insurance
C. Disability insurance
D. Liability insurance
What is subrogation in insurance?
The insured transferring claims to the insurer
B. The insurer recovering costs from a third party
C. A clause to cancel the policy
D. A process to lower premiums
A peril in insurance is defined as:
A condition that increases risk
B. The cause of a potential loss
C. An event excluded from coverage
D. The amount paid for coverage
An example of a moral hazard is:
Leaving doors unlocked intentionally
B. Building a house in a flood zone
C. Forgetting to renew a policy
D. Smoking in a no-smoking zone
What is the primary purpose of an insurance policy’s exclusions?
To reduce the premium cost
B. To specify risks not covered
C. To offer additional coverage
D. To eliminate all risks
Coinsurance typically applies to:
Auto insurance
B. Health insurance
C. Life insurance
D. Disability insurance
Which principle requires both parties to disclose all material facts?
Indemnity
B. Utmost good faith
C. Insurable interest
D. Subrogation
A claim can be denied if:
The insured fails to pay the premium
B. The insured files multiple claims
C. The insured changes the coverage level
D. The insurer changes ownership
A “no-fault” insurance policy is most commonly associated with:
Auto insurance
B. Life insurance
C. Health insurance
D. Travel insurance
Which of the following is an example of a speculative risk?
Starting a business
B. A natural disaster
C. Theft
D. Fire
Group insurance policies are usually offered by:
Individuals
B. Employers
C. Charities
D. Insurance agents
An insurance policy’s grace period refers to:
The time to pay overdue premiums without losing coverage
B. The period after filing a claim
C. The time before the policy becomes effective
D. The duration of the coverage
Which is an example of a liability insurance claim?
A fire damaging your home
B. Your car causing damage to another vehicle
C. Your personal health expenses
D. A theft of your jewelry
The law of large numbers helps insurers to:
Predict individual losses
B. Predict overall losses for a group
C. Reduce underwriting costs
D. Eliminate moral hazards
A named peril policy covers:
All risks except those excluded
B. Only risks specifically listed
C. Losses from intentional acts
D. All losses without exception
An insurance policy is a:
Verbal promise to pay claims
B. Legal contract between the insurer and insured
C. Guarantee of profit for the insurer
D. Flexible agreement without terms
When the insured pays for a loss out of pocket and gets reimbursed later, it’s known as:
Cash settlement
B. Reimbursement policy
C. Retention
D. Co-payment
Which type of insurance policy pays out only if the insured survives to the end of the policy term?
Term life insurance
B. Endowment insurance
C. Whole life insurance
D. Universal life insurance
What is the role of a beneficiary in an insurance policy?
The person who underwrites the policy
B. The individual or entity that receives the payout upon the insured’s death
C. The person who collects the premium
D. The policyholder’s insurance agent
What does the term “policyholder” mean?
The person who sells the insurance
B. The person who purchases and owns the insurance policy
C. The person who adjusts claims
D. The person who processes payments
An “insurable risk” must have which of the following characteristics?
It must involve a catastrophic event.
B. It must be speculative in nature.
C. It must be measurable and predictable.
D. It must always involve a financial profit.
What is the main difference between term insurance and whole life insurance?
Term insurance builds cash value, while whole life does not.
B. Whole life insurance provides lifelong coverage, while term insurance has a limited duration.
C. Term insurance covers only accidents, while whole life covers all risks.
D. Whole life insurance has no premium payments, while term insurance does.
The purpose of a grace period in an insurance policy is to:
Allow for delayed premium payments without losing coverage
B. Permit claim filing after the policy has expired
C. Waive the deductible on certain claims
D. Extend the policy beyond its original term
A peril excluded in a homeowners’ insurance policy is most likely:
Fire damage
B. Theft
C. Flood
D. Vandalism
The primary purpose of a deductible in an insurance policy is to:
Increase the premium
B. Discourage minor claims
C. Eliminate the need for co-payments
D. Guarantee full coverage of losses
What is the purpose of “co-insurance” in health insurance policies?
To share a portion of costs between the insured and the insurer
B. To cover risks excluded in other policies
C. To combine multiple policies into one
D. To provide free coverage for certain conditions
A “claims adjuster” in insurance is responsible for:
Selling policies to potential customers
B. Reviewing and settling insurance claims
C. Collecting premiums from policyholders
D. Marketing new insurance products
What is a term used to describe a written request by the policyholder for reimbursement of a loss?
Proposal
B. Claim
C. Endorsement
D. Adjustment
In marine insurance, the term “hull insurance” refers to coverage for:
Cargo on board
B. Machinery and equipment
C. The ship itself
D. Liability for third parties
What is “actual cash value” in property insurance?
The replacement cost minus depreciation
B. The cost of purchasing a new replacement
C. The market value of the insured property
D. The premium paid by the policyholder
Which of the following is an example of a physical hazard?
Smoking cigarettes
B. Leaving a car unlocked
C. Living in a high-crime area
D. An icy sidewalk
What is the purpose of an “umbrella insurance policy”?
To provide additional liability coverage beyond the limits of standard policies
B. To offer coverage for natural disasters not covered by other policies
C. To provide full replacement costs for damaged property
D. To eliminate the need for deductibles
Which principle in insurance requires the insured to have a financial interest in the subject matter of the insurance?
Contribution
B. Insurable interest
C. Indemnity
D. Subrogation
What does the term “subrogation” mean in insurance?
The transfer of rights from the insurer to the insured
B. The transfer of rights from the insured to the insurer
C. Sharing losses between multiple insurers
D. Adjusting the claim settlement process
In health insurance, what is the purpose of a co-payment?
To cover the entire cost of treatment
B. To reduce the overall cost for the insured
C. To split a fixed cost between the insured and insurer for services
D. To reimburse the policyholder after treatment
What does “moral hazard” in insurance refer to?
Physical conditions that increase the likelihood of a loss
B. The dishonesty or carelessness of the insured that increases risk
C. The legal risks associated with underwriting policies
D. Changes in laws that affect policy terms
A “rider” in an insurance policy is:
An additional premium charged for standard coverage
B. A clause that reduces the scope of coverage
C. An amendment that provides additional benefits
D. A premium waiver option for the insured
The primary purpose of reinsurance is to:
Increase the premiums of primary insurers
B. Protect insurers against large financial losses
C. Protect the policyholder from additional premiums
D. Eliminate underwriting risks
In automobile insurance, a “no-fault” system means:
Only the driver at fault pays for all damages
B. Each party’s insurance pays for their own damages, regardless of fault
C. Insurance coverage is only available for severe accidents
D. The policyholder must admit fault to file a claim
What is “underwriting” in the context of insurance?
Selling insurance policies to customers
B. Adjusting claims and determining settlement amounts
C. Assessing risks and deciding whether to offer coverage
D. Collecting premiums from policyholders
What does “liability insurance” cover?
Damage to the policyholder’s property
B. Financial losses due to theft or vandalism
C. Legal responsibility for injuries or damages caused to others
D. Damage to vehicles in a car accident
A term insurance policy provides coverage for:
The lifetime of the insured
B. A specified term only, with no cash value
C. Retirement planning purposes
D. Accidental damages only
In group insurance, who is the policyholder?
The individual employees covered
B. The insurer offering the policy
C. The organization or employer offering coverage
D. A third-party administrator
What is the primary purpose of coinsurance in property insurance?
To encourage policyholders to carry adequate insurance
B. To reduce the claims settlement process
C. To waive deductibles in certain cases
D. To split the premiums between insured and insurer
What is an “exclusion” in an insurance policy?
