#1
What is the primary function of insurance?
To prevent accidents from happening
To transfer risk from an individual to an insurance company
To provide financial assistance to wealthy individuals
To guarantee profit for insurance companies
#2
Which of the following is NOT a characteristic of an insurance contract?
Aleatory
Adhesion
Unilateral
Guaranteed profit
#3
What is insurable interest in an insurance contract?
The interest of the insurance company in the insured's well-being
The financial stake an insured party has in the insured property or person
The total value of the insurance policy
The legal jurisdiction where the insurance contract was signed
#4
Which of the following best defines the term 'premium' in insurance?
The maximum amount an insurer is liable to pay in case of a claim
The fee paid by the insured to the insurer for coverage
The deductible amount the insured must pay before coverage kicks in
The additional coverage purchased beyond the basic policy limits
#5
What is a peril in insurance terminology?
The likelihood of an event causing a loss
The amount of money paid out by the insurer for a claim
The specific event or cause of a loss covered by the insurance policy
The process of evaluating risk for insurance purposes
#6
Which of the following is an example of a pure risk?
Investing in the stock market
Buying a lottery ticket
Driving a car
The risk of fire damaging your home
#7
What does the principle of utmost good faith in insurance contracts entail?
Both parties must disclose all material facts relevant to the contract
Only the insured is required to disclose information
The insurer is not required to disclose any information
Both parties must keep the contract terms confidential
#8
Which principle states that an insured should not profit from an insurance claim?
Subrogation
Indemnity
Contribution
Proximate cause
#9
What is the purpose of subrogation in insurance?
To transfer the risk from the insurer to the insured
To allow the insurer to seek reimbursement from third parties for a claim paid to the insured
To provide financial assistance to the insured during a claim
To limit the liability of the insurer to a specified amount
#10
What is a deductible in insurance?
The total amount the insurer is liable to pay for a claim
The maximum amount the insured can claim in a policy period
The initial amount the insured must pay out of pocket before the insurer covers the remaining claim amount
The premium discount given to policyholders with no claims history
#11
What is the purpose of reinsurance in the insurance industry?
To transfer the risk from the insured to a third party
To provide coverage for high-risk individuals
To share the risk with other insurers
To exclude certain perils from coverage
#12
Which principle suggests that an insurance policy should put the insured back into the same financial position they were in before the loss occurred?
Indemnity
Uberrimae fidei
Subrogation
Contribution
#13
Under which circumstance does the principle of contribution apply?
When the insured has multiple insurance policies covering the same risk
When the insured fails to disclose material facts
When the insurer refuses to pay a valid claim
When the insured intentionally causes the loss
#14
What does the principle of indemnity in insurance suggest?
The insured should receive more than the actual value of the loss
The insurer should pay for losses regardless of fault
The insured should be compensated to the full extent of their loss but not more
The insurer should always prioritize profit over claims payments
#15
What is a policyholder's duty of disclosure?
To disclose any criminal history
To disclose all relevant information to the insurer before entering into an insurance contract
To disclose information only if requested by the insurer
To disclose information only after a claim is made
#16
What is a captive insurance company?
An insurance company owned by shareholders
An insurance company formed by a group of policyholders to insure risks of the group
An insurance company that provides coverage for a wide range of risks
An insurance company that sells policies exclusively through independent agents
#17
Which of the following is an example of a third-party beneficiary in an insurance contract?
The insured individual
The insurance company
An individual who will receive benefits from the insurance policy but is not a party to the contract
The insurance agent