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Insurance Exam Questions and Answers Latest Version Already Passed
What does the term “premium” mean in insurance?✔✔ The amount paid by the insured to the insurer for coverage
Why is the principle of indemnity important in insurance contracts?✔✔ It ensures the insured is restored to their financial position before the loss, no more and no less
What is an insurable interest?✔✔ A financial interest in the insured property or life that would cause loss if damaged or lost
What does “underwriting” refer to in insurance?✔✔ The process insurers use to evaluate risk and decide whether to provide coverage and at what price
What is a deductible in an insurance policy?✔✔ The amount the insured must pay out-of-pocket before the insurer pays for a covered loss 1 / 3
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Why do insurance policies include exclusions?✔✔ To specify what losses or risks are not covered under the policy
What is meant by “risk pooling” in insurance?✔✔ Combining many insureds to spread risk and make losses more predictable
How does “moral hazard” affect insurance claims?✔✔ It increases risk when the insured acts recklessly because they have coverage
What is the difference between “actual cash value” and “replacement cost”?✔✔ Actual cash value accounts for depreciation; replacement cost pays to replace without depreciation
What is subrogation in insurance?✔✔ The insurer’s right to pursue a third party responsible for a loss after paying a claim
What does “coinsurance” mean in property insurance? 2 / 3
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✔✔ A clause requiring the insured to carry insurance equal to a percentage of the property value to avoid penalty
What is a “binder” in insurance?✔✔ Temporary proof of insurance coverage until a formal policy is issued
What is meant by “contingent beneficiary” in life insurance?✔✔ The person or entity who receives the death benefit if the primary beneficiary is deceased
What is a “waiver of premium” rider?✔✔ A policy provision that waives premium payments if the insured becomes disabled
What is “adverse selection”?✔✔ When higher-risk individuals are more likely to buy insurance, raising costs for the insurer
Why is “insurable interest” required at the time of policy purchase?✔✔ To prevent gambling on losses and ensure the insured would suffer a financial loss
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