A condition under which coverage is denied
B. An additional premium added to the policy
C. A clause that provides extra benefits
D. A section that lists deductible amounts
Which of the following is an example of adverse selection in insurance?
Insurers offering discounts for low-risk individuals
B. High-risk individuals being more likely to purchase insurance
C. Policyholders canceling coverage before the end of the term
D. Low-risk individuals opting for higher coverage amounts
What does the “principle of indemnity” ensure in insurance?
The insured is fully compensated for their loss without profit
B. The insurer profits from the premiums collected
C. The insured always receives the maximum policy limit
D. Claims are settled within a fixed timeframe
What is the purpose of a “waiting period” in an insurance policy?
To reduce premium costs
B. To allow the insured time to file claims
C. To delay coverage until a specified time has passed
D. To extend the policy duration without payment
Which of the following is an example of a speculative risk?
Damage caused by a natural disaster
B. Loss of property due to theft
C. Investing in the stock market
D. Liability claims from an accident
What does “policy lapse” mean in insurance?
The expiration of a claim filing period
B. Termination of coverage due to non-payment of premiums
C. Adjustment of policy terms upon renewal
D. Cancellation by the insurer for fraudulent activity
What type of insurance covers injuries sustained by employees while on the job?
General liability insurance
B. Workers’ compensation insurance
C. Health insurance
D. Disability insurance
Which of the following is NOT a method of handling risk?
Retention
B. Transfer
C. Avoidance
D. Elimination
A “renewable term policy” in life insurance means:
The policy automatically converts to whole life insurance at the end of the term
B. The insured can renew the policy without evidence of insurability
C. The premiums remain constant for the duration of the policy
D. The policyholder can increase coverage during the term
What is the primary benefit of disability insurance?
Provides financial support for medical expenses
B. Replaces income lost due to the inability to work
C. Covers rehabilitation costs after an accident
D. Offers lump-sum payments for accidental death
The “law of large numbers” is important in insurance because it:
Reduces premiums for high-risk individuals
B. Predicts individual losses with precision
C. Allows insurers to predict losses more accurately for larger groups
D. Eliminates the need for underwriting
Which of the following is an example of a pure risk?
Winning the lottery
B. Loss due to fire damage
C. Profit from a business venture
D. Gains from a speculative investment
What is the purpose of a “non-cancellable” insurance policy?
To allow the insurer to cancel the policy at any time
B. To protect the policyholder from premium increases
C. To guarantee renewal for the life of the policy
D. To waive premiums during periods of disability
What is the primary role of a reinsurance company?
To insure policyholders directly
B. To settle disputes between policyholders and insurers
C. To share risks with primary insurers
D. To assess the validity of insurance claims
Which type of insurance policy is typically used for estate planning purposes?
Universal life insurance
B. Term life insurance
C. Variable life insurance
D. Whole life insurance
What is a “pro-rata” cancellation in insurance?
Cancellation without a refund of the premium
B. Cancellation with a full refund of unused premium
C. Cancellation based on proportional use of the coverage
D. Cancellation initiated by the policyholder
In liability insurance, the term “aggregate limit” refers to:
The maximum amount payable for a single claim
B. The total premium collected by the insurer
C. The maximum amount payable for all claims during a policy period
D. The deductible amount for all claims combined
What is a “binder” in insurance?
A temporary contract providing immediate coverage
B. A document outlining the claims process
C. A list of policy exclusions
D. A clause that modifies the original policy
Which type of life insurance policy allows the policyholder to invest in separate accounts?
Universal life insurance
B. Whole life insurance
C. Term life insurance
D. Variable life insurance
What is the primary purpose of an umbrella liability policy?
To reduce the deductible on standard policies
B. To provide additional liability coverage beyond existing limits
C. To cover risks excluded in primary insurance
D. To provide coverage for property damages
What is “assurance” in the context of insurance?
Coverage for certain death and retirement benefits
B. Insurance for specific types of vehicles
C. Protection against accidental losses
D. Guarantees provided by insurers against all risks
What is a “loss ratio” in insurance?
The ratio of claims paid to premiums earned
B. The percentage of losses covered by the insurer
C. The ratio of deductibles to total premiums
D. The ratio of policyholders to total coverage
In marine insurance, the term “general average” refers to:
A clause covering damages to cargo only
B. Partial loss shared among all parties involved in the voyage
C. The average claim amount paid by insurers
D. The standard premium charged for ocean transport
A “franchise deductible” in insurance means:
The insurer pays for all losses exceeding the deductible
B. The policyholder pays all losses up to a fixed limit
C. No payment is made unless the loss exceeds a specified amount
D. The deductible decreases with each claim filed
Which type of insurance is designed to protect a business against interruption losses?
General liability insurance
B. Business interruption insurance
C. Professional indemnity insurance
D. Key person insurance
What is a “peril” in insurance terms?
The cause of a loss
B. The likelihood of a loss occurring
C. A specific policy exclusion
D. A financial gain from the policy
What is “cash surrender value” in life insurance?
The amount paid to the insurer upon policy cancellation
B. The value of the policy when converted to term insurance
C. The accumulated value available if the policy is terminated early
D. The death benefit amount payable to the beneficiary
In health insurance, a “stop-loss” provision means:
The insured stops paying premiums after reaching the deductible
B. The insurer covers all expenses after the insured’s out-of-pocket limit is reached
C. The policyholder is refunded excess premiums
D. The insurer stops coverage after a claim is denied
A policy that pays out equal amounts to multiple beneficiaries is called:
Joint life insurance
B. Equal distribution insurance
C. Split benefit policy
D. Proportional payout policy
The principle of “utmost good faith” in insurance requires:
Full disclosure of material facts by both parties
B. Prompt settlement of claims by the insurer
C. Payment of premiums before coverage begins
D. Sharing of all profits between insurer and insured
In property insurance, “replacement cost” refers to:
The market value of the damaged property
B. The cost to replace the property without depreciation
C. The actual cash value minus the deductible
D. The original purchase price of the property
What is “self-insurance”?
Purchasing minimal insurance coverage
B. Setting aside funds to cover potential losses
C. Purchasing insurance for oneself only
D. Avoiding high-risk policies
A life insurance policy’s “contestability period” typically lasts:
6 months
B. 1 year
C. 2 years
D. 5 years
What does the term “moral hazard” mean in insurance?
An insured person’s careless attitude due to having insurance
B. A policyholder’s inability to pay premiums
C. Damage caused by intentional acts of the insured
D. Risks associated with insuring high-risk individuals
Which of the following policies is best suited for temporary insurance needs?
Term life insurance
B. Whole life insurance
C. Universal life insurance
D. Variable life insurance
What is the purpose of a deductible in an insurance policy?
To eliminate the need for premium payments
B. To share the risk between the insurer and the insured
C. To increase the coverage amount
D. To provide immediate reimbursement for claims
What type of insurance covers damages caused by an employee during work?
Professional liability insurance
B. Employers’ liability insurance
C. Workers’ compensation insurance
D. Commercial general liability insurance
Which of the following is NOT considered a peril?
Fire
B. Theft
C. Negligence
D. Flood
What is an “endorsement” in an insurance policy?
A clause that cancels the policy
B. A modification to the terms of the original policy
C. A mandatory increase in the deductible
D. A declaration by the insurer to accept risk
Which type of insurance typically includes “coinsurance” provisions?
Homeowners insurance
B. Auto insurance
C. Health insurance
D. Life insurance
A “captive insurance company” is:
A subsidiary created to insure the parent company’s risks
B. An insurer that only works with high-risk individuals
C. A government-owned insurance provider
D. An insurance broker for specialized policies
What is the primary purpose of liability insurance?
