PSI Insurance and Risk Management 2

Question 1

Which type of risk involves the possibility of loss but no chance of gain?

Accepted Answer

Pure risk

Answer

Pure risk involves only the possibility of loss or no loss, with no opportunity for financial gain.

Question 2

An insured suffers a $50,000 loss. The policy has a $5,000 deductible and an 80% coinsurance clause. If the insured carried adequate insurance, how much does the insurer pay?

Accepted Answer

$45,000

Answer

After the $5,000 deductible, the remaining $45,000 is paid 100% by the insurer since coinsurance was met.

Question 3

What does the principle of indemnity prevent?

Accepted Answer

Insureds from profiting from a loss

Answer

The principle of indemnity states that insurance should restore the insured to their pre-loss financial position, not allow them to profit.

Question 4

Which of the following best describes 'adverse selection'?

Accepted Answer

High-risk individuals seeking insurance more than low-risk individuals

Answer

Adverse selection occurs when those with higher-than-average risk are more likely to seek and purchase insurance.

Question 5

A business owner's policy (BOP) is designed primarily for which type of insured?

Accepted Answer

Small to mid-sized commercial businesses

Answer

A BOP bundles property and liability coverages at a discounted rate specifically for small to mid-sized businesses.

PSI - Exams Practice Test

PSI - Exams Practice Test

PSI Insurance and Risk Management 2