- What is the primary purpose of insurance in the context of risk sharing?
- A) To eliminate all risks
- B) To distribute the financial burden of risks
- C) To increase the likelihood of loss
- D) To avoid risks entirely
- Answer: B) To distribute the financial burden of risks
- Which type of insurance covers losses from theft, damage, or destruction of property?
- A) Liability insurance
- B) Property insurance
- C) Life insurance
- D) Health insurance
- Answer: B) Property insurance
- What is the concept of “pooling of risks” in insurance?
- A) Combining risks to increase uncertainty
- B) Sharing risks among a large group of policyholders
- C) Eliminating risks completely
- D) Transferring risks to third parties
- Answer: B) Sharing risks among a large group of policyholders
- How does insurance mitigate financial risks for businesses?
- A) By guaranteeing profits
- B) By providing compensation for covered losses
- C) By eliminating all operational risks
- D) By increasing the overall risk exposure
- Answer: B) By providing compensation for covered losses
- Which of the following is a type of liability insurance?
- A) Homeowners insurance
- B) Business interruption insurance
- C) General liability insurance
- D) Auto insurance
- Answer: C) General liability insurance
- What is a deductible in an insurance policy?
- A) The total premium paid for insurance
- B) The amount the policyholder pays out of pocket before insurance kicks in
- C) The maximum amount the insurer will pay for a claim
- D) A type of coverage exclusion
- Answer: B) The amount the policyholder pays out of pocket before insurance kicks in
- What does “underwriting” refer to in the insurance industry?
- A) The process of claiming insurance
- B) The assessment and evaluation of risks to determine premium rates
- C) The marketing of insurance products
- D) The legal aspects of insurance contracts
- Answer: B) The assessment and evaluation of risks to determine premium rates
- What is “risk transfer” in the context of insurance?
- A) Accepting the risk without mitigation
- B) Sharing risks with other businesses
- C) Shifting the financial consequences of risk to an insurer
- D) Eliminating risks through policy changes
- Answer: C) Shifting the financial consequences of risk to an insurer
- Which of the following is NOT typically covered by health insurance?
- A) Routine check-ups
- B) Emergency surgeries
- C) Cosmetic procedures
- D) Prescription medications
- Answer: C) Cosmetic procedures
- What is the term for an insurance policy that covers both property and liability?
- A) Comprehensive insurance
- B) General liability insurance
- C) Business owner’s policy (BOP)
- D) Life insurance
- Answer: C) Business owner’s policy (BOP)
- Which of the following factors influences insurance premium rates?
- A) Age of the insured
- B) Credit score
- C) Claims history
- D) All of the above
- Answer: D) All of the above
- What is the main advantage of risk sharing through insurance for businesses?
- A) It completely removes all risks
- B) It allows for predictable budgeting for potential losses
- C) It guarantees no losses will occur
- D) It eliminates the need for risk management
- Answer: B) It allows for predictable budgeting for potential losses
- In which scenario would business interruption insurance be beneficial?
- A) A business experiencing a data breach
- B) A business closing due to natural disasters
- C) A business increasing its marketing efforts
- D) A business acquiring new equipment
- Answer: B) A business closing due to natural disasters
- What type of insurance is specifically designed for small businesses?
- A) Life insurance
- B) Small business insurance
- C) Commercial auto insurance
- D) Business owner’s policy (BOP)
- Answer: D) Business owner’s policy (BOP)
- Which of the following is a limitation of using insurance as a risk-sharing mechanism?
- A) It can provide immediate financial support
- B) Premiums may increase based on claims history
- C) It covers all types of risks without exceptions
- D) It helps in business planning
- Answer: B) Premiums may increase based on claims history
- How does reinsurance function in the insurance industry?
- A) It is a type of insurance for consumers
- B) It involves one insurer transferring part of its risk to another insurer
- C) It eliminates the need for primary insurance
- D) It offers direct coverage to policyholders
- Answer: B) It involves one insurer transferring part of its risk to another insurer
- What does “loss ratio” measure in insurance?
- A) The total number of policies sold
- B) The ratio of claims paid to premiums earned
- C) The effectiveness of marketing strategies
- D) The profit margins of the insurance company
- Answer: B) The ratio of claims paid to premiums earned
- Which of the following is an example of personal insurance?
- A) Property insurance for a business
- B) Auto insurance for personal vehicles
- C) Workers’ compensation insurance
- D) General liability insurance for a corporation
- Answer: B) Auto insurance for personal vehicles
- What is a common exclusion in many insurance policies?
- A) Damage from fire
- B) Losses due to natural disasters
- C) Intentional acts of fraud
- D) Medical expenses
- Answer: C) Intentional acts of fraud
- Which insurance type protects businesses from claims resulting from injuries and damage to people and/or property?
- A) Workers’ compensation insurance
- B) General liability insurance
- C) Professional liability insurance
- D) Property insurance
- Answer: B) General liability insurance
- What is a common feature of health insurance plans?
- A) Coverage for all types of medical expenses
- B) The requirement of a co-payment for services
- C) No limit on benefits
- D) Exclusion of preventive care
- Answer: B) The requirement of a co-payment for services
- Which of the following describes the principle of “insurable interest”?
- A) The insured must benefit from the loss of the insured item
- B) The insurer must have an interest in the financial outcome of the policy
- C) The policyholder must be indifferent to losses
- D) There must be a mutual agreement between insurer and insured
- Answer: A) The insured must benefit from the loss of the insured item
- What is the role of an actuary in the insurance industry?
- A) To handle customer service inquiries
- B) To assess risks and determine premium rates
- C) To sell insurance policies
- D) To manage claims processing
- Answer: B) To assess risks and determine premium rates
- How do insurance companies typically manage their risks?
- A) By avoiding all high-risk clients
- B) Through diversification of their portfolio and reinsurance
- C) By only accepting low-risk applicants
- D) By limiting the number of policies issued
- Answer: B) Through diversification of their portfolio and reinsurance
- Which of the following is an example of property insurance?
- A) Life insurance
- B) Homeowners insurance
- C) Liability insurance
- D) Health insurance
- Answer: B) Homeowners insurance
- What is the typical purpose of a “rider” in an insurance policy?
- A) To increase premiums
- B) To expand coverage for specific needs
- C) To limit the insured amount
- D) To eliminate certain coverages
- Answer: B) To expand coverage for specific needs
- What is the “claims-made” basis in liability insurance?
- A) Claims are paid regardless of the date of occurrence
- B) Coverage is triggered when the claim is made, regardless of when the event occurred
- C) Claims are covered only if reported within a year
- D) Coverage is limited to specific incidents
- Answer: B) Coverage is triggered when the claim is made, regardless of when the event occurred
- Which of the following is an essential step in the insurance claim process?
- A) Ignoring the insurer’s requests for information
- B) Reporting the claim promptly and providing necessary documentation
- C) Delaying the submission of the claim
- D) Failing to follow up with the insurer
- Answer: B) Reporting the claim promptly and providing necessary documentation
- What does “premium” refer to in an insurance context?
- A) The amount of coverage provided
- B) The payment made by the policyholder to the insurer
- C) The deductibles applicable to claims
- D) The total value of claims paid out
- Answer: B) The payment made by the policyholder to the insurer
- How can businesses use insurance to enhance their risk management strategies?
- A) By relying solely on insurance for all risks
- B) By integrating insurance into a comprehensive risk management plan
- C) By avoiding any type of insurance coverage
- D) By only purchasing the minimum required insurance
- Answer: B) By integrating insurance into a comprehensive risk management plan