To cover the insured’s property damages
B. To pay for damages caused to a third party
C. To replace lost income during accidents
D. To provide death benefits to beneficiaries
What does “subrogation” allow an insurer to do?
Collect premiums before issuing a policy
B. Recover claims paid to the insured from a third party responsible for the loss
C. Waive deductibles for policyholders
D. Modify policy terms after a loss occurs
Which of the following is a characteristic of whole life insurance?
Temporary coverage for a specific term
B. No cash value accumulation
C. Fixed premiums and guaranteed death benefits
D. No medical underwriting required
What is “loss of use” coverage in homeowners insurance?
Reimbursement for temporary living expenses while the home is repaired
B. Replacement cost of damaged property
C. Coverage for personal liability lawsuits
D. Protection against wear and tear on the property
Which of the following is NOT typically excluded in health insurance policies?
Cosmetic surgery
B. Experimental treatments
C. Preventive care
D. Elective procedures
What does “actual cash value” refer to in property insurance?
The replacement cost minus depreciation
B. The original purchase price of the property
C. The current market value of the property
D. The total coverage amount specified in the policy
A liability insurance policy that covers claims filed after the policy period, provided the event occurred during the policy term, is called:
Claims-made policy
B. Occurrence policy
C. Retroactive policy
D. Comprehensive policy
What is “key person insurance”?
Insurance that provides coverage for all employees of a company
B. Life or disability insurance for an individual critical to a business
C. Liability insurance for company executives
D. Health insurance for retired employees
Which type of insurance covers financial losses from cyberattacks?
Property insurance
B. Business interruption insurance
C. Cyber liability insurance
D. Errors and omissions insurance
What is the “indemnity principle” in insurance?
Insurers pay more than the actual loss amount to the insured
B. Insurers restore the insured to their financial position before the loss
C. Insurers guarantee a profit to the insured after a claim
D. Insurers set premiums equal to potential claims
What does the term “rider” mean in life insurance?
An additional benefit or modification to the policy
B. The portion of the premium paid by the insured
C. The name of the primary beneficiary
D. A temporary cancellation of coverage
What is the purpose of coinsurance in property insurance?
To reduce the insured’s share of a claim
B. To encourage the insured to carry adequate coverage
C. To eliminate the need for a deductible
D. To allow the insured to pay lower premiums
Which of the following is considered a moral hazard?
Leaving a car unlocked in a public area
B. Driving in bad weather conditions
C. Falsifying information on an insurance application
D. Owning property in a flood-prone area
What is the role of an underwriter in the insurance process?
To investigate and process claims
B. To design new insurance products
C. To assess and classify risks for premium determination
D. To sell insurance policies to consumers
What is “umbrella insurance”?
Coverage for catastrophic property damages
B. Additional liability insurance above standard policies
C. A specialized policy for high-risk individuals
D. Insurance for uninsured individuals
What type of insurance protects professionals against claims of negligence?
Directors and officers insurance
B. Errors and omissions insurance
C. Professional liability insurance
D. General liability insurance
What does “primary insurance” mean?
The insurance that provides the first layer of coverage in a loss
B. Insurance that covers secondary risks only
C. Insurance required before purchasing additional policies
D. Coverage for non-recoverable claims
What is the purpose of an “insurable interest”?
To reduce the amount of premiums payable
B. To ensure the policyholder has a financial stake in the insured item
C. To minimize the insurer’s exposure to risk
D. To guarantee a payout regardless of loss occurrence
Which type of insurance policy provides a death benefit and investment options?
Whole life insurance
B. Universal life insurance
C. Term life insurance
D. Variable life insurance
What is a “named peril” insurance policy?
A policy that covers all risks unless specifically excluded
B. A policy that only covers perils specifically listed in the contract
C. A policy providing coverage for unnamed beneficiaries
D. A policy for risks related to specific individuals
What is a “catastrophic loss” in insurance?
A minor loss covered under standard policies
B. A loss that exceeds the coverage limit of the policy
C. A large-scale loss affecting many insured parties
D. A loss caused by negligence of the insured
In which type of life insurance policy can the policyholder adjust premiums and benefits?
Term life insurance
B. Whole life insurance
C. Universal life insurance
D. Group life insurance
What is the main purpose of a reinsurance agreement?
To reduce the risk exposure of the primary insurer
B. To provide coverage for high-risk individuals
C. To replace traditional insurance policies
D. To allow policyholders to pay lower premiums
What does the term “self-insurance” refer to?
An arrangement where an individual or business assumes the financial risk of losses
B. A policy issued directly by the government
C. Insurance purchased without an intermediary
D. Coverage for uninsured losses
What is the key feature of a “named insured” in an insurance policy?
The person or entity explicitly covered by the policy
B. The person responsible for paying the premiums
C. The primary beneficiary of the policy
D. The insurer’s designated claims adjuster
What is the purpose of an insurance “grace period”?
To allow for late premium payments without policy cancellation
B. To provide additional coverage after the policy expires
C. To extend the term of the policy at no extra cost
D. To enable policyholders to switch insurers
What is the “policyholder dividend” in mutual insurance companies?
A refund of excess premiums to policyholders
B. A bonus payment for timely premium payments
C. A share of the company’s profits distributed to investors
D. A discount applied to future premiums
Which of the following is considered a speculative risk?
Gambling on a casino game
B. Purchasing a home
C. Operating a motor vehicle
D. Owning a small business
What does “risk retention” mean in the context of insurance?
Accepting responsibility for potential losses instead of purchasing insurance
B. Transferring risk to an insurance provider
C. Eliminating all exposure to risk
D. Pooling risks among multiple insured parties
What is the key distinction between “adverse selection” and “moral hazard”?
Adverse selection involves high-risk individuals, while moral hazard involves insured behavior changes
B. Adverse selection increases premiums, while moral hazard reduces claims
C. Adverse selection impacts insurers, while moral hazard affects policyholders
D. Adverse selection occurs after policy issuance, while moral hazard occurs before
Which type of insurance is most commonly used by businesses to protect against lawsuits?
General liability insurance
B. Property insurance
C. Auto insurance
D. Life insurance
What does “aggregate limit” refer to in liability insurance?
The maximum amount the insurer will pay for all claims during a policy period
B. The minimum amount of coverage required by law
C. The total value of premiums paid by the insured
D. The sum insured for a single claim
Which of the following is an example of a peril in insurance?
A house fire
B. Poor maintenance
C. Negligent behavior
D. Failure to pay premiums
What is the primary purpose of umbrella insurance?
To extend the limits of existing liability policies
B. To cover uninsured medical expenses
C. To insure valuable collectibles and antiques
D. To replace life insurance policies
Which of the following is NOT covered by typical homeowners insurance policies?
Earthquakes
B. Fire damage
C. Theft
D. Liability for injuries on the property
What is “underwriting” in insurance?
Assessing risk and determining appropriate premiums
B. Filing claims on behalf of policyholders
C. Managing an insurance company’s financial portfolio
D. Cancelling policies for non-payment
Which type of insurance is designed to protect individuals from income loss due to disability?
Workers’ compensation insurance
B. Disability income insurance
C. Life insurance
D. Health insurance
What is the primary benefit of a no-fault insurance system?
Claims are processed without determining fault
B. Premiums are reduced for safe drivers
C. It covers both economic and non-economic damages
D. It guarantees full reimbursement for losses
Which type of life insurance builds cash value over time?
Whole life insurance
B. Term life insurance
C. Accidental death insurance
D. Group life insurance
What does “insurable interest” ensure?
