INSURANCE
RECRUITMENT PRACTICE
TEST INDIA IC38 50
QUESTIONS
Question 1: A group of 10,000 similar homeowners each contributes a small premium so that losses su�ered by the few whose homes are damaged can be paid from the common fund. Which insurance concept is illustrated?
Choices:
1) Risk avoidance 2) Risk pooling or mutuality 3) Speculation 4) Self-insurance
Correct Answer: Risk pooling or mutuality
Explanation: Insurance relies on pooling or mutuality: many persons exposed to similar risks contribute premiums to a common fund from which the losses of the relatively few who su�er insured events are paid.Page 1
Question 2: A factory stores �ammable solvent beside an open �ame. In insurance terminology, what is the open �ame most accurately described as?
Choices:
1) A peril 2) A physical hazard 3) An insurable interest 4) A claim
Correct Answer: A physical hazard
Explanation: A hazard is a condition that increases the likelihood or severity of loss. The open �ame increases the chance of �re; the �re itself would be the peril or direct cause of loss.
Question 3: A manufacturer stops producing a hazardous chemical because the
potential loss is unacceptable. Which risk-management technique is being used?
Choices:
1) Risk retention 2) Risk transfer 3) Risk avoidance 4) Risk sharing
Correct Answer: Risk avoidance
Explanation: Risk avoidance means eliminating the activity or exposure that can create the loss. By discontinuing the hazardous operation, the manufacturer removes that exposure rather than insuring or retaining it.Page 2
Question 4: Which situation best demonstrates insurable interest in property
insurance?
Choices:
1) A person insures a stranger's vacant house because it may appreciate 2) A tenant insures the landlord's building for any amount desired 3) An owner insures a warehouse because its destruction would cause the owner �nancial loss 4) A trader insures a competitor's stock to pro�t if it burns Correct Answer: An owner insures a warehouse because its destruction would cause the owner �nancial loss Explanation: Insurable interest exists when the insured stands to su�er a genuine �nancial loss if the subject matter is damaged or destroyed. Ownership of the warehouse creates that �nancial relationship.Question 5: A proposer intentionally fails to disclose a recent diagnosis that would materially a�ect an insurer's underwriting decision. Which principle is most directly breached?
Choices:
1) Contribution 2) Subrogation 3) Utmost good faith 4) Average
Correct Answer: Utmost good faith
Explanation: Utmost good faith requires disclosure of material facts relevant to the insurer's decision to accept the risk and determine terms. Intentional concealment of a material diagnosis breaches that duty.Page 3