LM1 – CII FINAL TEST 2026 QUESTIONS WITH CORRECT
ANSWERS GRADED A+
● By sharing information about their risk, the insured satisfies which obligation?.
Answer: Good faith
● The proximate cause of a loss will always be the. Answer: Dominant cause
● Which insurance principle gives an insurer the right to call upon other insurers to
share in the settling of a claim?. Answer: Contribution
● A building valued at £250,000 is jointly owned by Karen and Terry, who each
individually arrange insurance on it. Karen insures the building for £100,000, whilst
Terry insures it for £150,000. If a valid claim of £55,000 occurs how much is each
insurer liable to pay?. Answer: Karen's insurer is liable for £22,000 and Terry's for £33,000.
● An insurer arranges for a policyholder's car to be repaired following damage by a
negligent third party motorist. Under which insurance principle can the insurer recover
the paid claim?. Answer: Subrogation
● Which insurance principle ensures that in the event of a loss the insured is placed in
the same financial position as he was immediately prior to the loss?. Answer: Indemnity
● The protection of jobs is classed as which type of function of insurance?. Answer: A
secondary function of insurance only
● Which type of risk arises from a cause outside the control of any one individual and
affects a large number of people?. Answer: Fundamental risk
● For an individual, which class of risk is always uninsurable?. Answer: Speculative risk
● The subjective judgment that individuals or organisations make about the
characteristics and severity of a risk is known as. Answer: Risk perception
● In relation to insurance, a peril is. Answer: An event that may give rise to a loss
● The calculation of what involves the use of the law of large numbers?. Answer:
Equitable premiums
, ● What is the most likely impact, if any, on a commercial insurer if it fails to implement
an effective claims-handling process?. Answer: The reputation of the insurer will be
affected
● A proposer for an insurance policy who has previously made fraudulent insurance
claims would be classed by an underwriter as a. Answer: Poor moral hazard
● Where the premiums of the many pay the losses of the few, this is known as. Answer:
Pooling of risks
● What is the basic purpose of insurance?. Answer: To transfer risks
● What class of insurance protects the policyholder from the nationalisation of their
overseas assets by a foreign government?. Answer: Political risks
● Cargo carried by an airline will usually be covered under what class of business?.
Answer: Marine
● What class of insurance would respond to claims made against a lawyer in respect of
advice given to fee paying clients?. Answer: Professional indemnity
● What class of insurance can provide cover for loss of attraction or denial of access
to the insured's premises?. Answer: Business interruption
● When underwriting capacity is withdrawn from the insurance market, what is the next
likely outcome in the context of the insurance cycle?. Answer: The cost of insurance
increases
● An insurer who has accepted a risk too large to retain can choose to insure part of
the risk to. Answer: A reinsurer
● What does the term facultative reinsurance mean?. Answer: A single risk is reinsured
● What effect does purchasing reinsurance have on an insurer's trading results?.
Answer: It smooths peaks and troughs
● A mutual association formed by a group of individuals who collectively require the
same insurance and who make contributions to the pool based on their individual
risks. Answer: Protection and indemnity (P&I) club
● Why might a client choose the London Market in preference to anywhere else in the
world for its insurance cover?. Answer: The London Market is able to accept complex risks
which are difficult to place elsewhere
ANSWERS GRADED A+
● By sharing information about their risk, the insured satisfies which obligation?.
Answer: Good faith
● The proximate cause of a loss will always be the. Answer: Dominant cause
● Which insurance principle gives an insurer the right to call upon other insurers to
share in the settling of a claim?. Answer: Contribution
● A building valued at £250,000 is jointly owned by Karen and Terry, who each
individually arrange insurance on it. Karen insures the building for £100,000, whilst
Terry insures it for £150,000. If a valid claim of £55,000 occurs how much is each
insurer liable to pay?. Answer: Karen's insurer is liable for £22,000 and Terry's for £33,000.
● An insurer arranges for a policyholder's car to be repaired following damage by a
negligent third party motorist. Under which insurance principle can the insurer recover
the paid claim?. Answer: Subrogation
● Which insurance principle ensures that in the event of a loss the insured is placed in
the same financial position as he was immediately prior to the loss?. Answer: Indemnity
● The protection of jobs is classed as which type of function of insurance?. Answer: A
secondary function of insurance only
● Which type of risk arises from a cause outside the control of any one individual and
affects a large number of people?. Answer: Fundamental risk
● For an individual, which class of risk is always uninsurable?. Answer: Speculative risk
● The subjective judgment that individuals or organisations make about the
characteristics and severity of a risk is known as. Answer: Risk perception
● In relation to insurance, a peril is. Answer: An event that may give rise to a loss
● The calculation of what involves the use of the law of large numbers?. Answer:
Equitable premiums
, ● What is the most likely impact, if any, on a commercial insurer if it fails to implement
an effective claims-handling process?. Answer: The reputation of the insurer will be
affected
● A proposer for an insurance policy who has previously made fraudulent insurance
claims would be classed by an underwriter as a. Answer: Poor moral hazard
● Where the premiums of the many pay the losses of the few, this is known as. Answer:
Pooling of risks
● What is the basic purpose of insurance?. Answer: To transfer risks
● What class of insurance protects the policyholder from the nationalisation of their
overseas assets by a foreign government?. Answer: Political risks
● Cargo carried by an airline will usually be covered under what class of business?.
Answer: Marine
● What class of insurance would respond to claims made against a lawyer in respect of
advice given to fee paying clients?. Answer: Professional indemnity
● What class of insurance can provide cover for loss of attraction or denial of access
to the insured's premises?. Answer: Business interruption
● When underwriting capacity is withdrawn from the insurance market, what is the next
likely outcome in the context of the insurance cycle?. Answer: The cost of insurance
increases
● An insurer who has accepted a risk too large to retain can choose to insure part of
the risk to. Answer: A reinsurer
● What does the term facultative reinsurance mean?. Answer: A single risk is reinsured
● What effect does purchasing reinsurance have on an insurer's trading results?.
Answer: It smooths peaks and troughs
● A mutual association formed by a group of individuals who collectively require the
same insurance and who make contributions to the pool based on their individual
risks. Answer: Protection and indemnity (P&I) club
● Why might a client choose the London Market in preference to anywhere else in the
world for its insurance cover?. Answer: The London Market is able to accept complex risks
which are difficult to place elsewhere
