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Insurance Exam FX Questions and Answers Latest Version with Complete Solutions
What is the primary reason insurance companies use underwriting?✔✔ To assess risk and decide whether to insure an applicant
How does insurance help in managing financial loss?✔✔ By transferring the risk from the insured to the insurer
What is a peril in the context of insurance?✔✔ The specific cause of loss, such as fire, theft, or flood
Why is insurable interest necessary before purchasing insurance?✔✔ To ensure the policyholder would suffer a financial loss if the insured event occurs
What is meant by the term “risk avoidance”?✔✔ Choosing not to engage in an activity to eliminate the chance of loss
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What does “risk transfer” mean in insurance?✔✔ Shifting the financial burden of loss to another party, usually an insurer
What is the purpose of the “grace period” in insurance policies?✔✔ To allow the insured extra time to pay premiums without losing coverage
What does the “exclusion clause” in an insurance policy do?✔✔ Specifies what is not covered by the policy
What is meant by “subrogation” in insurance?✔✔ The insurer’s right to recover costs from a third party responsible for the loss
How does “moral hazard” affect insurance claims?✔✔ It increases the likelihood of dishonest or careless behavior due to coverage
What is “actual cash value” in property insurance?✔✔ The replacement cost minus depreciation of the property
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Why is a deductible included in most insurance policies?✔✔ To reduce small claims and share the risk with the insured
What does “coinsurance” require the insured to do?✔✔ Maintain insurance coverage equal to a percentage of the property value to avoid penalty
What is “risk pooling” and why is it important?✔✔ Combining many insured risks to make losses more predictable and affordable
What is the role of an insurance agent?✔✔ To sell insurance policies and assist clients in selecting coverage
What is the difference between a “binder” and a policy?✔✔ A binder is temporary coverage until the formal policy is issued
What is “underinsurance”?✔✔ When the insured amount is less than the actual value of the insured property or risk
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