Insurance Processes - Quiz 1
Questions and Answers
- 1.
Person/company who buys insurance is called:
- A.
Insurer
- B.
Insurance company
- C.
Insured
- D.
Contractor
Correct Answer
C. InsuredExplanation
The person or company who buys insurance is called the insured. They are the party that seeks protection against potential financial losses by purchasing an insurance policy. The insured pays a premium to the insurance company in exchange for coverage and benefits in case of specified events or risks occurring. The insurance company, on the other hand, is the entity that provides the insurance coverage and is referred to as the insurer.Rate this question:
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- 2.
The institution who sells insurance is called:
- A.
Insured
- B.
Insurer/Carrier
- C.
Underwriter
Correct Answer
B. Insurer/CarrierExplanation
The institution who sells insurance is called an insurer or a carrier. They provide financial protection to individuals or organizations against potential risks or losses in exchange for regular premium payments. The insurer assumes the responsibility of compensating the insured party in case of an insured event occurring, such as accidents, illnesses, or property damage. They assess the risks involved, calculate premiums, and manage claims processing. The term "underwriter" typically refers to the individual within the insurance company who evaluates the risks and determines the terms and conditions of the insurance policy.Rate this question:
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- 3.
Sum insured is the amount that Insurer has to pay to the insured in case of loss.
- A.
True
- B.
False
Correct Answer
A. TrueExplanation
The explanation for the given correct answer is that the sum insured refers to the specific amount of money that an insurance company is obligated to pay to the insured individual or entity in the event of a covered loss or damage. This amount is predetermined and agreed upon in the insurance policy contract. Therefore, it is accurate to say that sum insured is the amount that the insurer has to pay to the insured in case of a loss.Rate this question:
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- 4.
The amount payed frequently by insured which provides insurance to him is:
- A.
Coverage
- B.
Reserve
- C.
Premium
- D.
Sum insured
Correct Answer
C. PremiumExplanation
The amount paid frequently by the insured for insurance coverage is called the premium. The premium is the cost that the insured individual or entity pays to the insurance company in exchange for the financial protection and coverage provided by the insurance policy. It is typically paid on a regular basis, such as monthly or annually, and the amount of the premium is determined by factors such as the type of insurance, the level of coverage, and the individual's risk profile.Rate this question:
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- 5.
Insured provides lower amount of money in form of premium frequently, but insurer has to pay higher amount called sum insured if unforeseen event happens. This law characteristic of insurance is called:
- A.
Personal
- B.
Conditional
- C.
Unilateral
- D.
Aleatory
Correct Answer
D. AleatoryExplanation
The characteristic of insurance described in the given explanation is aleatory. Aleatory means that the outcome of the insurance contract is uncertain and depends on the occurrence of an unforeseen event. In insurance, the insured pays a relatively small amount of money (premium) frequently, while the insurer may have to pay a much larger amount (sum insured) if the insured event occurs. This imbalance in the amounts exchanged is a key feature of aleatory contracts, where the value received by each party is not equal.Rate this question:
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- 6.
Insurer is forced to pay a claim, but insured is not forced to pay a premium. This is unilateral characteristic of inusrance.
- A.
True
- B.
False
Correct Answer
A. TrueExplanation
In insurance, the insurer is obligated to pay a claim if the insured suffers a covered loss. However, the insured is not obligated to pay a premium if they decide not to continue the insurance policy. This demonstrates the unilateral characteristic of insurance, where only one party (the insurer) has a legal obligation to fulfill their part of the contract.Rate this question:
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- 7.
Insurers are covering whichs types of risk?
- A.
Pure
- B.
Fundamental
- C.
Particular
- D.
Speculative
Correct Answer(s)
A. Pure
C. ParticularExplanation
Insurers are covering pure and particular types of risks. Pure risks are those that involve only the possibility of loss or no loss, such as accidents or natural disasters. Insurers provide coverage for these risks by offering policies that compensate for any losses incurred. On the other hand, particular risks are specific to an individual or entity and are not typically covered by standard insurance policies. Insurers may offer specialized coverage for particular risks based on the unique circumstances of the insured.Rate this question:
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- 8.
