10/13/2015

Test:INS21Chapter1|Quizlet

NAME

30 Multiple choice questions

1.

A fundamental measure of the loss exposure assumed by an insurer

a. CORRECT: Exposure Unit
b. Utmost Good Faith

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c. Annuity
d. Loss Prevention

2.

Why does the law of large numbers enable insurers to make predictions about losses?
a. CORRECT: Insurers have large numbers of independent exposure units (cars & houses of

all their insureds, for example) they can predict the number of losses that all similar
exposure units combined are likely to experience.
b. Insurance that covers a business or a non-profit organization against loss exposures

arising out of the ownership, maintenance, or use of automobiles

c. If the insured has large assets or unique exposures such as a horse or swimming pool,

the umbrella policy provides additional (higher) limits of protection than are available
under regular homeowners and auto policies.
d. loss avoidance, loss prevention, loss reduction or risk transfer

3.

For a loss to be fortuitous, the insured cannot have control over whether or when a loss will
occur.
a. Utmost Good Faith
b. CORRECT: What makes a loss fortuitous?
c. What is claim build-up?
d. Homeowners Policy

4.

How does insurance function as a system of both transferring and sharing the cost of losses.
a. CORRECT: The potential financial consequences of certain loss exposures are transferred

to an insurer, which, in turn, pays for the covered losses and, in effect, distributes the
costs of losses among all insureds (all insureds share the cost of a loss).
b. A fundamental measure of the loss exposure assumed by an insurer
c. loss avoidance, loss prevention, loss reduction or risk transfer
d. The intentional exaggeration of a loss in an otherwise-legitimate claim

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Test:INS21Chapter1|Quizlet

5.

Coverage for damage to or theft of a covered auto that can include both collision coverage and
comprehensive coverage
a. Comprehensive Coverage
b. CORRECT: Auto Physical damage coverage
c. Liability coverage
d. Personal Liability Coverage

6.

A risk control technique that reduces the frequency of a particular loss

a. Loss Reduction
b. CORRECT: Loss Prevention
c. Loss Exposure
d. Exposure Unit

7.

Because a loss exposure that is part of a large # of similar exposure units allows an insurer to
spread the risk of loss over its entire pool of similar insureds and thereby maintain manageable
premium levels
a. What are the primary sources of income for insurers?
b. What property coverage is provided by a Homeowners policy?
c. What is the purpose of Environmental Liability Insurance?
d. CORRECT: Why must an ideally insurable loss exposure be one of a large number of similar

exposure units?

8.

When a loss suffered by one insured does not affect any other insured or group of insureds
a. What is the purpose of an annuity?
b. What are the primary sources of income for insurers?
c. CORRECT: What is the distinguishing characteristic of an independent loss exposure?
d. What is the purpose of a CPP or a BOP?

9.

The process of making and implementing decisions that will minimize the adverse effects of
accidental losses on an organization
a. Loss Reduction
b. CORRECT: Risk Management
c. Exposure Unit
d. Loss Prevention

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10.

Test:INS21Chapter1|Quizlet

List two typical personal liability loss exposures and how a personal umbrella policy could
provide needed protection.
a. CORRECT: If the insured has large assets or unique exposures such as a horse or

swimming pool, the umbrella policy provides additional (higher) limits of protection than
are available under regular homeowners and auto policies.
b. Insurers have large numbers of independent exposure units (cars & houses of all their

insureds, for example) they can predict the number of losses that all similar exposure
units combined are likely to experience.
c. The insured pays increased premiums to help cover the costs of those who defraud

insurers
d. The intentional exaggeration of a loss in an otherwise-legitimate claim

11.

The Capital and labor being used in the insurance industry could be used elsewhere and could
create other productive contributions to society
a. How does insurance benefit society?
b. CORRECT: How do resources used in the operations of the insurance industry represent

opportunity cost?
c. How do fraudulent claims increase costs for insureds?
d. How does insurance function as a system of both transferring and sharing the cost of

losses.

12.

To provide periodic income that an individual cannot out live

a. Contract of indemnity
b. What makes a loss fortuitous?
c. What is the purpose of a CPP or a BOP?
d. CORRECT: What is the purpose of an annuity?

13.

Life insurance designed to remain in force for an insured's entire life and provide a death
benefit at death, characterized by the presence of a cash value
a. Ocean marine Insurance
b. CORRECT: Permanent Life Insurance
c. Inland Marine Insurance
d. Liability insurance

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14.

Test:INS21Chapter1|Quizlet

Deductibles, Premium Credit incentives, Contractual requirements

a. List 4 common causes of loss covered by auto physical damage coverage
b. CORRECT: List risk-sharing mechanisms an insurer may use to promote risk control
c. List three prevalent examples of property-casualty insurance
d. How do fraudulent claims increase costs for insureds?

15.

A type of life insurance policy or contract that makes periodic payments to the recipient for a
fixed period or for life in exchange for a specified premium.
a. Loss Exposure
b. CORRECT: Annuity
c. Loss Reduction
d. Exposure Unit

16.

