FUNDAMENTALS OF INSURANCE (BC)
ACTUAL AND PREP EXAM 2026 LATEST
130 QUESTIONS AND CORRECT
ANSWERS PERFECT FOR HIGH
PASSMARK
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 a loan or mortgage
• B) Provide employment and investment capital
• C) Allow the spread of risk
• D) Reduce losses through loss prevention and loss reduction
Correct ,,,,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
Correct ,,,,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. This is known as the "spread of risk".
Question 3: The definition of "Spread of Risk" is:
• 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
Correct ,,,,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 4: 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
Correct ,,,,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 5: What is the relationship between risk and insurance?
• A) Insurance eliminates all risk
• B) Insurance transfers the financial consequences of risk
• C) Insurance makes risk more dangerous
• D) Insurance has no relationship to risk
Correct ,,,,answer,,,: B
Rationale: Insurance does not eliminate the risk itself—the event may still
occur—but it transfers the financial consequences of the risk from the
insured to the insurer. The risk is shifted, not removed.
Question 6: 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
Correct ,,,,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 7: 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
Correct ,,,,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.
Question 8: What are the three main risk management strategies?
• A) Acceptance, Denial, Transfer
ACTUAL AND PREP EXAM 2026 LATEST
130 QUESTIONS AND CORRECT
ANSWERS PERFECT FOR HIGH
PASSMARK
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 a loan or mortgage
• B) Provide employment and investment capital
• C) Allow the spread of risk
• D) Reduce losses through loss prevention and loss reduction
Correct ,,,,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
Correct ,,,,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. This is known as the "spread of risk".
Question 3: The definition of "Spread of Risk" is:
• 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
Correct ,,,,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 4: 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
Correct ,,,,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 5: What is the relationship between risk and insurance?
• A) Insurance eliminates all risk
• B) Insurance transfers the financial consequences of risk
• C) Insurance makes risk more dangerous
• D) Insurance has no relationship to risk
Correct ,,,,answer,,,: B
Rationale: Insurance does not eliminate the risk itself—the event may still
occur—but it transfers the financial consequences of the risk from the
insured to the insurer. The risk is shifted, not removed.
Question 6: 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
Correct ,,,,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 7: 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
Correct ,,,,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.
Question 8: What are the three main risk management strategies?
• A) Acceptance, Denial, Transfer
