Basic Insurance Concepts & Principles - exampdfs 01

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Basic Insurance Concepts & Principles - exampdfs 01
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Question 1

Question
The Insurance market comprises: 1) buyers 2) sellers 3) intermediaries
Answer
  • 1, 2
  • 1, 3
  • 2, 3
  • 1, 2, 3

Question 2

Question
An example of a Seller in an insurance market is/are:
Answer
  • Life Insurance Association
  • Insurance companies
  • Insurance agents
  • Insurance brokers

Question 3

Question
Which of the following is not classified as Commercial General Insurance?
Answer
  • Professional Indemnity Insurance
  • Marine Cargo Insurance
  • Personal Liability Insurance
  • Work Injury Compensation Insurance

Question 4

Question
Microinsurance provides a variety of different risks, including illnesses, accidental bodily injuries, death and property loss, designed for the affordability and accessibility to low-income households.
Answer
  • True
  • False

Question 5

Question
It is mandatory for Takaful insurance to be compliant with Shariah and the Islamic law.
Answer
  • True
  • False

Question 6

Question
Which of the following is an example of pure risk?
Answer
  • Being robbed
  • Running a business
  • Earthquake
  • Driving a car

Question 7

Question
Which of the following is NOT an example of fundamental risk?
Answer
  • War
  • Flood
  • Driving a car
  • Unemployment

Question 8

Question
Which of the following is NOT a category of any type of insurance contract?
Answer
  • Contract of Insurability
  • Contract of Indemnity
  • Valued contract
  • Benefit contract

Question 9

Question
Which of the following is NOT commonly insured under a valued contract?
Answer
  • Marine insurance
  • Antique insurance
  • Jewelry Insurance
  • Personal Accident Insurance

Question 10

Question
Which of the following is commonly classified as a contract of indemnity?
Answer
  • Marine insurance
  • Endowment insurance
  • Fire Insurance
  • Personal Accident Insurance

Question 11

Question
Which of the following is commonly classified as a benefit contract?
Answer
  • Marine insurance
  • Antique insurance
  • Fire Insurance
  • Personal Accident Insurance

Question 12

Question
Which of the following types of loss is NOT insurable?
Answer
  • Loss that is accidental
  • Loss that is definite
  • Loss that creates a burden
  • Loss that happens to a large number of insureds at the same time

Question 13

Question
What is a peril?
Answer
  • An event or occurrence which causes a loss, an injury or damage
  • An event or occurrence that creates or increases the risk of loss
  • An event or occurrence whereby people, through their careless or irresponsible action creates or increases the risk of loss
  • All of the others

Question 14

Question
In insurance, which of the following is NOT a type of hazard?
Answer
  • Moral hazard
  • Physical hazard
  • Accidental hazard
  • None of the others

Question 15

Question
A moral hazard can involve a situation in which a person engineers a loss on purpose in order to make a false claim against an insurance company.
Answer
  • True
  • False

Question 16

Question
Which of the following is NOT a method of risk control?
Answer
  • Avoidance
  • Confine
  • Retention
  • Transfer

Question 17

Question
Which of the following is a type of risk retention whereby one is aware of a risk and intentionally retains it, or a portion of it:
Answer
  • Active retention
  • Passive retention
  • Self retention
  • Insurance retention

Question 18

Question
Which of the following clauses are usually used in a contract so that one party will assume legal liability on behalf of another party?
Answer
  • Assumption clause
  • Zero-liability clause
  • Zero-responsibility clause
  • Hold-harmless clause

Question 19

Question
Which of the following is a method to use such that a risk and its potential financial consequences can be transferred to another party without the use of insurance?
Answer
  • Risk transfer
  • Risk pooling
  • Non-insurance transfer
  • Non-insurance pooling

Question 20

Question
Non-insurance transfer methods are usually used in which type of contacts?
Answer
  • Building construction
  • Personal Accident Insurance
  • Motor Vehicle Insurance
  • None of the others

Question 21

Question
Which of the following are benefits of insurance?
Answer
  • Enhance provision of credit facilities
  • Stimulates business enterprise
  • Encourages investments
  • All of the others

Question 22

Question
What is insurable interest?
Answer
  • The legal right to insure
  • The amount of compensation
  • The real reason for the loss
  • The insured

Question 23

Question
What is subrogation?
Answer
  • The legal right to insure
  • The legal right to recovery
  • The real reason for the loss
  • The amount of compensation

Question 24

Question
Which of the following is NOT TRUE about 'common law'?
Answer
  • It is sometimes called 'unwritten law'
  • It consists of generally accepted rules and requirements that a civilized society will consider automatic
  • It can be modified or abolished by statute law
  • It cannot be modified by the mutual agreement of parties to a contract

Question 25

Question
Which of the following is NOT essential to insurable interest?
Answer
  • There must be some property, rights, interest or potential liability capable of being insured
  • The property, rights, interest or potential liability must be the subject matter of the insurance
  • The insured must not stand in a relationship, recognized by law, with the subject matter of the insurance
  • The proposer must benefit from the continued existence of the subject matter of the contract or be prejudiced by its loss

Question 26

Question
Which of the following types of insurance contracts do not need proof of existence of insurable interest at the time that the policy is issued?
Answer
  • Non-life and non-marine contracts
  • Life insurance
  • Marine insurance
  • None of the others

