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Review (Final Edition Q&A).
Course: INS 320 – Principles of Risk and Insurance Professor: Dr. Elizabeth Monroe, Ph.D., CPCU Year of Study: 2025 Institution: American School of Business and Finance EXAMINATION INSTRUCTIONS Time: 3 hours Total Marks: 150 Answer ALL questions. Each multiple-choice question carries 1 mark. For True/False and short Answer questions, write the correct response in the space provided. Read each question carefully before Answer ing. The use of calculators is permitted. Academic honesty must be maintained throughout the exam.
Review (Final Edition Q&A).
SECTION A – MULTIPLE CHOICE QUESTIONS
- The declarations section of an insurance policy provides: A. The insurer’s promises B. Information about the property or activity insured C. Exclusions D. Conditions Answers: ✔️ : B
- Which of the following is found on the declaration page? A. Insurer’s logo B. Lawsuits filed C. Name of insured, location of property, amount of insurance D. Policy exclusions Answers: ✔️ : C
- The insuring agreement summarizes: A. Exclusions B. The insurer’s major promises C. Deductibles
Review (Final Edition Q&A).
B. Both cover all perils C. Neither lists exclusions D. Both exclude flood Answers: ✔️ : A
- Exclusions in insurance policies exist to: A. Increase premiums B. Define insurer promises C. Eliminate uninsurable or extraordinary risks D. Remove deductibles Answers: ✔️ : C
- Conditions in a policy specify: A. Promises by insurer B. Requirements insured must meet C. Claims procedures only D. Legal penalties Answers: ✔️ : B
- Definitions in insurance contracts are important because:
Review (Final Edition Q&A).
A. They shorten the contract B. They provide clear meaning of terms C. They increase ambiguity D. They are not legally binding Answers: ✔️ : B
- The person or entity named in the declarations section is called the: A. Insured B. Underwriter C. Broker D. Actuary Answers: ✔️ : A SECTION B – PROPERTY & LIABILITY CONCEPTS
- Actual Cash Value (ACV) means: A. Replacement cost plus depreciation B. Replacement cost minus depreciation C. Purchase cost D. Future value
Review (Final Edition Q&A).
C. Minimum coverage D. Total deductible amount Answers: ✔️ : B
- Coinsurance is designed to: A. Encourage underinsurance B. Prevent moral hazard C. Encourage insureds to insure to value D. Increase exclusions Answers: ✔️ : C
- The coinsurance formula is: A. (Should / Did) × Loss – Deductible B. (Did / Should) × Loss – Deductible C. (Loss × Deductible) ÷ Premium D. Deductible × Limit Answers: ✔️ : B
- Primary and excess coverage means:
Review (Final Edition Q&A).
A. Both insurers pay equally B. One pays first, the other pays after limits are exhausted C. Both deny claims D. Only the secondary insurer pays Answers: ✔️ : B
- The “Primary” policy typically follows: A. The person B. The car C. The insurer D. The law Answers: ✔️ : B
- Endorsements are used to: A. Add or modify policy provisions B. Cancel coverage C. Limit agent liability D. Increase premiums Answers: ✔️ : A
Review (Final Edition Q&A).
D. Only with state approval Answers: ✔️ : B
- Avoidance can be negative because: A. It reduces risk B. It eliminates all opportunities C. It lowers premiums D. It is mandatory Answers: ✔️ : B
- Loss control focuses on: A. Reducing frequency and severity of losses B. Increasing profits C. Raising premiums D. Rewriting policies Answers: ✔️ : A
- The best risks to retain are: A. Low frequency, low severity
Review (Final Edition Q&A).
B. Low frequency, high severity C. High frequency, high severity D. High severity only Answers: ✔️ : A
- The best risks to transfer are: A. High frequency, low severity B. Low frequency, high severity C. Low frequency, low severity D. High frequency, high severity Answers: ✔️ : B
- Insurance with a deductible combines: A. Avoidance and retention B. Retention and transfer C. Control and financing D. None of the above Answers: ✔️ : B
- The key factor when selecting a deductible is:
Review (Final Edition Q&A).
- A Third Party Administrator (TPA): A. Issues policies B. Adjusts claims under contract C. Provides reinsurance D. Sets state regulations Answers: ✔️ : B
- Stop-loss insurance is purchased by: A. Insurers B. Self-insured firms to limit large losses C. Policyholders with low deductibles D. State regulators Answers: ✔️ : B
- A firm with good loss data and many exposures is suitable for: A. Avoidance B. Self-insurance C. Deductible waiver
Review (Final Edition Q&A).
D. Moral hazard Answers: ✔️ : B
- Enterprise Risk Management (ERM) focuses on: A. Only insurable risks B. All types of risk across the organization C. Just property risks D. Pure risk only Answers: ✔️ : B
- A Risk Management Policy Statement helps by: A. Reducing employee benefits B. Providing a framework for managing risk C. Limiting insurance coverage D. Increasing costs Answers: ✔️ : B SECTION D – BENEFITS AND COST OF RISK
- A major benefit of effective risk management is:
Review (Final Edition Q&A).
- Society benefits from effective risk management because: A. Premiums rise B. Insurers profit more C. Both direct and indirect losses are reduced D. Fewer laws are enforced Answers: ✔️ : C
- The cost to finance potential losses refers to: A. Legal costs B. Premiums paid for insurance C. Investment returns D. Deductibles only Answers: ✔️ : B SECTION E – INSURANCE INDUSTRY OVERVIEW
- The two main types of insurers are: A. Government and private B. Life/Health and Property/Casualty C. Primary and Excess
Review (Final Edition Q&A).
D. Stock and mutual only Answers: ✔️ : B
- Life and Health insurers primarily sell: A. Liability coverage B. Auto insurance C. Life, health, annuities, and pensions D. Marine insurance Answers: ✔️ : C
- Property and Casualty insurers sell: A. Auto and homeowners policies B. Marine coverages C. Surety and fidelity bonds D. All of the above Answers: ✔️ : D
- Which of the following is NOT a financial service provider? A. Commercial bank
Review (Final Edition Q&A).
A. Convergence B. Consolidation C. Moral hazard D. Risk avoidance Answers: ✔️ : A
- The decline in the number of insurance firms due to mergers is: A. Convergence B. Consolidation C. Expansion D. Cooperation Answers: ✔️ : B
- Insurers in the financial industry may include: A. Mutual funds B. Savings institutions C. Property insurers D. All of the above Answers: ✔️ : D
Review (Final Edition Q&A).
- Surety bonds are typically issued by: A. Banks B. Casualty insurers C. Health insurers D. Mortgage companies Answers: ✔️ : B SECTION F – POLICY STRUCTURE AND TERMINOLOGY
- The section that lists excluded perils is called: A. Declarations B. Conditions C. Exclusions D. Insuring agreement Answers: ✔️ : C
- Which of the following is an excluded peril? A. Fire B. Flood
