#1
Which of the following factors is NOT typically considered in insurance premium calculation?
Favorite color of the insured individual
ExplanationPersonal preferences like favorite color do not impact insurance premium calculation, which primarily involves risk assessment.
#2
What is the purpose of a deductible in insurance policies?
To reduce the insured's out-of-pocket expenses
ExplanationDeductibles are designed to lower the insurer's financial liability by shifting a portion of the risk to the insured.
#3
Which of the following is NOT typically considered when calculating auto insurance premiums?
Occupation of the insured
ExplanationWhile factors like driving history and vehicle type influence auto insurance premiums, occupation is not a typical consideration.
#4
What is the primary purpose of insurance?
To transfer the risk of financial loss from an individual or entity to an insurance company
ExplanationInsurance serves to mitigate financial risk by transferring it from the insured party to the insurer, providing financial protection.
#5
Which of the following factors affects homeowners insurance premiums?
The proximity to fire hydrants
ExplanationProximity to fire hydrants impacts homeowners insurance premiums as it affects the response time of firefighters in case of a fire.
#6
What is the purpose of an insurance premium?
To transfer risk from the insured to the insurer
ExplanationInsurance premiums are payments made by the insured to the insurer in exchange for the assumption of financial risk and coverage of potential losses.
#7
Which of the following factors is typically considered in life insurance premium calculation?
Occupation of the insured
ExplanationOccupation influences life insurance premiums as certain professions may involve higher risks, impacting the likelihood of claims.
#8
In insurance, what does the term 'underwriting' refer to?
Assessing risk and determining coverage eligibility
ExplanationUnderwriting involves evaluating risks associated with insuring an individual or entity and deciding whether to provide coverage.
#9
Which formula is commonly used to calculate insurance premiums in life insurance?
Premium = (Sum assured × Risk factor) / Number of years
ExplanationThis formula calculates the premium based on the sum assured, risk factor, and duration of coverage.
#10
What role does the 'claims history' of an insured individual play in insurance premium calculation?
It helps assess the likelihood of future claims
ExplanationClaims history provides insight into an individual's past insurance claims, which insurers use to predict future claim likelihood.
#11
In health insurance, what does 'coinsurance' refer to?
The percentage of medical expenses shared by the insured and the insurer
ExplanationCoinsurance requires the insured to share a percentage of medical expenses with the insurer after reaching the deductible.
#12
What is 'moral hazard' in insurance?
The increased risk-taking behavior by the insured due to being insured
ExplanationMoral hazard refers to the tendency of insured individuals to take on more risk because they are protected by insurance, potentially leading to more frequent or severe losses.
#13
What does 'reinsurance' refer to in the insurance industry?
Insurance purchased by insurers to protect themselves from large losses
ExplanationReinsurance is a mechanism where insurers transfer a portion of their risk to other insurance companies to mitigate the financial impact of large claims.
#14
What is 'actuarial science' in the context of insurance?
The study of the statistical data related to insurance risks
ExplanationActuarial science involves analyzing data to assess risk probabilities and determine appropriate insurance premiums and reserves.
#15
In property insurance, what does 'co-insurance' mean?
The insured must maintain coverage for a certain percentage of the property's value
ExplanationCo-insurance requires the insured to maintain coverage for a specified percentage of the property's value to ensure adequate protection.
#16
Which of the following factors might lead to a higher health insurance premium?
Having a pre-existing medical condition
ExplanationPre-existing medical conditions often lead to higher health insurance premiums due to increased risk of claims.
#17
What does 'exclusion' mean in insurance policies?
A specific risk or situation not covered by the policy
ExplanationExclusions are conditions or situations explicitly stated in the policy that are not covered by insurance.
#18
Which of the following is NOT typically covered by a standard homeowners insurance policy?
Damage from earthquakes
ExplanationEarthquake damage is usually excluded from standard homeowners insurance policies and requires separate coverage or endorsement.
#19
What is 'loss ratio' in insurance?
The ratio of premiums collected to claims paid out
ExplanationThe loss ratio measures the proportion of premiums paid by policyholders that are used to cover insurance claims, indicating the insurer's profitability and risk management.
#20
What is 'renewal premium' in insurance?
The premium paid to extend the duration of an existing policy
ExplanationRenewal premiums are payments made to continue insurance coverage beyond the initial policy term, ensuring ongoing protection against risks.