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MINNESOTA ACCIDENT & HEALTH INSURANCE LICENSE UNIT EXAM 2024/2025
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MINNESOTA ACCIDENT & HEALTH INSURANCE LICENSE UNIT EXAM 2024/2025
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MINNESOTA ACCIDENT & HEALTH INSURANCELICENSE UNIT EXAM 2024/2025
user
[COMPANY NAME] [Company address]
,MINNESOTA ACCIDENT & HEALTH
INSURANCE LICENSE UNIT
The law of large numbers
A) states that there must be an adequate spread of risk for insurance to be effective.
B) states that large risks should be transferred to an insurance company.
C) prohibits insurance with extremely high premiums.
D) states that the more examples used to develop a statistic, the more reliable the
statistic will be. - Precise Answer ✔✔D) states that the more examples used to
develop a statistic, the more reliable the statistic will be.
The law of large numbers says that the more examples used to develop a statistic,
the more reliable the statistic will be. Insurers use the law of large numbers to
predict the number of losses that will occur so they can charge the correct
premium.
A risk that involves both the possibility of loss and the possibility of gain is a/an
A) pure risk.
B) a morale risk.
C) speculative risk.
D) insurable risk. - Precise Answer ✔✔C) speculative risk.
A speculative risk involves both the possibility of loss and the possibility of gain.
Speculative risks are not insurable. A pure risk involves only the possibility of loss.
,LaTonya purchases a house from John. She borrows $75,000 from First City Bank
which, along with her $25,000 down payment, equals the $100,000 purchase price
of the home. Who has an insurable interest in this home?
A) John
B) LaTonya
C) Both LaTonya and First City Bank
D) First City Bank - Precise Answer ✔✔C) Both LaTonya and First City Bank
To have an insurable interest, an individual or business must have a chance of
financial loss or a financial interest in the property. Both LaTonya, who owns the
home, and First City Bank, which provided the mortgage, have insurable interests.
John does not have an insurable interest because he no longer owns the home.
Highpoint Industries has an automatic sprinkler system installed in its office
building. This is an example of which risk management method?
A) Transfer
B) Reduction
C) Avoidance
D) Control - Precise Answer ✔✔B) Reduction
A sprinkler system can reduce the severity of fires, but it does not prevent them
altogether or reduce the number that occur.
, Benson Pharmaceutical Company decides not to manufacture a new drug after
determining that it has serious potential side effects. This is an example of which
risk management method?
A) Avoidance
B) Control
C) Retention
D) Transfer - Precise Answer ✔✔A) Avoidance
By not producing the drug, Benson avoids the risk of being sued by consumers
who are injured by the drug.
Since she has always been in good health, Donna decides to cancel her health
insurance policy. This is an example of which risk management method?
A) Transfer
B) Control
C) Avoidance
D) Retention - Precise Answer ✔✔D) Retention
By not carrying health insurance, Donna is retaining the risk of financial loss from
unexpected medical expenses.
Myron, who is 16, signs a contract to lease a car. This would probably not be
considered a valid contract under the law because
A) Myron is not a competent party.
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