1.

Insuranceauthorshavetraditionallydefinedriskas
(a) anysituationinwhichtheprobabilityoflossisone.
(b) anysituationinwhichtheprobabilityoflossiszero.
(c) uncertaintyconcerningtheoccurrenceofloss.
(d) theprobabilityofalossoccurring.
Answer: C

42.

TyndalProductsCompanyproducescereal.Thecompanyhasenteredintocontractstodeliveronemillion
boxesofcerealduringthenext18months.Thecompanyisconcernedthatthepricesoftwoingredients,
cornandwheat,mayincreaseoverthenext18months.Thecompanyusedgrainfuturescontractsto
hedgethepriceriskassociatedwiththesecommodities.Tyndalsuseofhedgingillustrateswhichrisk
managementtechnique?
(a) noninsurancetransfer
(b) riskavoidance
(c) riskretention
(d) riskassumption
Answer: A

35.

ParkerDepartmentStoreshasbeenhurtinrecentmonthsbyalargeincreaseinshopliftinglosses.
Parkersriskmanagerconcludedthatwhilethefrequencyofshopliftinglosseswashigh,theseverityis
stillrelativelylow.Whatis(are)theappropriateriskmanagementtechnique(s)toapplytothisproblem?
(a) retention
(b) losscontrolandretention
(c) transferthroughinsurance
(d) avoidance
Answer: B

41.

Bevlivesinthesuburbsandworksdowntown.Shedrivestowork,andhermostdirectroutetowork
wouldrequirehertopassthroughanareawherecarjackingsanddrivebyshootingsarecommon.Bev
doesnotdrivethroughthisarea.Instead,sheusesaroutewhichadds10minutestohercommute.Which
riskmanagementtechniqueisBevusingwithrespecttotheriskofinjurywhiledrivingthroughthe
dangerousarea?
(a) noninsurancetransfer
(b) avoidance
(c) passiveretention
(d) lossreduction
Answer: B

26.

Agroupoffarmersagreedthatifanyfarmersufferedapropertyloss,thelosswouldbespreadoverthe
entiregroup.Inthisway,eachfarmerisresponsiblefortheaveragelossofthegroupratherthanthe
actuallossthatthefarmersustained.Whichcharacteristicofinsuranceisembodiedinthisagreement?
(a) poolingoflosses
(b) fortuitouslosses
(c) riskavoidance
(d) indemnification
Answer: A

13.

Suesofficebuildingwasdamagedbyafirecausedbyacarelesstenant.AfterpayingSueforherloss,the
insurancecompanysuedthetenanttorecoveritsloss.Thissuitisbasedontheprincipleof
(a) warranty.
(b) insurableinterest.
(c) utmostgoodfaith.
(d) subrogation.
Answer: D

30.

Whatisthepracticaleffectofaninsurancepolicybeingaconditionalcontract?
(a) Theinsurercanrefusetopayclaimsunlesstheinsuredhascompliedwithallpolicyconditions.
(b) Theinsuredcanassignthepolicyonlywiththeinsurersconsent.
(c) Theinsurercansuetheinsuredforfailuretopayanypremiums.
(d) Theinsuredgetsthebenefitofthedoubtifapolicycontainsanyambiguitiesoruncertainties.
Answer: A

31.

Whatisthepracticaleffectofaninsurancepolicybeingacontractofadhesion?
(a) Theinsurercanrefusetopayclaimsunlesstheinsuredhascompliedwithallpolicyprovisions.
(b) Theinsuredcanassignthepolicyonlywiththeinsurersconsent.
(c) Theinsurercansuetheinsuredforfailuretopayanypremiums.
(d) Thepolicyisinterpretedintheinsuredsfavorifthepolicycontainsanyambiguitiesoruncertainties.
Answer: D

36.

