# A Practice Test On Insurance! Trivia Quiz

49 Questions | Total Attempts: 166  Settings  Practice test on insurance trivia quiz. Insurance companies are created to ensure that entities are protected from the consequences of a risk occurring. Insured is expected to pay a premium which estimates the amount they receive when the risk occurs. Payment of premium is dependent on some rules being kept. Do take up this exciting quiz and get to learn some more about insurance in general and some of the basic rules.

• 1.
Traditionally, risk has been defined as
• A.

Any situation in which the probability of loss is one.

• B.

Any situation in which the probability of loss is zero.

• C.

Uncertainty concerning the occurrence of loss.

• D.

The probability of a loss occurring.

• 2.
Objective risk is defined as
• A.

The probability of loss

• B.

The relative variation of actual loss from expected loss

• C.

Uncertainty based on a personʹs mental condition or state of mind.

• D.

The cause of loss.

• 3.
An insurance company estimates its objective risk for 10,000 exposures at 10 percent. Assuming the probability of loss remains the same, what would happen to the objective risk if the number of exposures was to increase to 1 million?
• A.

It would decrease to 1 percent

• B.

It would decrease to 5 percent.

• C.

It would remain the same

• D.

It would increase to 20 percent

• 4.
Uncertainty based on a personʹs mental condition or state of mind is known as
• A.

Objective risk

• B.

Subjective risk.

• C.

Objective probability

• D.

Subjective probability

• 5.
The long-run relative frequency of an event based on the assumption of an infinite number of observations with no change in the underlying conditions is called
• A.

Objective probability

• B.

Objective risk.

• C.

Subjective probability

• D.

Subjective risk.

• 6.
Which of the following statements about a priori probabilities is correct?
• A.

They are subjective probabilities based on ambiguity in the way probability is perceived.

• B.

They are subjective probabilities that may vary among individuals because of factors such as age, gender, education, and the use of alcohol

• C.

They are objective probabilities that can be determined by deductive reasoning.

• D.

They are objective probabilities that can be determined by subjective reasoning

• 7.
An individualʹs personal estimate of the chance of loss is
• A.

An objective probability

• B.

An objective risk.

• C.

A subjective probability

• D.

An a priori probability

• 8.
A peril is
• A.

A moral hazard

• B.

The cause of a loss

• C.

A condition which increases the chance of a loss

• D.

The probability that a loss will occur

• 9.
An earthquake is an example of a
• A.

Moral hazard

• B.

Peril

• C.

Physical hazard

• D.

Objective risk

• 10.
The dense fog that increases the chance of an automobile accident is an example of a
• A.

Speculative risk

• B.

Peril.

• C.

Physical hazard

• D.

Moral hazard.

• 11.
Faking an accident to collect insurance proceeds is an example of a
• A.

Physical hazard

• B.

Objective risk

• C.

Moral hazard

• D.

Morale hazard

• 12.
Indifference to loss because of the existence of insurance is an example of a
• A.

Physical hazard

• B.

Objective probability

• C.

Moral hazard

• D.

morale hazard

• 13.
Some characteristics of the judicial system and regulatory environment increase the frequency and severity of a loss. This hazard is called
• A.

Moral hazard

• B.

Physical hazard

• C.

Morale hazard

• D.

Legal hazard

• 14.
Taylor Tobacco Company is concerned that the company may be held liable in a court of law and ordered to pay a large damage award. The characteristics of the judicial system that increase the frequency and severity of losses are known as
• A.

Moral hazard

• B.

Particular risk.

• C.

Speculative risk

• D.

Legal hazard.

• 15.
A phrase that encompasses all of the major risks faced by a business firm is
• A.

Financial risk

• B.

Speculative risk

• C.

Enterprise risk

• D.

Pure risk

• 16.
Which of the following statements about financial risk is (are) true? I. Enterprise risk does not include financial risk. II. Financial risk is easily addressed through the purchase of insurance.
• A.

I only

• B.

II only

• C.

Both I and II

• D.

Neither I nor II

• 17.
All of the following are considered financial risks EXCEPT
• A.

The decline in the value of a bond portfolio because of rising interest rates

• B.

Increased cost of production because of rising commodity prices

• C.

Loss of money because of adverse movements in currency exchange rates.

• D.

Loss of profits after a physical damage loss occurs

• 18.
Katelyn was just named Risk Manager of ABC Company. She has decided to create a risk management program that considers all of the risks faced by ABC-pure, speculative, operational, and strategic-in a single risk management program. Such a program is called a(n)
• A.

Financial risk management program

• B.

Enterprise risk management program

• C.

Fundamental risk management program

• D.

Consequential risk management program

• 19.
A pure risk is defined as a situation in which there is
• A.

Only the possibility of loss or no loss

• B.

Only the possibility of profit

• C.

A possibility of neither profit nor loss

• D.

A possibility of either profit or loss

• 20.
The premature death of an individual is an example of a
• A.

Pure risk

• B.

Speculative risk

• C.

Fundamental risk

• D.

Physical hazard.

• 21.
Which of the following statements about speculative risks is true?
• A.

They are almost always insurable by private insurers

• B.

They are more easily predictable than pure risks

• C.

Their occurrence may benefit society

• D.

They involve only a chance of loss

• 22.
An automobile that is a total loss as a result of a collision is an example of which of the following types of risk? I. Speculative risk II. Fundamental risk
• A.

I only

• B.

II only

• C.

Both I and II

• D.

Neither I nor II

• 23.
All of the following are programs to insure fundamental risks EXCEPT
• A.

Federally subsidized flood insurance

• B.

Auto physical damage insurance.

• C.

Social Security

• D.

Unemployment insurance

• 24.
All of the following are examples of personal risks EXCEPT
• A.

Poor health

• B.

Unemployment.

• C.

Premature death

• D.

Flood.

• 25.
Which of the following is a reason why premature death may result in economic insecurity? I. Additional expenses associated with death may be incurred. II. The income of the deceased personʹs family may be inadequate to meet its basic needs
• A.

I only

• B.

II only

• C.

Both I and II

• D.

Neither I nor II

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