PSI Insurance and Risk Management 5

Question 1

Which of the following is an example of a 'morale hazard'?

Accepted Answer

An insured who becomes careless about locking doors because they have theft insurance

Answer

Morale hazard is indifference to loss due to having insurance — the insured becomes less careful because they know a loss will be covered.

Question 2

A 'retroactive date' on a claims-made policy means that:

Accepted Answer

No coverage applies to incidents that occurred before that date

Answer

A retroactive date sets the earliest point in time from which a covered incident may have occurred; losses before this date are excluded.

Question 3

Under personal auto insurance, 'uninsured motorist coverage' protects the insured when:

Accepted Answer

The at-fault driver has no liability insurance

Answer

Uninsured motorist coverage pays for the insured's bodily injury damages caused by a driver who carries no liability insurance.

Question 4

What is the 'law of large numbers' and how does it apply to insurance?

Accepted Answer

It states that the larger the group of similar exposures, the more predictable the actual losses will be

Answer

The law of large numbers allows insurers to predict losses accurately because actual experience approaches the expected (theoretical) probability as the group size grows.

Question 5

A 'valued policy' differs from a standard property policy in that it:

Accepted Answer

Pays a pre-agreed amount upon total loss rather than actual cash value

Answer

A valued policy pays the stated face amount upon total loss without requiring proof of actual value at the time of loss.

PSI - Exams Practice Test

PSI - Exams Practice Test

PSI Insurance and Risk Management 5