FUNDAMENTALS OF INSURANCE (BC) ACTUAL
AND PREP EXAM 2026 LATEST 130 QUESTIONS
AND CORRECT ANSWERS PERFECT FOR HIGH
PASSMARK 100% VERIFIED FOR BRITISH
COLUMBIA INSURANCE LICENSING
SECTION A: PURPOSE & FUNCTION OF INSURANCE (Questions 1-15)
Question 1:
Insurance plays an important role in managing financial risk. The main purpose of Insurance is
to:
A) Enable the consumer to obtain loan or mortgage.
B) Provide employment and investment capital.
C) Allow spread of risk.
D) Reduce losses through loss prevention and loss reduction.
Answer: C
Rationale: The major function of insurance is to allow the spread of risk. This means the losses
of the few are shared among the many. Insurance shifts the financial responsibility for a loss
from one individual to a large group, making it more manageable .
Question 2:
Which of the following best describes the primary purpose of insurance in society?
A) To generate profit for insurers
B) To spread risk among many parties
C) To eliminate all financial losses
D) To provide tax benefits
Answer: B
,Rationale: Insurance's fundamental role is to spread the financial impact of losses across a
large pool of policyholders, reducing the burden on any single individual .
Question 3:
What are the three main types of insurance included in broad insurance (property and
casualty)?
A) Life, Health, Disability
B) Automobile, Property, Liability
C) Fire, Marine, Aviation
D) Home, Travel, Pet
Answer: B
Rationale: Auto insurance, property insurance, and liability insurance are the three main types
of property and casualty (general) insurance. These are also known as P&C insurance .
Question 4:
Define "Spread of Risk."
A) The elimination of all potential losses
B) The shifting of financial responsibility for a loss from one individual to a large group
C) The process of increasing premiums for high-risk clients
D) The transfer of risk to a government agency
Answer: B
Rationale: The definition of "Spread of Risk" is "the losses of the few are shared among the
many." This is the fundamental principle upon which insurance is built .
Question 5:
Which of the following is NOT a function of insurance?
A) Basis of credit system
B) Elimination of worry - encourages entrepreneurship
C) Guarantee of investment returns
D) Source of employment and investment capital
,Answer: C
Rationale: Key functions of insurance include: serving as the basis of the credit system,
eliminating worry to encourage entrepreneurship, loss prevention and loss reduction, and
providing a source of employment and investment capital. Insurance does not guarantee
investment returns .
Question 6:
Pure risk differs from speculative risk because pure risk is:
A) Always profitable
B) Insurable and involves only loss possibilities
C) Uninsurable and involves gain possibilities
D) Only associated with investment activities
Answer: B
Rationale: Pure risk involves only the chance of loss or no loss (no gain) and is therefore
insurable, whereas speculative risk involves both loss and gain and is not typically insurable .
Question 7:
Which risk-management strategy involves the insured retaining the loss and not transferring it to
an insurer?
A) Avoidance
B) Control
C) Retention
D) Transfer
Answer: C
Rationale: Retention of risk is also known as self-insurance. Under this strategy, the insured
retains the financial responsibility for losses rather than transferring them to an insurer .
Question 8:
Which is the most popular and most practical means of dealing with risk?
A) Avoidance of risk
, B) Controlling of risk
C) Retention of risk
D) Transfer of risk via insurance
Answer: D
Rationale: Transfer of risk via insurance is the most popular and practical means of dealing with
risk. When people decide they are unable to withstand the financial consequences of a loss,
they may choose to transfer that risk to an insurer .
Question 9:
Which of the following is an example of a pure risk?
A) Investing in the stock market
B) Starting a new business
C) A house being destroyed by fire
D) Gambling at a casino
Answer: C
Rationale: Pure risk involves only the chance of loss or no loss with no possibility of gain. A
house fire represents pure risk. Stock market investing, starting a business, and gambling all
involve the possibility of gain, making them speculative risks .
Question 10:
Define "Peril" in insurance terminology.
A) The chance of financial loss
B) The cause of loss
C) The financial impact of a loss
D) The probability of an event occurring
Answer: B
Rationale: A peril is simply defined as the cause of loss. Examples include fire, theft, windstorm,
and collision. This is distinguished from a hazard, which is a condition that increases the chance
of a peril occurring .
