Which of the following is NOT a hazard - ANS A fire in a waste basket
All of the following are characteristics of an insurable risk, except - ANS The loss must be
catastrophic
A risk where both profit and loss are possible is known as - ANS Speculative
An insured has fabricated a claim so that it would appear to be legitimate. This would be as -
ANS Moral Hazard
Which of the following must accurately describe reinsurance - ANS When an insurance
company buys insurance for some of the risks for which it has issued coverage
The attempt to restore an insured to his or her financial condition before a loss occurred is best
described as - ANS Indemnification
Which of the following is true regarding pure and speculative risks - ANS With pure risk there is
only the possiblity of loss
Adverse selection occurs when - ANS The insurer experiences negative financial results due to
unforeseen catastrophes
Meg has been in very good health in the past 3 years. She has been exercising, her blood
pressure is at a perfect level and her cholesterol is the envy of all her friends. Because Meg is
feeling so healthy, she decides to cancel her health insurance policy. This is an example of
which of the following risk management methods - ANS Risk Retention
A church has had the woodwork in the building refinished and new stain and varnish has been
applied. The workers placed the rags and brushes that were used to apply the varnish in a small
closet and closed the door, creating the possibility of spontaneous combustion. Which of the
following terms best describes this condition - ANS Hazard
Max lives in a large apartment complex where there is no guard station or gate. Several
hundred people live in the complex so its very easy to determine the schedules of the neighbors
living around him. One morning Max leaves for work at 6:30am as he usually does, but he
forgets to lock the front door. Later that morning someone comes into the apartment and steals
Max's computer. What was the peril in this situation - ANS The theft of his computer
,Which of the following is most likely to be uninsurable - ANS The purchaser of a new home
wants to protect herself from a possible drop in housing prices
Which of the following is a true statement regarding the "law of large numbers" - ANS The law of
large numbers states that as the number of insured units increases the ability to predict losses
increases
Which of the following best demonstrates a morale hazard - ANS A recent purchases of auto
insurance drives less carefully, knowing that the insurer will cover any losses that occur
Risk is best defined as - ANS An uncertainty of loss
When a person purchases several insurance policies to provide more coverage on a risk than
the value of the possible loss, it is known as - ANS Overinsurance
A slipper floor is an example of - ANS Physical Hazard
Which of the following would be an example of a moral hazard - ANS Embezzlement
A 100-year flood is an example of which of the following types of risk - ANS Static Risk
Horatio is a business owner who is part of a business owners' group that is buying old
commercial buildings in their small city and refurbishing them. Horatio has bought a beautiful
historical building made mostly of wood. He knows that he should install a sprinkler system right
away to prevent a fire. What risk management strategy is Horatio using - ANS Risk Reduction
An insurance must comply with the "Principle A of Indemnity". Jarron's friend Nick accidentally
destroys Jarron's laptop computer. Nick pays Jarron for the damage, but Jarron also submits a
claim to his insurance company for the laptop. The claim will be - ANS Denied because Jarron
has already been paid for the damage
Which of the following statement is NOT true concerning of the Law of Large Numbers - ANS
The size of the sample group is not relevant to the accuracy of the result
Which of the following is not a common risk management technique - ANS Multiply the risk by
engaging in the hazardous activities
The principle of Indemnity is illustrated by which of the following - ANS Restores an insured to
the same condition enjoyed before a loss
Which of the following is the PRIMARY source of information used by insurance companies
during the underwriting process - ANS The application for insurance
The giving up of a known right is called - ANS Waiver
,Which of the following best demonstrates the meaning of "contract of adhesion" - ANS Since the
insurance company formulates the policy language, the courts usually will resolve any
ambiguities in the insured's favor
An element of a valid contract must involve an offer and an acceptance. Sebastian completes
an application for auto insurance and submits it to Indemnify Insurance Company. Who made
the offer? - ANS Sebastian's agent with the indemnify Insurance Company
An agent, insured, or claimant has intentionally deceived an insurer for financial gain. Such an
act is known as - ANS Fraud
Which of the following terms is used to describe a contract where the insurance company is the
only party that is legally bound to perform its part of the agreement - ANS Unilateral
An applicant fails to disclose known facts when completing an application for insurance. This act
is known as - ANS Concealment
Which of the following is a statement that is guaranteed to be the truth throughout the duration
of the policy - ANS A Warranty
An intentional act designed to deceive and induce another party to part with something of value
is known as - ANS Fraud
A warranty in insurance is best described as which of the following - ANS A guarantee that the
statements made by the applicant are completely true and untrue statements can void the
coverage
In order for a contract to be binding in a court of law, it must be designed for - ANS Legal
Purposes
Vanessa states on an application for personal automobile insurance, that she has had no car
accidents within the past three years. She later remembers an accident and corrects this
statement to include that occurred two years ago. Vanessa's original statement can be
described as - ANS A representation
The conditions section of an insurance policy sets forth the - ANS Duties of the insured and the
insurance company
The law recognizes two types of waivers. They are - ANS Express/Implied
The declarations page of an insurance policy contains - ANS 1. The name and address of the
insured and the duration of the policy
, Which of the following statements best describes a "representation" made in an insurance
application - ANS A representation is a statement made by the applicant that he believes to be
true when made, but which might prove to be false
Which of the following best describes the purpose of the "insuring agreement" contained in an
insurance policy - ANS To the insurer's promise to pay in case of a loss
If an insurance company covered an excluded claim it may have to continue paying other such
claims because of - ANS Estoppel
Any intentional misinformation provided by an applicant for an insurance policy that would have
kept the insurance company from issuing the policy had that information been know is - ANS A
material Misrepresentation
Milton agrees to steal and wreck Albert's car for $4,000, so that albert can collect $8,000 under
his auto insurance policy. Which of the elements of a valid contract are missing in this
agreement - ANS Legal Purposes
Estoppel is best exemplified by which of the following - ANS An insurer is prohibited from
denying a claim because it's appointed producer advised the insured the claim covered
Which of the following parts of the insurance contract contains the "contractual agreement"
between the insurance company and the insured - ANS The insuring agreement
Which of the following people is committing "hard fraud" - ANS Ally wants her insurer to buy her
a new truck, so she pushes her current truck off a cliff and flies an auto accident claim
An insurance contract is considered to be an aleatory contract. All of the following are
characteristics of an aleatory contracts, except - ANS The contract allows the insured to receive
a return in claims payments that is nearly equal to the amount paid in premium
In which part of an insurance contract would you expect to find a description of the duties and
obligations of the insured - ANS The Conditions
The doctrine that states an insured's policy should provide the coverage that an average
prudent person would expect is - ANS The "reasonable expectations" doctrine
Chris is insured through binders keepers insurance company and his policy period ends in 12
months. However, Chris has decided that he wants to cancel his policy in order to purchase
another one from a company that advertises with cuter commercials on television. Chis calls his
agent to cancel the policy and is informed that the unearned premium on the cancelled policy
will be returned to him by the mail in a couple weeks. When Chris receives the check, he is
surprised to find that it's made out for less than the amount of unearned premium he should
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