The policyholder has a legitimate financial stake in the insured item
B. The insurer is guaranteed a profit on each policy
C. The insured can transfer their policy to another party
D. Premiums are fixed for the policy duration
What is a “binder” in insurance?
A temporary agreement providing coverage until the final policy is issued
B. A document listing policy exclusions
C. A claim report submitted to the insurer
D. A method of reducing premiums
What type of insurance protects businesses from financial losses due to employee theft?
Crime insurance
B. Workers’ compensation insurance
C. General liability insurance
D. Directors and officers insurance
What does the term “per occurrence limit” mean in liability insurance?
The maximum amount the insurer will pay for a single incident
B. The minimum coverage required for each claim
C. The total limit for all claims during the policy period
D. The amount deductible per incident
What is the purpose of “exclusions” in an insurance policy?
To specify risks not covered by the policy
B. To lower premiums for high-risk individuals
C. To guarantee full reimbursement for losses
D. To limit the insurer’s liability in certain areas
Which of the following is considered an insurable risk?
Predictable and measurable events
B. Speculative ventures with high profits
C. Intentional acts of the insured
D. Unverifiable losses
What is the role of a claims adjuster in the insurance process?
To investigate and settle insurance claims
B. To sell insurance policies to consumers
C. To determine premium rates for policies
D. To manage investments for the insurer
What is the purpose of coinsurance in health insurance policies?
To share medical costs between the insured and insurer
B. To eliminate deductibles
C. To provide unlimited coverage for medical expenses
D. To reduce the insurer’s claims responsibilities
What type of insurance covers a business if it cannot operate due to a covered loss?
Business interruption insurance
B. General liability insurance
C. Workers’ compensation insurance
D. Cyber liability insurance
What is “assignment” in an insurance contract?
The transfer of policy rights to another party
B. The allocation of claims to specific adjusters
C. The renewal of an expired policy
D. The calculation of premiums based on risks
What does “loss ratio” measure in the insurance industry?
The proportion of claims paid to premiums earned
B. The number of policies cancelled due to non-payment
C. The percentage of uninsured individuals in a market
D. The total profits earned by an insurer in a year
Which of the following is NOT typically covered by health insurance?
Preventive care
B. Over-the-counter medications
C. Emergency medical services
D. Hospital stays
What type of policy provides coverage for risks not explicitly excluded?
All-risk policy
B. Named-peril policy
C. Term policy
D. Universal policy
What is “risk pooling” in insurance?
Combining risks from many individuals to minimize overall risk
B. Dividing high-risk individuals into separate groups
C. Increasing premiums for high-risk individuals
D. Transferring risks from individuals to reinsurers
What is the primary function of a deductible in an insurance policy?
To reduce the number of small claims filed
B. To guarantee full coverage for all claims
C. To eliminate the need for premium payments
D. To transfer risk to another insurer
What is “subrogation” in the context of insurance?
The insurer’s right to recover damages from a third party
B. The transfer of a policyholder’s rights to a beneficiary
C. The process of adjusting claims for payment
D. The insurer’s responsibility to cover all losses
Which type of life insurance policy offers a flexible premium and adjustable coverage?
Universal life insurance
B. Whole life insurance
C. Term life insurance
D. Group life insurance
What does “indemnity” mean in insurance?
Compensation for losses to restore the insured to their original financial position
B. A guarantee of profit for the policyholder
C. A lump-sum payment made at policy expiration
D. A fixed payout regardless of loss amount
What is the role of a “beneficiary” in a life insurance policy?
The individual who receives the policy proceeds upon the insured’s death
B. The person responsible for paying premiums
C. The insurer responsible for issuing the policy
D. The agent who sells the policy
Which of the following is NOT typically included in a property insurance policy?
Personal liability coverage
B. Coverage for business losses
C. Coverage for fire damage
D. Replacement cost coverage
What does “coinsurance” mean in property insurance?
The sharing of costs between the insured and insurer when a loss occurs
B. A clause requiring the insured to maintain a minimum level of coverage
C. An additional policy purchased to cover high-value assets
D. A requirement to pay premiums in installments
What is “insurable interest” in property insurance?
The policyholder’s financial stake in the insured property
B. The insurer’s obligation to pay claims
C. The premium paid by the insured
D. The property’s appraised market value
What type of insurance policy covers damages caused by the use of a motor vehicle?
Auto liability insurance
B. General liability insurance
C. Comprehensive property insurance
D. Umbrella insurance
What does “third-party liability” mean in insurance?
Coverage for claims made by someone other than the insured or insurer
B. Coverage for damages to the insured’s property
C. The insurer’s obligation to reinsure high-risk policies
D. The insured’s ability to transfer coverage to another party
What is the purpose of an insurance “endorsement”?
To modify or add coverage to an existing policy
B. To increase the insurer’s liability
C. To reduce the premium amount
D. To provide coverage for excluded perils
Which of the following is an example of a “moral hazard”?
Filing a fraudulent insurance claim
B. Living in a flood-prone area
C. Failing to pay premiums on time
D. Purchasing insurance for a high-value item
What is the primary advantage of group life insurance?
Lower premiums compared to individual policies
B. Higher coverage amounts
C. No requirement for a medical exam
D. Guaranteed payouts for beneficiaries
What does “actual cash value” mean in property insurance?
The replacement cost of the property minus depreciation
B. The market value of the property at the time of purchase
C. The insured value listed in the policy
D. The amount required to repair or replace the property
What is a “contingent beneficiary” in life insurance?
The individual who receives benefits if the primary beneficiary cannot
B. The person responsible for paying the policy premiums
C. The agent who sells the policy
D. The insurer providing the coverage
What is the purpose of “errors and omissions” insurance?
To protect professionals from lawsuits related to mistakes in their work
B. To cover unintentional policy exclusions
C. To provide additional coverage for high-value assets
D. To compensate for errors in policy documentation
What is the main goal of the principle of “utmost good faith” in insurance contracts?
To ensure both parties disclose all relevant information
B. To provide maximum coverage for all risks
C. To guarantee profits for the insurer
D. To eliminate the need for underwriting
What is a “loss of use” provision in homeowners insurance?
Compensation for additional living expenses if the home becomes uninhabitable
B. Coverage for damages to rental properties
C. A clause that reduces premiums for unused coverage
D. A policy add-on for temporary housing
What type of insurance covers damages caused by employees during their work?
Employer’s liability insurance
B. Workers’ compensation insurance
C. Professional liability insurance
D. Product liability insurance
Which of the following is an example of an “excluded peril” in most standard property insurance policies?
Earthquake damage
B. Fire damage
C. Vandalism
D. Theft
What does “replacement cost” refer to in insurance?
The cost to repair or replace property without depreciation
B. The insured value listed in the policy
C. The market value of the property at the time of loss
D. The deductible amount subtracted from claims
What is the purpose of “surplus lines insurance”?
To provide coverage for high-risk or unconventional situations
B. To reduce premiums for standard policies
C. To cover excluded perils in primary insurance
D. To guarantee payouts for all claims
What is the main characteristic of a “catastrophic loss” in insurance?
High severity and low frequency of occurrence
B. Frequent occurrence with minimal financial impact
C. Low severity and low frequency of occurrence
D. High frequency with significant financial impact
What is “co-insurance” in health insurance?
A cost-sharing arrangement where the insured pays a percentage of covered costs
B. The premium amount paid by the insured
C. The total cost of the insurance policy
D. A provision for sharing risks between insurers
What is the purpose of “risk assessment” in underwriting?