Question 27

Question
Which of the following relationships do not have an insurable interest?
Answer
  • Husband and wife
  • Employee and employer
  • Debtor and creditor
  • None of the others

Question 28

Question
The doctrine of utmost good faith imposes which of the following duties on the parties to the contract?
Answer
  • 1) A duty not to misrepresent any matter relating to the insurance
  • 2) A duty to disclose all material facts relating to the contract
  • Both 1) and 2)
  • None of the others

Question 29

Question
Which of the following can be influenced by a material fact?
Answer
  • An underwriter's decision to accept a risk
  • Premium
  • Terms and conditions of the insurance contract
  • All of the others

Question 30

Question
Facts of law do not need to be disclosed as material facts because everyone is expected to know the law.
Answer
  • True
  • False

Question 31

Question
Duty of disclosure commences at all of the following times EXCEPT the:
Answer
  • Beginning of negotiations
  • Inception of policy
  • After inception
  • None of the others

Question 32

Question
Duty of disclosure arises under:
Answer
  • 1) Common law
  • 2) The policy terms
  • Both 1) and 2)
  • None of the others

Question 33

Question
Duty of disclosure is only applicable to the:
Answer
  • Insured
  • Insurer
  • Both Insured and Insurer
  • None of the others

Question 34

Question
For a fact to be considered as a misrepresentation, it must:
Answer
  • induce the contract
  • not be made by a party to the contract
  • not cause some loss or disadvantage to the person who has relied upon it
  • All of the others

Question 35

Question
Which of the following is NOT a type of misrepresentation?
Answer
  • Fraudulent
  • Innocent
  • Material
  • Negligent

Question 36

Question
A proposer applying for life insurance says that he is in good health when he knows that he is suffering from a serious illness is guilty of:
Answer
  • misrepresentation
  • non-disclosure
  • Both misrepresentation and non-disclosure
  • None of the others

Question 37

Question
Fraudulent non-disclosure is also known as:
Answer
  • Concealment
  • Mitigation
  • Negligence
  • Subrogation

Question 38

Question
If innocent misrepresentation by the insured is present, the insurer has the right to:
Answer
  • Claim damages
  • Keep any premium paid
  • Allow the contract to stand
  • All of the others

Question 39

Question
An insurer can refuse to pay a particular claim but at the same time allow the contract to stand only if:
Answer
  • 1) The insured is guilty of fraudulent misrepresentation
  • 2) The insured is guilty of innocent misrepresentation
  • Both 1) and 2)
  • None of the others

Question 40

Question
Which of the following is a method by which an insurer can provide the insured with the necessary indemnity?
Answer
  • Repair
  • Replacement
  • Reinstatement
  • All of the others

Question 41

Question
The principle of indemnity can be applied to which of the following classes of insurance? 1) Property insurance 2) Pecuniary insurance 3) Personal Accident insurance 4) Life insurance
Answer
  • 1) and 2)
  • 2), 3), 4)
  • 3) and 4)
  • All of them

Question 42

Question
When insuring machinery and equipment, which of the following is TRUE about how a second-hand market will affect the amount insured?
Answer
  • 1) If there is a ready second-hand market, the indemnity is the cost of the second-hand item less any additional transport and installation costs
  • 2) If there is no second-hand market, the indemnity is the cost of repair or replacement less an allowance for wear and tear, if applicable
  • Both 1) and 2)
  • None of the others

Question 43

Question
Which of the following falls under Pecuniary Insurance?
Answer
  • Life insurance
  • Personal Accident insurance
  • Theft insurance
  • Liability insurance

Question 44

Question
Which of the following are factors that limit the amount of indemnity?
Answer
  • Average clause
  • Agreed Value clause
  • Reinstatement clause
  • "New for old" clause

Question 45

Question
Which of the following are extensions that increase the amount of indemnity?
Answer
  • Franchise
  • Average clauses
  • Agreed Value clause
  • Excess

Question 46

Question
Oriental Trading Company had a fire in its insured shop. They claimed a loss of $5000 against its Fire Insurance policy. The loss adjuster who was instructed by the insurer was satisfied that the loss claimed was correct. However the loss adjuster reported that, in his opinion, there was at least $10,000 in stock but only $8000 in insurance cover. If the policy was NOT subject to average clause, how much should the insurer pay?
Answer
  • $2000
  • $4000
  • $5000
  • $8000

Question 47

Question
New World Trading Company had a fire in its insured shop. They claimed a loss of $9000 against the Fire Insurance policy. The loss adjuster who was instructed by the insurer was satisfied that the loss claimed was correct. However the loss adjuster reported that, in his opinion, there was at least $30,000 in stock but only $20,000 in insurance cover. If the policy was subject to average clause, how much should the insurer pay?
Answer
  • $3000
  • $6000
  • $9000
  • $11000

Question 48

Question
Which of the following is similar to an Excess but once the Excess is exceeded, the loss is payable in full?
Answer
  • Average Clause
  • Franchise
  • Limit of Liability
  • Deductible

Question 49

Question
Extensions are added to a policy, so that:
Answer
  • The insured can recover more than a strict indemnity
  • The insurer pays less than the strict indemnity
  • The premium is lower
  • The policy can be extended to cover for a longer period of time

Question 50

Question
Which of the following clauses is NOT categorized as an extension?
Answer
  • Reinstatement Clause
  • "New for Old" Clause
  • Limit of Liability Clause
  • Agreed Value Clause
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