AND PREP EXAM 2026 LATEST 130 QUESTIONS
AND CORRECT ANSWERS PERFECT FOR HIGH
PASSMARK 100% VERIFIED FOR BRITISH
COLUMBIA INSURANCE LICENSING
SECTION A: PURPOSE & FUNCTION OF INSURANCE (Questions 1-15)
Question 1:
Insurance plays an important role in managing financial risk. The main purpose of Insurance is
to:
A) Enable the consumer to obtain loan or mortgage.
B) Provide employment and investment capital.
C) Allow spread of risk.
D) Reduce losses through loss prevention and loss reduction.
Answer: C
Rationale: The major function of insurance is to allow the spread of risk. This means the losses
of the few are shared among the many. Insurance shifts the financial responsibility for a loss
from one individual to a large group, making it more manageable .
Question 2:
Which of the following best describes the primary purpose of insurance in society?
A) To generate profit for insurers
B) To spread risk among many parties
C) To eliminate all financial losses
D) To provide tax benefits
Answer: B
,Rationale: Insurance's fundamental role is to spread the financial impact of losses across a
large pool of policyholders, reducing the burden on any single individual .
Question 3:
What are the three main types of insurance included in broad insurance (property and
casualty)?
A) Life, Health, Disability
B) Automobile, Property, Liability
C) Fire, Marine, Aviation
D) Home, Travel, Pet
Answer: B
Rationale: Auto insurance, property insurance, and liability insurance are the three main types
of property and casualty (general) insurance. These are also known as P&C insurance .
Question 4:
Define "Spread of Risk."
A) The elimination of all potential losses
B) The shifting of financial responsibility for a loss from one individual to a large group
C) The process of increasing premiums for high-risk clients
D) The transfer of risk to a government agency
Answer: B
Rationale: The definition of "Spread of Risk" is "the losses of the few are shared among the
many." This is the fundamental principle upon which insurance is built .
Question 5:
Which of the following is NOT a function of insurance?
A) Basis of credit system
B) Elimination of worry - encourages entrepreneurship
C) Guarantee of investment returns
D) Source of employment and investment capital
,Answer: C
Rationale: Key functions of insurance include: serving as the basis of the credit system,
eliminating worry to encourage entrepreneurship, loss prevention and loss reduction, and
providing a source of employment and investment capital. Insurance does not guarantee
investment returns .
Question 6:
Pure risk differs from speculative risk because pure risk is:
A) Always profitable
B) Insurable and involves only loss possibilities
C) Uninsurable and involves gain possibilities
D) Only associated with investment activities
Answer: B
Rationale: Pure risk involves only the chance of loss or no loss (no gain) and is therefore
insurable, whereas speculative risk involves both loss and gain and is not typically insurable .
Question 7:
Which risk-management strategy involves the insured retaining the loss and not transferring it to
an insurer?
A) Avoidance
B) Control
C) Retention
D) Transfer
Answer: C
Rationale: Retention of risk is also known as self-insurance. Under this strategy, the insured
retains the financial responsibility for losses rather than transferring them to an insurer .
Question 8:
Which is the most popular and most practical means of dealing with risk?
A) Avoidance of risk
, B) Controlling of risk
C) Retention of risk
D) Transfer of risk via insurance
Answer: D
Rationale: Transfer of risk via insurance is the most popular and practical means of dealing with
risk. When people decide they are unable to withstand the financial consequences of a loss,
they may choose to transfer that risk to an insurer .
Question 9:
Which of the following is an example of a pure risk?
A) Investing in the stock market
B) Starting a new business
C) A house being destroyed by fire
D) Gambling at a casino
Answer: C
Rationale: Pure risk involves only the chance of loss or no loss with no possibility of gain. A
house fire represents pure risk. Stock market investing, starting a business, and gambling all
involve the possibility of gain, making them speculative risks .
Question 10:
Define "Peril" in insurance terminology.
A) The chance of financial loss
B) The cause of loss
C) The financial impact of a loss
D) The probability of an event occurring
Answer: B
Rationale: A peril is simply defined as the cause of loss. Examples include fire, theft, windstorm,
and collision. This is distinguished from a hazard, which is a condition that increases the chance
of a peril occurring .