Personal Liability Coverage

a. CORRECT: Coverage for damages, plus costs of any defense related to a claim or suit

brought against the insured that resulted from bodily injury of property damage caused
by an occurrence covered under the policy
b. If the insured has large assets or unique exposures such as a horse or swimming pool,

the umbrella policy provides additional (higher) limits of protection than are available
under regular homeowners and auto policies.
c. Coverage that protects the insured from damages owed because of legal liability to

another party. For auto policies, it protects insureds against liability arising out of the
ownership or operation of automobiles
d. Coverage for direct and accidental loss or damage to a covered auto by any peril except

collision or overturn or a peril specifically excluded.

17.

They are not economically feasible to insure. The expense of providing insurance will exceed
the amount of potential losses or the expense of providing insurance would make the premium
to high to have insurance
a. What are the primary sources of income for insurers?
b. How do fraudulent claims increase costs for insureds?
c. CORRECT: Why are loss exposures that involve small losses and loss exposures involving a

high probability of loss considered uninsurable?

d. What are the differences between term-life and permanent Life insurance

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18.

Test:INS21Chapter1|Quizlet

Insurance that covers persons engaged in various occupations against liability resulting from
their rendering or failing to render professional services
a. CORRECT: Professional Liability Insurance
b. Personal Liability Coverage
c. Property-Casualty Insurance
d. Liability insurance

19.

Term provides coverage for 10 or 20 years and has no cash value. Permanent provides
coverage until death, it does have a cash value and premiums remain the same for the life of
the policy.
a. What are the differences between Pure risk and Speculative risk?
b. What is the purpose of Environmental Liability Insurance?
c. What are the primary sources of income for insurers?
d. CORRECT: What are the differences between term-life and permanent Life insurance

20.

Property-Casualty Insurance
a. A fundamental measure of the loss exposure assumed by an insurer
b. Policy that covers two or more lines of business by combining ISO's commercial lines

coverage parts.
c. To provide periodic income that an individual cannot out live
d. CORRECT: One of the two main sectors of the insurance industry, encompassing

numerous types of insurance, most of which covers the financial consequences of

damage to one's own property or legal liability to others.

21.

List 4 common causes of loss covered by auto physical damage coverage

a. Reduces social burden
b. An insurance policy
c. loss avoidance, loss prevention, loss reduction or risk transfer
d. CORRECT: collision, fire, theft, and collision with an animal

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22.

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Long-term care insurance

a. CORRECT: Insurance that pays for extended medical care or custodial care received in a

nursing home, hospital, or home.

b. Insurance that covers many of the common liability loss exposure faces by an

organization, including its premises, operations, and products.

c. Insurance that covers (1) money and securities against numerous perils (not limited to

crime perils) and (2) property other than money and securities against crime perils, such
as employee theft, robbery, theft by outsiders, and extortion
d. Insurance that covers vessels and their cargoes, including various vessel-related liability

exposures

23.

Term Life insurance

a. Insurance that covers many of the common liability loss exposure faces by an

organization, including its premises, operations, and products.

b. Policy that provides excess coverage above underlying policies and may also provide

coverage not available in the underlying policies, subject to self-insured retention

c. Insurance that provides coverage for benefits an employer is obligated to pay under

workers compensation laws.

d. CORRECT: Life insurance that provides coverage for a specified period, such as ten or

twenty years, with no cash value.

24.

What is claim build-up?

a. To provide periodic income that an individual cannot out live
b. CORRECT: The intentional exaggeration of a loss in an otherwise-legitimate claim
c. An obligation to act in complete honesty and to disclose relevant facts
d. collision, fire, theft, and collision with an animal

25.

Insurance that covers many different classes of property that typically involve an element of
transportation
a. Liability insurance
b. CORRECT: Inland Marine Insurance
c. Permanent Life Insurance
d. Long-term care insurance

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26.

Test:INS21Chapter1|Quizlet

Insurance that covers vessels and their cargoes, including various vessel-related liability
exposures
a. Term Life insurance
b. CORRECT: Ocean marine Insurance
c. Long-term care insurance
d. Inland Marine Insurance

27.

Homeowners Policy
a. Insurance that covers a business or a non-profit organization against loss exposures

arising out of the ownership, maintenance, or use of automobiles

b. Policy that provides excess coverage above underlying policies and may also provide

coverage not available in the underlying policies, subject to self-insured retention

c. An insurance policy that covers an individual or a family against loss exposure arising out

of the ownership, maintenance, or use of automobiles.

d. CORRECT: Policy that covers most of the property and liability loss exposures that arise out

of residential property ownership and occupancy, as well as property and liability loss
exposures that individuals may have while they are way from their residences

28.

Protects against damage to home and contents caused by fire, wind,lightning, and other causes
of loss.
a. What is the purpose of an annuity?
b. What coverage is provided by Workers Compensation?
c. What are the primary sources of income for insurers?
d. CORRECT: What property coverage is provided by a Homeowners policy?

29.

An obligation to act in complete honesty and to disclose relevant facts

a. CORRECT: Utmost Good Faith
b. Modular policy
c. Loss Reduction
d. Exposure Unit

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30.

Test:INS21Chapter1|Quizlet

What is the purpose of Environmental Liability Insurance?

a. Protects against damage to home and contents caused by fire, wind,lightning, and other

causes of loss.
b. Because insurer's often pay for injuries and damages that insureds could have prevented.
c. CORRECT: Protect business owners against environmental damage that may occur as a

result of business operations

d. They provide business owners with the necessary property, crime and liability coverages

in one policy

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