#1
What is the primary function of insurance?
To transfer risk from an individual to an insurance company
ExplanationRisk transfer mechanism
#2
Which of the following is NOT a characteristic of an insurance contract?
Guaranteed profit
ExplanationAbsence of guaranteed profits
#3
What is insurable interest in an insurance contract?
The financial stake an insured party has in the insured property or person
ExplanationFinancial stake requirement
#4
Which of the following best defines the term 'premium' in insurance?
The fee paid by the insured to the insurer for coverage
#5
What is a peril in insurance terminology?
The specific event or cause of a loss covered by the insurance policy
ExplanationCovered loss event
#6
Which of the following is an example of a pure risk?
The risk of fire damaging your home
ExplanationNo possibility of gain
#7
What does the principle of utmost good faith in insurance contracts entail?
Both parties must disclose all material facts relevant to the contract
ExplanationFull disclosure principle
#8
Which principle states that an insured should not profit from an insurance claim?
Indemnity
ExplanationNo profit principle
#9
What is the purpose of subrogation in insurance?
To allow the insurer to seek reimbursement from third parties for a claim paid to the insured
ExplanationReimbursement mechanism
#10
What is a deductible in insurance?
The initial amount the insured must pay out of pocket before the insurer covers the remaining claim amount
ExplanationOut-of-pocket payment
#11
What is the purpose of reinsurance in the insurance industry?
To share the risk with other insurers
ExplanationRisk sharing mechanism
#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
ExplanationFinancial restoration principle
#13
Under which circumstance does the principle of contribution apply?
When the insured has multiple insurance policies covering the same risk
ExplanationMultiple policy coverage
#14
What does the principle of indemnity in insurance suggest?
The insured should be compensated to the full extent of their loss but not more
ExplanationFull compensation principle
#15
What is a policyholder's duty of disclosure?
To disclose all relevant information to the insurer before entering into an insurance contract
ExplanationInformation disclosure obligation
#16
What is a captive insurance company?
An insurance company formed by a group of policyholders to insure risks of the group
ExplanationPolicyholder-formed insurer
#17
Which of the following is an example of a third-party beneficiary in an insurance contract?
An individual who will receive benefits from the insurance policy but is not a party to the contract
ExplanationNon-contractual benefit recipient