To evaluate the likelihood of a loss and set appropriate premiums
B. To cancel policies for high-risk individuals
C. To determine the insured’s eligibility for coverage
D. To process claims faster
What does the “policy term” refer to in insurance?
The duration of coverage provided by the policy
B. The language used in the policy document
C. The amount of premium paid by the insured
D. The total number of claims filed
What is “gap insurance” typically used for?
To cover the difference between a vehicle’s market value and the amount owed on it
B. To reduce premiums for high-risk drivers
C. To insure rental vehicles during travel
D. To cover damages excluded by auto insurance
What is the purpose of a “waiting period” in disability insurance?
To prevent immediate claims after policy issuance
B. To extend the policy’s coverage term
C. To lower the overall cost of premiums
D. To guarantee coverage for pre-existing conditions
What does “policyholder surplus” measure in insurance companies?
The financial strength of the insurer
B. The total premiums collected
C. The claims paid in a policy period
D. The market share of the insurer
What is the primary purpose of reinsurance?
To transfer risk from one insurer to another
B. To eliminate deductibles for policyholders
C. To insure only high-risk individuals
D. To increase the premiums of primary insurers
What is a “grace period” in an insurance policy?
The time allowed for late premium payments before policy cancellation
B. The duration of the policy’s coverage term
C. The time between claim submission and settlement
D. The period when no premiums are due
Which of the following describes a “named peril” insurance policy?
Coverage for only specific perils listed in the policy
B. Coverage for all risks except those explicitly excluded
C. Coverage for liability claims only
D. Coverage for high-risk activities
What is the function of an “insurance agent”?
To sell policies and provide customer service to policyholders
B. To determine the claims settlement amount
C. To calculate policyholder premiums
D. To underwrite policies for the insurer
Which insurance policy covers injuries caused by medical malpractice?
Professional liability insurance
B. General liability insurance
C. Health insurance
D. Workers’ compensation insurance
What is the primary difference between “whole life” and “term life” insurance?
Whole life offers lifelong coverage, while term life provides coverage for a specific period.
B. Whole life has no cash value, while term life accumulates savings.
C. Term life offers higher premiums than whole life.
D. Whole life policies are only available through group plans.
What is the main purpose of an insurance policy’s “exclusion clause”?
To list the risks or situations not covered by the policy
B. To specify the deductible amount
C. To outline conditions for premium increases
D. To guarantee coverage for specific perils
What type of insurance provides coverage for loss of income due to disability?
Disability income insurance
B. Life insurance
C. Liability insurance
D. Property insurance
What is the purpose of “underwriting” in insurance?
To assess and evaluate risks to determine premiums
B. To process claims and payments
C. To promote the sale of insurance policies
D. To provide legal support for policyholders
What does a “waiver of premium” provision in life insurance allow?
The insured to stop paying premiums during a period of disability
B. The policy to terminate after a set number of claims
C. The beneficiary to pay premiums after the insured’s death
D. The insured to increase coverage without additional cost
What is the main goal of liability insurance?
To protect against claims of legal responsibility for damages
B. To insure personal property against theft
C. To cover health-related expenses
D. To provide compensation for natural disasters
What is the role of an actuary in an insurance company?
To calculate risks and determine appropriate premiums
B. To process insurance claims
C. To sell insurance policies
D. To review policyholder applications
What is the primary difference between “actual cash value” and “replacement cost”?
Actual cash value deducts depreciation, while replacement cost does not.
B. Replacement cost is always lower than actual cash value.
C. Actual cash value covers only liability claims, while replacement cost covers property damage.
D. Replacement cost includes deductibles, while actual cash value does not.
What does “aggregate limit” refer to in liability insurance?
The maximum amount an insurer will pay during a policy period
B. The total deductible for all claims during a policy period
C. The total value of premiums collected by the insurer
D. The maximum payout per individual claim
What type of insurance protects businesses from lawsuits related to product defects?
Product liability insurance
B. Workers’ compensation insurance
C. General liability insurance
D. Professional liability insurance
What is the primary purpose of a “claims adjuster”?
To investigate and evaluate insurance claims
B. To set premium amounts for policyholders
C. To market insurance products to clients
D. To enforce policy exclusions
What is “umbrella insurance”?
A policy that provides additional liability coverage beyond existing policies
B. Coverage for unforeseen medical emergencies
C. Insurance for high-value items like jewelry and art
D. A policy that combines life, health, and property insurance
What is a “contingent liability”?
A liability that depends on the occurrence of a specific event
B. A liability for injuries caused by negligence
C. A liability that is excluded by most insurance policies
D. A liability that arises from breach of contract
Which of the following is an example of a “pure risk”?
The possibility of a house fire
B. The chance of winning the lottery
C. The likelihood of a business profit
D. The risk of investment gains
What is the purpose of a “deductible” in health insurance?
To share the cost of healthcare expenses between the insured and insurer
B. To eliminate out-of-pocket expenses for the insured
C. To increase the insurer’s liability
D. To reduce the cost of prescription medications
Which of the following is a feature of a “mutual insurance company”?
It is owned by policyholders rather than shareholders.
B. It is regulated by the federal government only.
C. It only provides group insurance policies.
D. It is restricted to non-profit activities.
What is the primary purpose of “key person insurance”?
To protect a business from financial losses due to the death of a critical employee
B. To provide health coverage for employees
C. To insure high-value assets in a business
D. To cover the personal liabilities of executives
What does “peril” mean in insurance terminology?
The specific risk or cause of loss covered by a policy
B. The individual responsible for paying premiums
C. The insured property’s replacement value
D. The maximum liability of the insurer
What type of insurance is specifically designed to protect against flood damage?
Flood insurance
B. General property insurance
C. Earthquake insurance
D. Comprehensive homeowners insurance
What is “moral hazard” in insurance?
The tendency of insured individuals to take greater risks
B. The likelihood of losses due to natural disasters
C. The process of evaluating risks for underwriting
D. The exclusion of liability for intentional damages
What does “excess liability” insurance provide?
Additional coverage beyond the limits of a primary liability policy
B. Coverage for property damage claims
C. Replacement of primary insurance policies
D. Coverage for specific high-risk activities
What is the purpose of “inland marine insurance”?
To cover goods in transit over land
B. To insure marine vessels and crews
C. To protect coastal properties from floods
D. To cover offshore oil rigs
What is a “retroactive date” in claims-made policies?
The date after which claims will be covered under the policy
B. The date when the policy becomes effective
C. The deadline for premium payments
D. The date for policy renewal
Which type of policy is most appropriate for temporary, short-term life insurance coverage?
Term life insurance
B. Whole life insurance
C. Universal life insurance
D. Variable life insurance
What does “loss ratio” measure in insurance?
The ratio of claims paid to premiums earned
B. The number of claims filed in a year
C. The cost of underwriting expenses
D. The percentage of uninsured risks
What is “indemnity” in the context of insurance?
Restoring the insured to the same financial position as before the loss
B. Increasing the insured’s wealth after a claim
C. Reimbursing only partial losses due to exclusions
D. Guaranteeing profits for the insurer
What is the primary goal of insurance regulation?
To protect policyholders and maintain market stability
B. To ensure insurance companies maximize profits
C. To limit competition between insurers
D. To increase premiums across all policy types
What is “self-insurance”?
Setting aside funds to cover potential losses instead of purchasing insurance
B. Purchasing high-deductible insurance policies
C. Using an agent to underwrite personal policies
D. Partnering with multiple insurers to split risk
What is an “endorsement” in an insurance policy?