You can make profit out of pure risk.
- A.
True
- B.
False
Correct Answer
B. FalseExplanation
Profit is typically associated with taking on some level of uncertainty or risk. Pure risk, on the other hand, refers to situations where there is only a possibility of loss or no loss at all. Since profit requires the potential for gain, it is not possible to make a profit out of pure risk. Therefore, the correct answer is False.Rate this question:
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- 9.
Peril can be:
- A.
Fire
- B.
Hazard
- C.
Car accident
- D.
Earthquake
Correct Answer(s)
A. Fire
C. Car accident
D. EarthquakeExplanation
Peril refers to a source of danger or risk that can cause harm or damage. Fire, car accidents, and earthquakes are all examples of perils as they pose potential threats to people, property, and the environment. These events can result in injuries, destruction of buildings or vehicles, and even loss of life. Therefore, fire, car accidents, and earthquakes are all valid examples of perils.Rate this question:
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- 10.
We are covering risk against hazard.
- A.
True
- B.
False
Correct Answer
B. FalseExplanation
The statement "We are covering risk against hazard" is false. Risk and hazard are two different concepts. A hazard refers to a potential source of harm or danger, while risk is the likelihood and impact of that harm or danger occurring. Therefore, covering risk against hazard implies that we are mitigating the likelihood and impact of potential harm, which is incorrect.Rate this question:
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- 11.
Physical hazard is:
- A.
Behaving unethical after getting the insurance.
- B.
Lying about the past.
- C.
House made of wood.
Correct Answer
C. House made of wood.Explanation
The correct answer is "House made of wood." This is because a physical hazard refers to a condition or characteristic of a property that increases the likelihood of damage or injury. A house made of wood is considered a physical hazard because it is more susceptible to fire hazards compared to houses made of other materials like concrete or steel. The other options provided, behaving unethical after getting insurance and lying about the past, are not related to physical hazards but rather pertain to moral or ethical issues.Rate this question:
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- 12.
Hazard is a condition that increases chance of loss.
- A.
True
- B.
False
Correct Answer
A. TrueExplanation
The statement is true because a hazard refers to any condition or situation that increases the probability of a loss occurring. Hazards can be physical, such as fire or natural disasters, or they can be related to human behavior, such as reckless driving or negligence. By recognizing and addressing hazards, individuals and organizations can take proactive measures to reduce the likelihood and severity of potential losses.Rate this question:
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- 13.
Pooling is:
- A.
Gahtering the heterogeneous risks.
- B.
Gahtering homogeneous risks.
- C.
Sharing risk for the common good
Correct Answer(s)
B. Gahtering homogeneous risks.
C. Sharing risk for the common goodExplanation
The correct answer is "Gathering homogeneous risks, sharing risk for the common good." Pooling refers to the process of bringing together similar or homogeneous risks from multiple individuals or entities. By pooling these risks, the burden is shared among the participants, allowing for a more efficient and equitable distribution of risk. This practice is often used in insurance, where individuals with similar risks contribute to a common pool, and the benefits are distributed to those who experience losses. This helps to protect individuals from the financial impact of unexpected events and promotes the overall well-being of the community.Rate this question:
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- 14.
Underwriting is a process of making decision about risk in insurance company.
- A.
True
- B.
False
Correct Answer
A. TrueExplanation
Underwriting is indeed a process in the insurance industry where an insurance company assesses and evaluates the risks associated with insuring a particular individual or entity. This involves analyzing various factors such as the applicant's health, lifestyle, occupation, and other relevant information to determine the level of risk involved. Based on this assessment, the insurance company decides whether to accept or reject the application, and if accepted, what premium to charge. Therefore, the statement "Underwriting is a process of making a decision about risk in an insurance company" is true.Rate this question:
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- 15.
