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TENNESSEE INSURANCE & CISA/CDP EXAM
2026: 250 QUESTIONS WITH RATIONALES –
COMPLETE PROFICIENCY ASSESSMENT (LIFE,
HEALTH, P&C, TN LAWS, FINANCIAL
PLANNING)
# PART 1: INSURANCE FUNDAMENTALS
## Section 1.1: Risk Management & Insurance Concepts
---
**Question 1**
Which of the following is considered a type of insurance risk that is
insurable?
A) Speculative risk
B) Pure risk
C) Market risk
D) Systematic risk
**Correct Answer:** B) Pure risk
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**Rationale:** Insurance primarily covers pure risks, which involve the
possibility of loss but not gain (e.g., fire, death, accident). Speculative
risk (A) involves the possibility of both loss and gain (e.g., gambling,
investing) and is NOT insurable. Market risk (C) and systematic risk (D)
are types of investment risk, not insurable perils.
**Reference:** Insurance Fundamentals, Chapter 1
---
**Question 2**
What is the primary function of insurance?
A) To eliminate risk
B) To transfer risk
C) To predict the future
D) To increase profit
**Correct Answer:** B) To transfer risk
**Rationale:** Insurance transfers financial risk from an individual or
business to an insurance company. Insurance does NOT eliminate risk
(A)—risk still exists but is transferred. Predicting the future (C) is
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impossible; insurance uses statistical probability. Increasing profit (D) is
a business goal, not the primary function.
**Reference:** Insurance Fundamentals, Chapter 1
---
**Question 3**
Which of the following best defines a "hazard" in insurance terms?
A) The chance of loss occurring
B) A condition that increases the likelihood or severity of loss
C) The event that causes the loss
D) The amount paid by the insurer
**Correct Answer:** B) A condition that increases the likelihood or
severity of loss
**Rationale:** A hazard is any condition that increases the probability
or severity of a loss. Hazards can be physical (e.g., icy sidewalks, faulty
wiring), moral (dishonesty), or morale (carelessness). The chance of loss
(A) is "risk." The event causing loss (C) is a "peril." The amount paid by
the insurer (D) is the "indemnity."
**Reference:** Insurance Fundamentals, Chapter 1
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---
**Question 4**
Which of the following is an example of a "moral hazard"?
A) A tree falling during a storm
B) Leaving a door unlocked knowing insurance will cover theft
C) Fire caused by lightning
D) Flood damage
**Correct Answer:** B) Leaving a door unlocked knowing insurance
will cover theft
**Rationale:** Moral hazard involves intentional or reckless behavior
that increases the likelihood of loss because the insured knows insurance
will cover it. Physical hazards (A, C, D) are tangible conditions—tree
falling, lightning, and flood are natural events, not behavioral risks.
**Reference:** Insurance Fundamentals, Chapter 1
---
**Question 5**
TENNESSEE INSURANCE & CISA/CDP EXAM
2026: 250 QUESTIONS WITH RATIONALES –
COMPLETE PROFICIENCY ASSESSMENT (LIFE,
HEALTH, P&C, TN LAWS, FINANCIAL
PLANNING)
# PART 1: INSURANCE FUNDAMENTALS
## Section 1.1: Risk Management & Insurance Concepts
---
**Question 1**
Which of the following is considered a type of insurance risk that is
insurable?
A) Speculative risk
B) Pure risk
C) Market risk
D) Systematic risk
**Correct Answer:** B) Pure risk
,2|Page
**Rationale:** Insurance primarily covers pure risks, which involve the
possibility of loss but not gain (e.g., fire, death, accident). Speculative
risk (A) involves the possibility of both loss and gain (e.g., gambling,
investing) and is NOT insurable. Market risk (C) and systematic risk (D)
are types of investment risk, not insurable perils.
**Reference:** Insurance Fundamentals, Chapter 1
---
**Question 2**
What is the primary function of insurance?
A) To eliminate risk
B) To transfer risk
C) To predict the future
D) To increase profit
**Correct Answer:** B) To transfer risk
**Rationale:** Insurance transfers financial risk from an individual or
business to an insurance company. Insurance does NOT eliminate risk
(A)—risk still exists but is transferred. Predicting the future (C) is
,3|Page
impossible; insurance uses statistical probability. Increasing profit (D) is
a business goal, not the primary function.
**Reference:** Insurance Fundamentals, Chapter 1
---
**Question 3**
Which of the following best defines a "hazard" in insurance terms?
A) The chance of loss occurring
B) A condition that increases the likelihood or severity of loss
C) The event that causes the loss
D) The amount paid by the insurer
**Correct Answer:** B) A condition that increases the likelihood or
severity of loss
**Rationale:** A hazard is any condition that increases the probability
or severity of a loss. Hazards can be physical (e.g., icy sidewalks, faulty
wiring), moral (dishonesty), or morale (carelessness). The chance of loss
(A) is "risk." The event causing loss (C) is a "peril." The amount paid by
the insurer (D) is the "indemnity."
**Reference:** Insurance Fundamentals, Chapter 1
, 4|Page
---
**Question 4**
Which of the following is an example of a "moral hazard"?
A) A tree falling during a storm
B) Leaving a door unlocked knowing insurance will cover theft
C) Fire caused by lightning
D) Flood damage
**Correct Answer:** B) Leaving a door unlocked knowing insurance
will cover theft
**Rationale:** Moral hazard involves intentional or reckless behavior
that increases the likelihood of loss because the insured knows insurance
will cover it. Physical hazards (A, C, D) are tangible conditions—tree
falling, lightning, and flood are natural events, not behavioral risks.
**Reference:** Insurance Fundamentals, Chapter 1
---
**Question 5**
