General Insurance Flashcards
7 cards from real Insurance practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 General Insurance flashcards as text
What is 'reinsurance' and why do insurers purchase it?
Answer: Insurance purchased by an insurer to protect itself against catastrophic losses
Reinsurance is insurance that insurers buy from other companies to limit their exposure to large or catastrophic losses, stabilizing their financial position.
Under the principle of indemnity, what is the maximum amount an insurer should pay on a covered loss?
Answer: An amount that restores the insured to their pre-loss financial position, not more
The principle of indemnity holds that insurance should restore the insured to their financial position before the loss — no profit, no shortfall.
Which type of insurance policy is typically required by lenders when a borrower finances a vehicle?
Answer: Collision and comprehensive coverage
Lenders require collision and comprehensive coverage to protect their financial interest in the vehicle while the loan is outstanding.
What does 'pro rata cancellation' mean in insurance?
Answer: The insurer refunds the unearned premium proportional to the remaining policy period with no penalty
Pro rata cancellation returns the exact unearned portion of the premium for the remaining policy period without any penalty or short-rate charge.
Which of the following is an example of 'adverse selection' in insurance?
Answer: High-risk individuals disproportionately seeking insurance, driving up costs for the pool
Adverse selection occurs when people with higher-than-average risk are more likely to purchase insurance, creating an imbalanced, costly risk pool.
What is the role of an 'insurance adjuster'?
Answer: To investigate claims and determine the amount an insurer should pay
An insurance adjuster (or claims adjuster) evaluates insurance claims to determine coverage applicability and the fair settlement amount.
What distinguishes a 'stock insurance company' from a 'mutual insurance company'?
Answer: Stock companies are owned by shareholders; mutual companies are owned by policyholders
A stock insurer is owned by shareholders who receive profits as dividends, while a mutual insurer is owned by its policyholders who may receive dividends from surplus.