A modification or addition to the terms of the policy
B. A guarantee of claim approval
C. A reduction in premium rates for safe practices
D. A policy cancellation notice
What is “coinsurance” in health insurance?
The percentage of costs shared by the insured after the deductible is met
B. The portion of premiums covered by an employer
C. The amount paid by the insured before coverage begins
D. The total cost of premiums over the policy period
What does “subrogation” mean in insurance?
The insurer’s right to recover costs from a third party responsible for the loss
B. The process of calculating policyholder premiums
C. The ability to transfer a policy to another individual
D. The termination of a policy after a claim
What is a “participating policy” in life insurance?
A policy that pays dividends to policyholders
B. A policy that covers multiple insured individuals
C. A policy shared between two insurance companies
D. A policy that allows for premium refunds
Which of the following is an example of “moral hazard”?
A policyholder intentionally causing a loss to collect insurance
B. A home located in a high-risk flood area
C. A lack of maintenance leading to property damage
D. A natural disaster causing widespread claims
What is “retrocession” in reinsurance?
The process where a reinsurer transfers risk to another reinsurer
B. The cancellation of a reinsurance agreement
C. The reinstatement of a lapsed insurance policy
D. The underwriting of new policies by the primary insurer
What does a “contingent beneficiary” in a life insurance policy mean?
The person who receives benefits if the primary beneficiary cannot
B. The person who pays premiums for the policyholder
C. The individual responsible for filing the claim
D. The person who underwrites the policy
What is the purpose of “directors and officers (D&O) insurance”?
To protect executives from personal liability for business decisions
B. To provide retirement benefits for company executives
C. To insure against theft of company property
D. To protect employees injured on the job
What is a “blanket insurance policy”?
Coverage for multiple properties or risks under one policy
B. A policy with no exclusions or limitations
C. A short-term insurance policy for specific events
D. A policy that guarantees claim approval
What does “act of God” mean in insurance terms?
A natural event not caused by human activity
B. A crime committed against the insured
C. A claim denial based on moral hazard
D. A clause that guarantees claim payment
What is “risk retention” in insurance?
The process of retaining responsibility for certain losses
B. The insurer’s refusal to underwrite specific risks
C. A clause allowing for higher policy limits
D. A strategy to transfer all risks to the insurer
What is the primary benefit of “group insurance”?
Lower premiums due to shared risk among members
B. Individual underwriting for each policyholder
C. Guaranteed claim approval for all members
D. Flexible coverage terms for each policyholder
What is the purpose of a “named insured” clause?
To specify the individual or entity covered by the policy
B. To exclude high-risk individuals from coverage
C. To determine the premium payment schedule
D. To identify the beneficiary in a life insurance policy
What is the purpose of “business interruption insurance”?
To cover lost income and expenses during a temporary business shutdown
B. To insure against employee theft
C. To protect equipment from damage during transport
D. To reimburse advertising expenses
What is an “umbrella policy” designed to cover?
Liability claims that exceed the limits of primary policies
B. Property damage caused by natural disasters
C. Health expenses not covered by basic insurance
D. Specialized risks such as high-value items
What is “fidelity insurance”?
Coverage against employee theft or dishonesty
B. Coverage for a married couple under one policy
C. Coverage for long-term investments
D. Coverage for professional negligence
What is “workers’ compensation insurance”?
Insurance that covers employees injured while performing job duties
B. Coverage for employer liability lawsuits
C. Insurance for lost wages due to layoffs
D. Coverage for unemployment benefits
What is the purpose of a “claims-made policy”?
To cover claims made during the policy period, regardless of when the event occurred
B. To cover claims only after the policy period ends
C. To cover losses occurring during the policy period, regardless of claim timing
D. To cover high-risk claims only
What is a “beneficiary” in an insurance policy?
The person designated to receive benefits upon the insured’s death
B. The individual responsible for paying premiums
C. The insured’s legal representative
D. The agent who sold the policy
What does “policy lapse” mean?
The termination of a policy due to non-payment of premiums
B. The addition of new exclusions to a policy
C. The transfer of a policy to another insurer
D. The renewal of a policy after expiration
What is “long-term care insurance”?
Insurance covering extended medical or custodial care services
B. Coverage for short-term hospital stays
C. Insurance for emergency medical evacuations
D. Coverage for prescription medications
What is the purpose of “flood insurance”?
To provide financial protection against water damage due to floods
B. To cover damages caused by broken pipes
C. To insure against general property damage
D. To cover losses from hurricanes and windstorms
What is an “assignment” in insurance?
The transfer of policy ownership rights to another party
B. The underwriting process for a new policy
C. A penalty for late premium payments
D. A clause for increasing policy limits
What does “insurable interest” mean?
The financial or legal interest in the subject being insured
B. The guaranteed return on an insurance policy
C. The maximum claim amount allowed
D. The interest earned on a life insurance policy
What is “third-party insurance”?
Insurance that provides coverage for claims made by others
B. Insurance for multiple policyholders
C. Insurance for damages caused by the insured
D. Insurance that covers high-value items
What does “loss control” refer to in insurance?
Measures taken to prevent or reduce potential losses
B. The insurer’s method of calculating premiums
C. The process of denying a claim
D. The legal rights of the insured to recover damages
What is the purpose of “errors and omissions insurance”?
To protect professionals against claims of negligence or mistakes
B. To cover physical damages to business equipment
C. To provide benefits for employee injuries
D. To insure high-risk personal activities
What is the primary function of “insurance underwriters”?
To assess risk and determine coverage terms and premiums
B. To market insurance policies to potential clients
C. To process claims after an event occurs
D. To handle legal disputes between insurers and policyholders
What is “moral hazard” in insurance terms?
When an insured person takes more risks because they have insurance coverage
B. The financial loss due to natural disasters
C. The occurrence of fraud in insurance claims
D. The risk of property loss due to aging or deterioration
Which of the following is typically covered by “homeowners insurance”?
Damages caused by a tornado or fire
B. Damages caused by business activities on the property
C. Theft of property from a car outside the home
D. Liability for personal injuries that happen at work
What is “exclusion” in an insurance policy?
A provision that eliminates certain risks from coverage
B. A clause that automatically renews the policy
C. A policy rider that increases coverage limits
D. A mandatory deductible payment for each claim
What is the “principal” in an insurance contract?
The party who is being insured under the contract
B. The individual who pays the premiums
C. The party that underwrites the insurance risk
D. The policyholder’s designated beneficiary
What is the purpose of “personal liability insurance”?
To cover legal fees and damages resulting from personal injuries or property damage
B. To protect businesses from employee-related claims
C. To insure assets in a home against theft
D. To provide healthcare benefits for employees
Which of the following is a characteristic of “whole life insurance”?
It provides lifelong coverage with a savings component
B. It offers coverage for a limited term, such as 10 or 20 years
C. It only covers accidental death
D. It provides coverage with no cash value accumulation
What does “hazard” refer to in the context of insurance?
A condition or situation that increases the probability of a loss occurring
B. A type of insurance policy used for natural disasters
C. A legal contract signed by both the insurer and the insured
D. The amount of money paid out by an insurer for claims
What is the difference between “risk retention” and “risk transfer” in insurance?
Risk retention involves keeping the risk, while risk transfer involves passing the risk to another party
B. Risk retention involves selling the risk, while risk transfer involves buying additional coverage
C. Risk retention involves avoiding risk, while risk transfer involves taking on new risks
D. Risk retention involves collecting premiums, while risk transfer involves paying out claims
What is “term life insurance”?
