#1
Which of the following is a characteristic of an insurable risk?
Measurable
ExplanationInsurable risks must be measurable to determine the extent of coverage and potential losses.
#2
What does 'indemnity' mean in the context of insurance?
Compensation for damages or loss
ExplanationIndemnity in insurance refers to compensating the insured for actual damages or loss suffered.
#3
Which of the following is NOT a type of insurable risk?
Speculative risk
ExplanationSpeculative risks, which involve the potential for gain or loss, are not insurable due to the unpredictability of outcomes.
#4
What is the purpose of a deductible in an insurance policy?
To reduce the insured's financial responsibility
ExplanationA deductible is designed to lower the insured's financial burden by having them contribute a specified amount before the insurer covers the rest.
#5
Which of the following is an example of a moral hazard in insurance?
An individual intentionally causing damage to their property to claim insurance
ExplanationA moral hazard occurs when the insured's behavior increases the risk, such as intentionally causing damage to make an insurance claim.
#6
What is 'underinsured' in the context of insurance?
When an insurance policy does not provide adequate coverage for the insured property
ExplanationUnderinsured refers to a situation where the insurance coverage is insufficient to fully compensate for the losses or damages.
#7
Which principle of insurance states that the insured must be in a position to suffer a financial loss?
Indemnity
ExplanationThe principle of indemnity ensures that insurance compensates for actual financial loss and prevents profiting from a loss.
#8
In insurance, what does 'subrogation' refer to?
The insurer's right to take legal action against a third party responsible for the insured's loss
ExplanationSubrogation grants the insurer the right to recover losses by pursuing legal action against the responsible third party.
#9
Which of the following is NOT a requirement for a risk to be insurable?
Certain loss
ExplanationInsurable risks involve uncertainty; a certain loss is not insurable because it lacks unpredictability.
#10
What is the purpose of coinsurance in insurance policies?
To share the risk between the insured and the insurer
ExplanationCoinsurance ensures that both the insured and insurer share the financial risk, promoting a balanced responsibility.
#11
What principle of insurance requires that the insured should not profit from an insurance loss?
Indemnity
ExplanationThe principle of indemnity prevents the insured from gaining a profit from an insurance loss, ensuring fair compensation.
#12
In insurance, what is 'underwriting'?
The process of evaluating risks and setting premiums
ExplanationUnderwriting involves assessing risks, determining coverage terms, and establishing appropriate premiums for insurance policies.
#13
Under the principle of 'utmost good faith', who has a duty to disclose all material facts about the risk being insured?
Insured
ExplanationThe insured, under the principle of utmost good faith, is obligated to provide full and honest information about the risk.