Underwriters are the people who are:
- A.
Deciding about the risk in insurance company.
- B.
Predicting probability of future loss.
- C.
Defining prices of insurance coverages.
- D.
Dealing with adverse selection (only those who are closely exposed to a risk, want insurance)
Correct Answer(s)
A. Deciding about the risk in insurance company.
C. Defining prices of insurance coverages.
D. Dealing with adverse selection (only those who are closely exposed to a risk, want insurance)Explanation
Underwriters play a crucial role in the insurance industry as they are responsible for assessing and evaluating the risk involved in insuring individuals or entities. They make decisions about the risk in an insurance company by analyzing various factors such as the applicant's medical history, age, occupation, and other relevant information. Additionally, underwriters also define the prices of insurance coverages by considering the level of risk involved and the probability of future loss. They also deal with adverse selection, which refers to the tendency of individuals who are closely exposed to a risk to seek insurance coverage. This is important for underwriters to manage and mitigate the potential financial impact on the insurance company.Rate this question:
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- 16.
Actuaries are the people who are:
- A.
Deciding about the risk in insurance company.
- B.
Predicting probability of future loss.
- C.
Defining prices of insurance coverages.
- D.
Dealing with adverse selection (only those who are closely exposed to a risk, want insurance)
Correct Answer
B. Predicting probability of future loss.Explanation
Actuaries are professionals who use statistical models and mathematical techniques to analyze data and predict the likelihood of future events, particularly in the context of insurance. By analyzing historical data, they can estimate the probability of future losses occurring, which is crucial for insurance companies to determine appropriate premiums and coverage levels. This helps insurance companies manage risk effectively and ensure they have sufficient funds to pay out claims when necessary. Therefore, predicting the probability of future loss is a key responsibility of actuaries.Rate this question:
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- 17.
Time between premium payin and claims pauout is called
- A.
Buffer
- B.
Profit
- C.
Surcharge
- D.
Discount
Correct Answer
A. BufferExplanation
The time between premium payment and claims payout is called a buffer. A buffer is a reserve or a cushion that allows for the processing and settlement of claims. It helps to ensure that there is enough time for the insurance company to collect premiums, manage their finances, and assess claims before making payouts. The buffer period also helps to protect the insurer from any immediate financial strain that may arise from a sudden influx of claims.Rate this question:
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- 18.
Underwriting premium is:
- A.
Investment gain - Claim
- B.
Premium - Claim
- C.
Operational profit
- D.
Premium - Operational profit
Correct Answer
B. Premium - ClaimExplanation
The underwriting premium refers to the amount of money received by an insurance company from policyholders as premiums, minus the amount paid out in claims. This calculation helps determine the profitability of the underwriting process, as it shows the net amount of money earned from premiums after deducting the expenses related to claims. By subtracting the claims from the premium, the company can assess its ability to cover the costs of claims while still generating a profit.Rate this question:
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- 19.
Fund management profit is profit insurers make by investing money collected from premiums.
- A.
True
- B.
False
Correct Answer
A. TrueExplanation
The statement is true because insurers often invest the money they collect from premiums in various financial instruments such as stocks, bonds, and real estate. These investments generate profits for the insurers, known as fund management profit. This additional income helps insurers cover their operational expenses and potentially offer lower premiums to policyholders.Rate this question:
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- 20.
Operational profit is equal:
- A.
Premium + Investment gain
- B.
Premium - Investment gain + Claim
- C.
Premium - Claim
- D.
Premium + Investment gain - Claim
Correct Answer
D. Premium + Investment gain - ClaimExplanation
The operational profit is calculated by adding the premium and investment gain and then subtracting the claim. This formula takes into account the revenue generated from premiums and investments, while also considering the expenses incurred from claims. By subtracting the claim from the total revenue, we can determine the operational profit.Rate this question:
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Current Version
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Mar 21, 2023Quiz Edited by
ProProfs Editorial Team -
Oct 30, 2014Quiz Created by
Bojananikolic
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