Basic Insurance Concepts & Principles

Question 1

What is insurance?

Answer 1

A financial arrangement that provides protection against loss or damage.

Question 2

True or False: Insurance is a method of risk management.

Answer 2

True

Question 3

Fill in the blank: The person or entity that purchases insurance is called the _______.

Answer 3

policyholder

Question 4

What is a premium?

Answer 4

The amount paid for an insurance policy.

Question 5

What does ‘deductible’ mean in insurance?

Answer 5

The amount the insured must pay out of pocket before insurance coverage kicks in.

Question 6

True or False: A higher deductible typically results in lower premiums.

Answer 6

True

Question 7

What is a claim?

Answer 7

A request made by the policyholder to the insurer for payment of a loss covered by the policy.

Question 8

What is the purpose of an insurance policy?

Answer 8

To outline the terms, conditions, and coverage of the insurance agreement.

Question 9

What does ‘coverage limit’ refer to?

Answer 9

The maximum amount an insurer will pay for a covered loss.

Question 10

Fill in the blank: The act of spreading risk across many individuals or entities is called _______.

Answer 10

risk pooling

Question 11

What is underwriting in insurance?

Answer 11

The process of evaluating risk and determining the terms of coverage.

Question 12

True or False: All insurance policies cover every type of loss.

Answer 12

False

Question 13

What is an exclusion in an insurance policy?

Answer 13

Specific conditions or circumstances that are not covered by the policy.

Question 14

What type of insurance covers damage to property?

Answer 14

Property insurance

Question 15

What does liability insurance protect against?

Answer 15

Legal claims against the policyholder for injuries or damages they may cause to others.

Question 16

Fill in the blank: _______ insurance provides coverage in case of an individual’s death.

Answer 16

Life

Question 17

What is a beneficiary?

Answer 17

The person or entity designated to receive benefits from an insurance policy.

Question 18

What does ‘subrogation’ mean?

Answer 18

The insurer’s right to pursue a third party that caused a loss to recover costs.

Question 19

What is a rider in an insurance policy?

Answer 19

An amendment to the policy that adds or changes coverage.

Question 20

True or False: Insurance fraud is a crime.

Answer 20

True

Question 21

What is the principle of indemnity?

Answer 21

The principle that insurance should restore the insured to the financial position they were in before the loss.

Question 22

What does ‘actuarial science’ study?

Answer 22

The mathematics of insurance, including risk assessment and premium calculation.

Question 23

Fill in the blank: _______ insurance protects against loss of income due to disability.

Answer 23

Disability

Question 24

What is the difference between whole life and term life insurance?

Answer 24

Whole life insurance provides coverage for the insured’s lifetime, while term life insurance covers a specific period.

Question 25

What is a co-payment?

Answer 25

A fixed amount paid by the insured for a covered service, with the insurer covering the rest.

Question 26

What is a waiting period in insurance?

Answer 26

The time between the application for insurance and the start of coverage.

Question 27

True or False: Health insurance only covers hospital expenses.

Answer 27

False

Question 28

What is the purpose of reinsurance?

Answer 28

To allow insurers to spread risk by transferring portions of risk to other insurers.

Question 29

What is the term for the insurance company's assessment of the risk associated with an applicant?

Answer 29

Risk assessment

Question 30

Fill in the blank: _______ insurance covers medical expenses for the insured.

Answer 30

Health

Question 31

What is a no-claims bonus?

Answer 31

A discount on premiums for policyholders who do not make any claims during a policy period.

Question 32

What does 'premium financing' involve?

Answer 32

Borrowing money to pay for insurance premiums.

Question 33

What is the difference between a mutual insurance company and a stock insurance company?

Answer 33

A mutual insurance company is owned by its policyholders, while a stock insurance company is owned by shareholders.

Question 34

What is a comprehensive insurance policy?

Answer 34

A policy that covers a wide range of risks and losses.

Question 35

True or False: Insurers can deny claims for pre-existing conditions.

Answer 35

True

Question 36

What does 'moral hazard' refer to in insurance?

Answer 36

The risk that a policyholder may act less cautiously because they are insured.

Question 37

What is a policy endorsement?

Answer 37

A change or addition to an existing insurance policy.

Question 38

Fill in the blank: _______ insurance protects against theft and damage to vehicles.

Answer 38

Auto

Question 39

What is the term for the process of renewing an insurance policy?

Answer 39

Policy renewal

Question 40

What is the purpose of an insurance broker?

Answer 40

To act as an intermediary between the policyholder and the insurance company.

Question 41

True or False: An insurance policy can be canceled at any time by the insurer.

Answer 41

True

Question 42

What does 'moral hazard' mean in the context of insurance?

Answer 42

The possibility that insured individuals may take greater risks because they are protected.

Question 43

What is a waiting period?

Answer 43

The time before coverage begins after purchasing an insurance policy.

Question 44

What is the significance of the insurance industry’s 'loss ratio'?

Answer 44

It measures the ratio of claims paid to premiums earned, indicating profitability.