SLII INSURANCE AGENT
PRE-RECRUITMENT
PRACTICE EXAM 2026 50
QUESTIONS
Question 1: A shop owner worries that an accidental �re may damage the premises, but there is no possibility of �nancial gain from the �re itself. How is this risk classi�ed?
Choices:
1) Speculative risk 2) Pure risk 3) Investment risk 4) Entrepreneurial risk
Correct Answer: Pure risk
Explanation: A pure risk presents the possibility of loss or no loss, but not a gain. Accidental �re is therefore a pure risk and is the type of exposure commonly considered for insurance.Page 1
Question 2: A warehouse contains exposed electrical wiring that makes a �re more likely. In insurance terminology, the exposed wiring is best described as what?
Choices:
1) A physical hazard 2) A peril 3) A claim 4) A deductible
Correct Answer: A physical hazard
Explanation: A hazard is a condition that increases the frequency or severity of loss. Exposed wiring is a physical hazard; �re would be the peril that directly causes the loss.
Question 3: Why does an insurer prefer to insure a large number of reasonably
similar exposure units?
Choices:
1) It eliminates every catastrophic loss 2) It guarantees that every policyholder will claim 3) It makes actual loss experience more predictable relative to expected losses 4) It allows the insurer to ignore underwriting information Correct Answer: It makes actual loss experience more predictable relative to expected losses Explanation: The law of large numbers improves predictability as the number of similar exposure units grows. This helps insurers estimate expected losses and set premiums more reliably.Page 2
Question 4: A business permanently stops storing a highly explosive chemical
because management no longer wants any exposure to explosion loss. Which risk- management method is being used?
Choices:
1) Risk retention 2) Risk transfer 3) Risk reduction 4) Risk avoidance
Correct Answer: Risk avoidance
Explanation: Risk avoidance means eliminating the activity or exposure that creates the risk. By ceasing storage of the chemical, the business removes that particular exposure rather than merely reducing or �nancing it.Question 5: A company decides to pay the �rst LKR 100,000 of every small property loss from its own funds. Which risk-management technique does this illustrate?
Choices:
1) Risk avoidance 2) Risk retention 3) Risk transfer 4) Loss prevention
Correct Answer: Risk retention
Explanation: Risk retention means accepting and �nancing some or all of a loss internally.Paying the �rst LKR 100,000 from company funds is a deliberate retention of that layer of risk.Page 3