Insurance

Front

An insurance policy is a contract between the

Back

Consumer and the insurance company

Answer explanation

An insurance policy is a contract between the consumer and the insurance company, where the consumer pays premiums in exchange for coverage against potential risks.

Front

What is the purpose of insurance?

Back

To provide financial protection and risk management.

Answer explanation

The purpose of insurance is to provide financial protection and risk management, helping individuals and businesses mitigate potential financial losses rather than eliminating them entirely.

Front

What is financial risk?

Back

The possibility of losing money or facing financial loss.

Answer explanation

Financial risk refers to the possibility of losing money or facing financial loss, making the first choice the correct answer. The other options incorrectly suggest guarantees or predictability, which are not aspects of financial risk.

Front

True or False: Insurance is based on the concept of shared risk, or risk pooling.

Back

True

Answer explanation

True. Insurance operates on the principle of shared risk, where multiple individuals contribute to a pool, allowing the financial burden of losses to be distributed among all members.

Front

What is risk pooling?

Back

The practice of combining multiple risks to reduce overall risk exposure.

Answer explanation

Risk pooling is the practice of combining multiple risks to reduce overall risk exposure. By aggregating risks, the impact of individual risks is lessened, leading to a more stable and manageable risk profile.

Front

What is an insurance premium?

Back

The payment made to an insurance company for coverage.

Answer explanation

An insurance premium is the payment made to an insurance company for coverage. This payment ensures that the policyholder is protected against specified risks, making it the correct choice.

Front

What is a deductible?

Back

A deductible is the amount YOU must pay before insurance coverage kicks in.

Answer explanation

A deductible is the amount YOU must pay before insurance coverage kicks in, meaning you are responsible for this cost before the insurance company starts to pay for claims.

Front

Which insurance coverage is required by law? Options: Homeowners insurance, Auto insurance, Renters insurance, Disability insurance

Back

Auto insurance

Answer explanation

Auto insurance is required by law in most states to ensure that drivers can cover damages or injuries resulting from accidents. Homeowners, renters, and disability insurance are not legally mandated.

Front

A stone hits your windshield. Which type of coverage would likely cover this expense?

Back

Comprehensive

Answer explanation

Comprehensive coverage typically covers damage to your vehicle from non-collision incidents, such as a stone hitting your windshield. Collision coverage applies to accidents with other vehicles, while liability covers damages to others.

Front

Each of these factors impacts your car insurance premium EXCEPT...
Deductible amount, The vehicle you are insuring, Your credit score, Your income

Back

Your income

Answer explanation

Your income does not directly affect your car insurance premium, while factors like deductible amount, the vehicle you insure, and your credit score do influence the cost.