Insurance that provides coverage for a set period, such as 10, 20, or 30 years
B. Insurance that provides permanent coverage for the insured’s entire life
C. Insurance that only covers accidental death
D. Insurance with no death benefit payout
Which of the following describes a “premium” in an insurance policy?
The amount the policyholder pays for coverage
B. The total payout amount for claims
C. The portion of the claim covered by the insurer
D. The deductible amount to be paid before coverage starts
What is the main purpose of “insurance pooling”?
To combine multiple policyholders’ premiums in order to spread risk
B. To create a single policyholder’s comprehensive coverage
C. To provide a shared savings account for policyholders
D. To increase the insurer’s profit margin
What is the primary objective of “auto liability insurance”?
To provide financial protection in the event of injury or damage to others caused by the insured’s vehicle
B. To cover damage to the insured’s own vehicle
C. To protect against personal injuries while driving
D. To insure against natural disasters like floods affecting vehicles
What does “rider” mean in an insurance policy?
An amendment or add-on to the original policy providing additional coverage
B. A clause that cancels a policy due to fraud
C. A form to file claims with the insurer
D. A refund provision for unused premiums
What does “accidental death and dismemberment insurance” cover?
Coverage for deaths or injuries caused by accidents
B. Coverage for health-related issues unrelated to accidents
C. Coverage for losses related to disability from natural causes
D. Coverage for death by illness or disease
What is “underinsurance”?
When the insured has inadequate coverage to fully compensate for a loss
B. When the insurer has insufficient reserves to cover claims
C. When the insured refuses to pay premiums
D. When the policyholder has excessive coverage beyond their needs
What is a “disability waiver” in insurance?
A provision that waives premium payments if the policyholder becomes disabled
B. A clause that increases premiums after a certain age
C. A rider that extends the policy’s expiration date
D. A cancellation option for early policy termination
What is “life insurance” primarily designed to provide?
Financial protection to beneficiaries in the event of the policyholder’s death
B. Coverage for property loss due to accidents
C. Protection against medical expenses
D. A tax-deferred savings account
What does “reinsurance” refer to?
The process where insurers transfer portions of their risk to other insurance companies
B. The payment of premiums by the insured
C. The process of underwriting insurance policies
D. The legal process of policy renewal
What is an “adjuster” in insurance?
A professional who investigates and evaluates claims for payment
B. A company that issues policies to insured individuals
C. An attorney who defends insurers in court
D. A representative responsible for collecting premiums
What does “contributory negligence” mean in insurance?
A situation where the policyholder’s own actions contributed to the loss
B. A condition that grants insurers higher payouts for claims
C. The act of an insurer paying out a claim in full
D. A situation where the insured is not held responsible for the loss
What is “liability coverage” in an auto insurance policy?
Protection for injuries and damages caused to others in an accident
B. Protection for the driver’s vehicle in case of theft
C. Protection against vandalism to parked vehicles
D. Coverage for medical bills after an accident
Which of the following best describes “accidental injury insurance”?
Coverage for injuries sustained due to accidents
B. Coverage for any injury, regardless of cause
C. Coverage for injuries resulting from natural disasters
D. Coverage for illnesses not related to accidents
What is “no-fault insurance”?
Insurance where each party’s own insurer pays for damages, regardless of who was at fault
B. Insurance that only covers damages in accidents caused by the other driver
C. Insurance that does not require a claim process
D. Insurance that covers damages when the driver is intoxicated
What is “personal injury protection (PIP)”?
Coverage that helps with medical expenses and lost wages regardless of fault in an accident
B. Coverage for damages to property caused by an accident
C. Coverage for the vehicle’s repair after an accident
D. Coverage for injuries caused by someone else’s actions
What is the purpose of “umbrella liability insurance”?
To provide additional coverage beyond the limits of existing policies
B. To offer specialized coverage for high-value assets
C. To cover lost wages due to disability
D. To protect against health insurance claims
What is “underwriting” in the context of insurance?
The process of evaluating and selecting risks to insure
B. The act of paying out claims
C. The method of setting premium rates
D. The process of collecting policyholder information
What does “excess liability insurance” cover?
Coverage for liability claims that exceed the limits of primary insurance policies
B. Coverage for vehicle damage in excess of the deductible
C. Protection against property loss in excess of home insurance limits
D. Coverage for employer liability claims
What is the primary objective of “health insurance”?
To provide financial protection against medical expenses
B. To cover property loss caused by natural disasters
C. To provide coverage for life-threatening injuries in accidents
D. To offer income protection during retirement
Which of the following is covered by “disability insurance”?
Loss of income due to illness or injury
B. Coverage for automobile accidents
C. Coverage for damage to real estate
D. Protection against identity theft
What is “risk pooling” in insurance?
The process of combining premiums from multiple policyholders to cover collective risks
B. The elimination of high-risk individuals from an insurance pool
C. The process of transferring risks to a reinsurer
D. The use of technology to analyze insurance data
What is the “policyholder” in an insurance contract?
The individual or entity who owns the insurance policy
B. The individual who receives the insurance payout
C. The insurance company that underwrites the policy
D. The individual who processes insurance claims
What does “claims-made” mean in an insurance policy?
A policy that provides coverage only if the claim is made during the policy period
B. A policy that automatically renews after a claim is made
C. A policy that covers all losses regardless of when the claim is made
D. A policy that excludes claims made after the contract ends
Which type of insurance is designed to cover “business interruption” expenses?
Business income insurance
B. General liability insurance
C. Workers’ compensation insurance
D. Property insurance
What does the term “peril” refer to in an insurance policy?
A specific event or circumstance that can cause a loss, such as fire, theft, or flood
B. The amount the insurer will pay out on a claim
C. The premium that must be paid for a policy
D. A risk mitigation strategy used by insurers
What is a “deductible” in an insurance policy?
The amount the policyholder must pay out of pocket before insurance coverage begins
B. The amount the insurance company will pay for a claim
C. A fee charged by the insurance company to process a claim
D. The total amount of premiums paid for a policy
What is “insurable interest” in an insurance contract?
The financial stake the policyholder has in the subject matter of the insurance
B. The risk that the insurer is willing to accept
C. The premium the policyholder is required to pay
D. The minimum amount of coverage the insurer will offer
What is the purpose of “reinsurance”?
To help insurance companies manage risk by transferring some of it to other insurers
B. To provide direct coverage to policyholders
C. To settle insurance claims faster
D. To monitor the underwriting process
What is “health maintenance organization (HMO)” insurance?
A type of managed care plan that requires policyholders to use a network of designated providers
B. A policy that covers all health-related expenses, including out-of-network care
C. A policy that only covers emergency medical expenses
D. A plan that offers a high deductible in exchange for low premiums
What is the “premium” in an insurance policy?
The amount of money the policyholder pays to the insurer for coverage
B. The amount the insurer will pay out in claims
C. The amount the policyholder will receive after filing a claim
D. The process by which claims are paid out
What is a “waiting period” in an insurance policy?
The time the policyholder must wait before benefits begin after a claim or loss
B. The time the insurer takes to process a claim
C. The period during which the policyholder can cancel a policy
D. The time required for policy renewal
What does “whole life insurance” provide?
Permanent coverage with a savings component
B. Coverage for a specific term, such as 10 or 20 years
C. Temporary protection for specific events, like accidents
D. A savings plan without death benefits
Which of the following best describes “term life insurance”?
Life insurance that provides coverage for a specified period and no cash value
B. Insurance that provides lifelong coverage with investment components
C. Insurance that pays benefits only if the policyholder dies by accident
D. Insurance that covers only illnesses and medical expenses
What is the “face value” of a life insurance policy?
