Introduction to Insurance

Which of the following statements is NOT true about the law of large numbers?

• The loss exposures must be independent

• There must be a large number of similar loss exposured

• There must be a random or chance occurrence of losses

• There must be a large number of insureds experiencing the same loss at the same time out of the same event

Which of the following is NOT an essential feature of insurance?

• All risks can be insured

• It is an economic institution

• It is based on the principle of mutuality

• It is an accumulation of funds to pay claims resulting from a specific risks

Which of the following is NOT a risk covered by insurance

• Loss of life due to a motor accident

• Loss or damage arising from a motor vehicle accident

• Liability to third parties arising from the sale of products

• Financial loss due to a drop in the market price of a company's shares

The secondary functions of insurance will include all of the following, EXCEPT

• risk transfer mechanism.

• means of savings.

• cost stabilization.

• reducing losses.

Life insurance contracts can be arranged to provide cover against the following

forms of risk:

• bank loans.

• premature death.

• sickness or disability.

• continuous stream of income during retirement (i.e. old age).

• All of the above.

Amongst many other risks, general insurance contracts will cover the following,

EXCEPT:

• property.

• accident.

• natural death.

• legal liability.

Insurance, as an organization, seeks to provide protection against ___________ caused by fortuitous events.

• emotional losses.

• sentimental losses.

• financial losses.

• non-financial losses.

Which ONE of the following facts is NOT true about both life and general insurance?

• Life insurance policies are subject to the principle indemnity whereas general insurance policies are not.

• General insurance policies are subject to the principle of indemnity whereas life insurance policies are not.

• Life insurance policies and general insurance policies will both pay when a person suffers permanent disablement due to an accident.

• Life assurance is a long-term contract whereas general insurance is a yearly renewable contract.

The operation of the principle of the law of large numbers will ensure

• better prediction of future losses.

• better understanding of the market.

• better understanding of the customers.

• better cash flow for the insurer.

The essential features of insurance are:

• It is economic institution.

• It is based on the principle of mutuality or co-operation.

• Its objective is to accumulate funds to pay for claims that arise as a result of the operation of specific risks.

• Only certain risks can be insured against, namely those, whose occurrence can be confidently estimated with a certain degree of accuracy.

• All of the above.