Insurance and Risk Management -

Practice questions

1 Risk is

a. Uncertainity regarding occurrence of a loss

b. Uncertainity regarding quantum of loss
c. Certainity regarding quantum & loss
d. None of the above

2 Being killed in while digging a well is an example of

a. Risk
b. Peril
c. Loss
d. None of the above

3 Different types of Risks are

a. Objective
b. Subjective
c. Both
d. Only one type

4 Relative variation of actual loss from expected loss is the defination of

a. Peril
b. Subjective Risk
c. Objective Risk
d. Hazard

5 Objective Risk _____________ as the number of exposure increases

a. Increases
b. Decreases
c. Remains same
d. None of the above

6 Subjective Risk is

a. Dependent on mental condition

b. Dependent on state of mind
c. Both a & b
d. Neither a or b
 7 Chance of Loss is same as risk

a. True as risk means loss

b. True as loss may be identical
c. False as loss may be identical but not the risk
d. False as loss is result of risk

8 Peril, Hazard & Risk are same

a. True
b. False
c. Peril & Hazard are same but Risk is different
d. Risk & Hazard are same but peril is different

9 Fire is

a. Peril
b. Hazard
c. Risk
d. All of the above

10 __________ creates or increases the chances of loss

a. Peril
b. Hazard
c. Risk
d. All of the above

11 Physical, Moral, Morale & Legal are types of Hazards

a. False
b. True
c. Moral is not a hazard
d. Physical is not a hazard

12 Fire is a

a. Spectulative Risk
b. Pure Risk
c. Both Speculative & Pure risk
d. Neither Speculative & Pure risk
13 Profit or adverse or neutral outcomes are possible outcomes of
Speculative Risk

a. True
b. False
c. Not related
d. Except adverse outcome others are true

14 Main difference between Pure & Speculative Risk is

Presence/absence of ___________ outcome

a. Profit
b. Loss
c. Neutral
d. All of the above

15 Generally _______ risks are insured

a. Pure
b. Speculative
c. Both
d. None

16 Law of large numbers is _________ for insurance

a. Important
b. Negligible
c. Irrelavant
d. Insurance becomes cheaper

17 Occurance of __________ may benefit the society

a. Pure Risk
b. Speculative Risk
c. Both
d. None

18 Purchae of a lottery ticket is a

a. Fundamental Risk
b. Pure Risk
c. Particular Risk
d. Speculative Risk
19 Purchase of a lottery ticket may end up in

a. Profit
b. Loss
c. No profit or loss
d. All of the above

20 Inflation is a

a. Fundamental Risk
b. Pure Risk
c. Particular Risk
d. Speculative Risk

21 Which of the following is a type of Pure Risk

a. Personal Risk
b. Property Risk
c. Liability Risk
d. All of the above

22 Premature death is a

a. Particular Risk
b. Fundamental Risk
c. Personal Risk
d. Speculative Risk

23 A Building is burnt. Following type of loss occur

a. Direct
b. Consequential
c. None
d. Both

24 Wearing helmet is a _______ method of handling risk

a. Avoidance
b. Loss Control
c. Retention
d. Noninsurance Transfer
e. Insurance
25 Insurance is a ______ method of handling risk

a. Avoidance
b. Loss control
c. Retention
d. Transfer

26 Preparing for potential losses in the most economical loss,

Reduction of anxiety and meeting any legal obligation are

a. Pre-Loss Objectives
b. Post-Loss Objectives
c. Neither Pre-Loss or Post-Loss Objectives
d. Both Pre-Loss and Post-Loss Objectives

27 Reduction of anxiety is a

a. Pre-Loss Objective
b. Post-Loss Objective
c. Neither Pre-Loss or Post-Loss Objective
d. Both Pre-Loss and Post-Loss Objective

28 Survival of the firm, continuing operation, stability of earnings,

Continued growth and minimizing the effects on others are

a. Pre-Loss Objectives
b. Post-Loss Objectives
c. Neither Pre-Loss or Post-Loss Objectives
d. Both Pre-Loss and Post-Loss Objectives

29 Number of steps in risk management process

a. One
b. Two
c. Three
d. Four

30 Probable number of losses that may occur refers to

a. Loss frequency
b. Loss severity
c. Loss reduction
d. None of the above
31 Probable size of the losses that may occur refers to

a. Loss frequency
b. Loss severity
c. Loss reduction
d. None of the above

32 Loss frequency and severity are

a. Dependent
b. Independent
c. Inversly proportional
d. None of the above

33 Maximum Possible Loss and Maximum Probable Loss are

a. Same
b. Dependent on each other
c. Independent
d. None of the above

34 Risk control refers to

a. Techniques that reduce frequency of accidental losses

b. Techniques that severity of accidental losses
c. Techniques for treating loss exposures
d. All of the above

35 Avoidance, Loss prevention and Loss reduction are

a. Risk Control techniques

b. Risk finance techniques
c. Both
d. None

36 _________ means a certain loss exposure is never acquired

a. Reduction
b. Transfer
c. Avoidance
d. Prevention
37 _________ refers to measures that reduce the frequency of
particular loss.

a. Reduction
b. Transfer
c. Avoidance
d. Prevention

38 Major Risk Financing techniques include

a. Retention
b. Noninsurance transfers
c. Commercial transfers
d. All of the above

39 Retention means

a. Saving premium
b. Retaining salvage
c. Retaining part or all of the losses
d. None of the above

40 Principal of Indemnity means

a. Not profitting
b. Not losing
c. Not paying more than the loss
d. All of the above

41 Principal of Indemnity reduces

a. Moral Hazard
b. Profit
c. Loss
d. None of the above

42 Exceptions to the Principle of Indemnity

a. Valued policy
b. Replacement cost insurance
c. Life Insurance
d. All of the above
43 Moral Hazard is reduced by

a. Insurable interest
b. Principle of Indemnity
c. Both
d. None

44 Insurable Interest should exist at the inception of risk cover in

a. Fire Insurance
b. Marine Insurance
c. Life Insurance
d. All of the above

45 Insurable Interest should exist at the time of loss in

a. Property Insurance
b. Marine Insurance
c. Fire Insurance
d. All of the above

46 In fire insurance insurable interest should exist at

a. At the time of loss

b. At the inception of the policy
c. Insurable interest not required
d. None of the above

47 Insured must be in a position to lose financially if loss occurs'

is the defination of

a. Principle of Indemnity
b. Principle of Insurable Interest
c. Principle of subrogation
d. None of the above

48 Father can insure son

a. True
b. False
c. True, if father is not earning
d. False, if father is not earning
49 Insurer replacing insured is

a. Principle of Indemnity
b. Principle of Insurable Interest
c. Principle of subrogation
d. None of the above

50 Insurer can profit by applying Principle of Subrogation

a. True
b. False
c. True, if Insured agrees
d. False, only if loss is substantial