The amount the insurer will pay to the beneficiary upon the policyholder’s death
B. The total premiums paid over the life of the policy
C. The cost of purchasing additional coverage
D. The amount of deductible required for claims
What is “liability insurance”?
Insurance that protects against legal claims for personal injury or property damage
B. Insurance that covers property loss caused by natural disasters
C. Insurance that covers medical expenses for the insured
D. Insurance for injuries that occur at the workplace
What does the term “moral hazard” refer to in insurance?
The increased risk of loss due to the behavior of the insured after obtaining insurance
B. The risk that arises from natural events like earthquakes or floods
C. A situation in which an insurer refuses to process a claim
D. The calculation of insurance premiums based on risk levels
What is “property insurance”?
Insurance that covers damage to or loss of property due to various causes
B. Insurance that covers health-related expenses
C. Insurance that covers income loss due to a disability
D. Insurance that covers legal costs associated with property disputes
What is the primary function of an “insurance adjuster”?
To assess and evaluate claims to determine the amount of compensation
B. To determine the premium rates for different policies
C. To market insurance policies to customers
D. To negotiate with third-party providers of reinsurance
What is the role of an “actuary” in the insurance industry?
To analyze data and calculate risk, premiums, and reserves for insurance policies
B. To manage claims processing and settlements
C. To handle legal matters related to insurance disputes
D. To inspect properties and assess their insurability
What is “accident insurance”?
Insurance that provides financial compensation for injuries or death resulting from accidents
B. Coverage that only applies to vehicle accidents
C. Insurance that covers lost wages during illness
D. Insurance that covers property damages caused by accidents
What is “business interruption insurance”?
Insurance that covers lost income and operating expenses if a business cannot operate due to a covered event
B. Insurance that protects against accidents at the workplace
C. Insurance that covers property damages caused by business activities
D. Insurance that covers only legal disputes in business operations
What is a “co-payment” in a health insurance plan?
A fixed amount the policyholder pays for medical services at the time of care
B. The percentage of the medical bill covered by the insurance provider
C. The total premium paid for the health insurance policy
D. The amount deducted from the policyholder’s pay to cover health insurance
What is “workers’ compensation insurance”?
Insurance that provides medical benefits and wage replacement for employees injured in the course of employment
B. Insurance that protects against workplace fraud and theft
C. Insurance that covers damage to property due to workplace accidents
D. Insurance that provides coverage for business operations outside normal hours
What is “underwriting” in the context of insurance?
The process of evaluating the risks of an insurance applicant
B. The process of paying claims to policyholders
C. The amount of premium charged for insurance coverage
D. The practice of setting insurance rates based on market trends
What does “term insurance” provide?
Coverage for a specified period of time
B. Permanent life coverage with an investment component
C. Coverage for accidents only
D. A policy that guarantees premiums will not increase
What is “exclusion” in an insurance policy?
Specific situations or risks that are not covered by the policy
B. The amount of coverage provided for a specific loss
C. A clause that guarantees a claim will be paid out
D. The process by which an insurance company analyzes a claim
What is “premium financing” in insurance?
A loan taken to pay for insurance premiums
B. The interest rate applied to insurance premiums
C. A payment plan that allows premiums to be paid in installments
D. A policy that offers lower premiums for high-risk individuals
What is a “beneficiary” in a life insurance policy?
The person who receives the policy’s death benefit upon the insured’s death
B. The insurance company that issues the policy
C. The individual who processes claims for the insured
D. The person who selects the coverage limits for the insured
What is a “captive insurance company”?
An insurance company that is wholly owned by the entity it insures
B. A company that sells insurance to the general public
C. An insurance company that specializes in high-risk coverage
D. An insurance company that only covers natural disasters
What is the difference between “actual cash value” and “replacement cost” in insurance?
Actual cash value is the cost to replace an item minus depreciation, while replacement cost is the cost to replace it without considering depreciation
B. Replacement cost is the cost to replace an item minus depreciation, while actual cash value is the cost to replace it with depreciation
C. Actual cash value and replacement cost are the same
D. Actual cash value is only used for life insurance, while replacement cost is used for property insurance
Which type of insurance is intended to protect against “cybersecurity” risks?
Cyber liability insurance
B. Life insurance
C. Health insurance
D. General liability insurance
What is the “insurer” in an insurance contract?
The company or entity that provides insurance coverage
B. The person who buys insurance
C. The individual or organization covered by an insurance policy
D. The agent responsible for selling the insurance policy
What is “deductible” in a health insurance policy?
The amount the insured must pay before insurance starts covering expenses
B. The total premium paid for the insurance policy
C. The payment made by the insurer to a hospital
D. The payment made by the insured for each medical visit
What is “life insurance”?
Insurance that provides a payout to beneficiaries when the insured dies
B. Insurance that covers medical expenses during life
C. Insurance that covers property damage
D. Insurance that protects against identity theft
What is the “subrogation” process in insurance?
The process by which an insurer seeks reimbursement from the at-fault party for a claim paid to the insured
B. The process of determining the policyholder’s premiums based on risk
C. The process of transferring the risk to another insurer
D. The process of determining coverage limits for a claim
Which type of insurance provides coverage for “professional services”?
Professional liability insurance
B. General liability insurance
C. Automobile insurance
D. Property insurance
What is “homeowners insurance”?
Insurance that covers a home and its contents against damage or loss
B. Insurance that provides liability coverage for business owners
C. Insurance that provides coverage for automobiles
D. Insurance that covers travel-related losses
What is “umbrella insurance”?
Insurance that provides additional coverage beyond other policies
B. Insurance that protects against liability claims arising from a vehicle
C. Insurance for personal property loss
D. Insurance that covers the cost of injuries in a workplace
What is the “insuring agreement” in an insurance contract?
The section of the policy that outlines the specific coverage provided
B. The amount the policyholder must pay for coverage
C. The process by which a claim is submitted
D. The rights and obligations of the insurance company only
What is “flood insurance”?
Insurance that covers damage caused by flooding events
B. Insurance that protects against damage from high winds
C. Insurance that covers damage caused by earthquakes
D. Insurance that provides coverage for automobile accidents
What does “auto liability insurance” cover?
Damage to other vehicles or injuries caused by the insured in an accident
B. Repairs to the insured’s own vehicle after an accident
C. Coverage for medical bills of the insured in case of an accident
D. Coverage for damage caused to the insured’s home in an accident
What is “health savings account” (HSA) in relation to insurance?
A tax-advantaged savings account for medical expenses
B. A type of life insurance policy that provides health coverage
C. A specific policy that pays for health-related insurance premiums
D. A tax-exempt fund for retirement purposes
What does “personal liability” insurance cover?
Protection against claims of bodily injury or property damage caused by the insured
B. Medical coverage for injuries in an accident
C. Property damage coverage for automobiles
D. Coverage for business-related losses
What is the “cost of insurance” in a policy?
The premium paid by the policyholder for coverage
B. The amount paid for claims after a loss occurs
C. The deductible amount for a policy
D. The value of the policyholder’s assets covered by insurance
What is a “co-insurance” clause in an insurance policy?
A provision that requires the insured to pay a percentage of covered expenses
B. A provision that eliminates all out-of-pocket expenses for the insured
C. A provision that increases the premiums based on the insured’s age
D. A provision that sets a fixed rate for insurance premiums
What is “catastrophic insurance”?
Insurance designed to cover high-cost medical expenses following a catastrophic event
B. A type of life insurance policy with low premiums
C. Insurance that covers damages from minor accidents or injuries
D. A type of homeowners insurance that covers flooding events