Insurance Basics Quiz

What is the primary purpose of insurance?

• To increase financial risk

• To transfer risk from an individual or group to a company

• To speculate on financial gains

• To avoid all types of risks

Which type of risk is insurable because it involves a chance of loss only?

• Speculative Risk

• Pure Risk

• Moral Hazard

• Morale Hazard

What is the financial amount or chance of a loss that one could incur called?

• Hazard

• Peril

• Exposure

• Loss

Which of the following is NOT a type of hazard?

• Physical

• Moral

• Morale

• Speculative

What is the cause of a loss such as fire, accident, or flood called?

• Hazard

• Peril

• Exposure

• Risk

Which method of handling risk involves distributing risk among a similar group?

• Transfer

• Avoidance

• Sharing

• Retention

Which element of insurable risk states that the loss must have a definite time, place, and amount?

• Due to chance

• Must be definite and measurable

• Must be predictable

• Loss cannot be catastrophic

What does the Law of Large Numbers predict?

• The number of accidents in a year

• The number of deaths within a similar group of people over a given period

• The financial losses in a company

• The number of insurance claims filed

Which type of insurer is owned by stockholders and issues nonparticipating policies?

• Mutual

• Stock

• Fraternal Benefit Societies

• Reinsurance company

What is a characteristic of mutual insurers?

• Owned by stockholders

• Issue nonparticipating policies

• Pay dividends to policyholders

• Not for profit organization