JacobsoldhishousetoSheliafor$140,000incash.Jacobthrewininsuranceonthehouseaspartofthe
dealanddidnotbothertellingtheinsurerthattherewasanewowner.FourmonthsafterSheliapurchased
thehome,awindstormdamagedtheroof.Whichofthefollowinglegalcharacteristicsofinsurance
contractscouldtheinsurerusetolegallydenypaymentforthedamagetotheroof?
(a) Insurancecontractsareunilateralcontracts.
(b) Insurancecontactsarecontractsofadhesion.
(c) Insurancecontractsarealeatorycontracts.
(d) Insurancecontractsarepersonalcontracts.
Answer: D

37.

Melodyscarwasdamagedwhenanotherdriverranastopsignandhithercar.Melodydecidedtocollect
fromherowninsurerandtoletherinsurerrecoupthelosspaymentfromthedriverwhohither.What
fundamentallegalprincipleisillustratedinthisscenario?
(a) theprincipleofutmostgoodfaith
(b) theprincipleofinsurableinterest
(c) theprincipleofsubrogation
(d) theprincipleofreasonableexpectations
Answer: C

42.

Markownsabar.ThebarhasabackroomwhereMarkhassomeslotmachines.Markletssomeofhis
patronsplaythemachines,andMarkkeepsanyprofits.ThistypeofgamblingisillegalwhereMarklives.
Markwantedtopurchaseinsuranceincasehisslotmachineswereconfiscatedbythepolice.Suchan
insurancecontractwouldnotbeenforceable.Whichrequirementneededtoformavalidinsurance
contractismissing?
(a) consideration
(b) offerandacceptance
(c) legalpurpose
(d) competentparties
Answer: C

43.

KathyenteredintoaninsurancecontractwithXYZInsuranceCompany.Whentheagentwhosoldthe
coveragewitnessedKathydoingsomethingthatviolatedthetermsofthecontract,hethreatenedtosue
hertomakehercomplywithtermsofthecontract.Whichdistinctlegalcharacteristicofinsurance
contractsstatesthatonlytheinsurerspromisetoperformislegallyenforceable?
(a) contractsofadhesion
(b) unilateralcontracts
(c) aleatorycontracts
(d) personalcontracts
Answer: B

31.

ABCCompanyinsureditsbuildingonareplacementcostbasisfor$700,000underapropertyinsurance
policythatincludedan80percentcoinsuranceclause.Thebuildinghadareplacementcostof$1million
whenitsustaineda$40,000loss.HowmuchwillABCCompanyreceivefromitsinsurer,assumingno
deductibleapplies?
(a) $33,333
(b) $35,000
(c) $36,000
(d) $40,000
Answer: B

22.

Lisahasthreefireinsurancepoliciesonherofficebuilding.ThepolicyfromcompanyAisfor$400,000,
andthepoliciesfromcompaniesBandCarefor$100,000each.IfLisahasa$360,000loss,howmuchof
thelosswillbecoveredbyeachpolicyifthelossissettledonaproratabasisbytheinsurers?
(a) eachpolicy:$120,000
(b) policyA:$160,000;policiesBandC:$100,000each
(c) policyA:$240,000;policiesBandC:$60,000each
(d) policyA:$360,000;policiesBandC:nothing
Answer: C

23.

Kevinhasthreeliabilitypolicieswhichprovideforcontributionbyequalsharesincaseotherinsurance
appliestoaloss.Howmuchwilleachpolicypayfora$3,000,000liabilityjudgmentifpolicyAprovides
$500,000ofcoverage,policyBprovides$1,000,000ofcoverage,andpolicyCprovides$3,000,000of
coverage?
(a) Eachpolicywillpay$500,000,andKevinmustassumetheremaining$1,500,000.
(b) PolicyAwillpay$500,000,policiesBandCwilleachpay$1,000,000,andKevinmustassumethe
remaining$500,000.
(c) PolicyAwillpaynothing,policyBwillpay$1,000,000,andpolicyCwillpay$2,000,000.
(d) PolicyAwillpay$500,000,policyBwillpay$1,000,000,andpolicyCwillpay$1,500,000.
Answer: D