Fundamentals of Insurance Planning - Final Exam 2022-
QUESTIONS WITH COMPLETE SOLUTIONS
What are the legal requirements of an insurance contract? Correct Answer: Offer and
Acceptance
Legal Competency of both parties
Consideration is given
Lawful Purpose
What are the elements of an insurable risk? Correct Answer: Large number of homogenous
exposures
Losses must be accidental
Losses must be measurable
Losses must be determinable
Cannot be catastrophic to the insurance company
Premiums must be affordable
Indemnity Correct Answer: The idea that one cannot make a profit from an insurance claim
Subrogation Correct Answer: Clause in the policy that prohibits the insured from going after the
negligent party if the insured has been made whole by the insurance company
Peril Correct Answer: The immediate cause and reason for a loss occurred
Fire, Storm, Theft, Collision, Lightning, Hurricane
Physical Hazard Correct Answer: A physical condition that increase the likelihood of loss
occurring
Moral Hazard Correct Answer: The potential loss occurring because of the moral character of
the insured, and the filing of a false claim with their insurance company
Morale Hazard Correct Answer: The indifference to a loss created because the insured has
insurance
Pure Risk Correct Answer: Risk that is insurable, the chance of a loss or no loss happening
Speculative Risk Correct Answer: Risk that is not insurable, the chance of a loss or a gain
Adverse Selection Correct Answer: The tendency of those that most need insurance to seek it
out
High in frequency and low in severity Correct Answer: Reduce- the process of reducing the
likelihood of a pure risk (severity is the size in dollars)
Low frequency and low severity Correct Answer: Retain- Accepting some or all of the potential
loss exposure for the risks
, Low frequency and high severity Correct Answer: Transfer- Insuring property with a third party
insurance company to transfer the risk (tornado)
High frequency and high severity Correct Answer: Avoidance
Aleatory Correct Answer: A type of insurance contract in which the dollar amounts exchanged
are uneven
Adhesive Correct Answer: The terms of the insurance contract stick, they are not negotiable; in
the event of a lawsuit the courts favor the insured for this reason
Insurable interest - Property Correct Answer: At inception of policy and at time of loss
Insurable Interest - Life Correct Answer: At inception of policy
Warranty Correct Answer: A promise made by the insured to the insurer
Representation Correct Answer: Misrepresentation must be material to void contract
Concealment Correct Answer: When the insured is silent about a fact that is material to the item
that is being insured
How does one calculate the actual cash value? Correct Answer: Replacement cost - depreciation
Who is required to offer COBRA? Correct Answer: Employers who have 20 or more full time
employees and offer group health insurance
Misconduct firing doesnt qualify
What is the cost of COBRA to a former employee? Correct Answer: The entire cost plus 2%
extra for administration fees
Who is qualified for 18 months of coverage under COBRA? Correct Answer: Termination of
employment
Moving from full-time to part time status
Who is qualified for 29 Months of coverage under COBRA? Correct Answer: If the employee
meets the social security definition of disability
Who is qualified for 36 Months of coverage under COBRA? Correct Answer: Benefits related to
Death of a covered employee
Divorce or legal separation of a covered employee
Loss of dependent status
Eligibility for Medicare is met
QUESTIONS WITH COMPLETE SOLUTIONS
What are the legal requirements of an insurance contract? Correct Answer: Offer and
Acceptance
Legal Competency of both parties
Consideration is given
Lawful Purpose
What are the elements of an insurable risk? Correct Answer: Large number of homogenous
exposures
Losses must be accidental
Losses must be measurable
Losses must be determinable
Cannot be catastrophic to the insurance company
Premiums must be affordable
Indemnity Correct Answer: The idea that one cannot make a profit from an insurance claim
Subrogation Correct Answer: Clause in the policy that prohibits the insured from going after the
negligent party if the insured has been made whole by the insurance company
Peril Correct Answer: The immediate cause and reason for a loss occurred
Fire, Storm, Theft, Collision, Lightning, Hurricane
Physical Hazard Correct Answer: A physical condition that increase the likelihood of loss
occurring
Moral Hazard Correct Answer: The potential loss occurring because of the moral character of
the insured, and the filing of a false claim with their insurance company
Morale Hazard Correct Answer: The indifference to a loss created because the insured has
insurance
Pure Risk Correct Answer: Risk that is insurable, the chance of a loss or no loss happening
Speculative Risk Correct Answer: Risk that is not insurable, the chance of a loss or a gain
Adverse Selection Correct Answer: The tendency of those that most need insurance to seek it
out
High in frequency and low in severity Correct Answer: Reduce- the process of reducing the
likelihood of a pure risk (severity is the size in dollars)
Low frequency and low severity Correct Answer: Retain- Accepting some or all of the potential
loss exposure for the risks
, Low frequency and high severity Correct Answer: Transfer- Insuring property with a third party
insurance company to transfer the risk (tornado)
High frequency and high severity Correct Answer: Avoidance
Aleatory Correct Answer: A type of insurance contract in which the dollar amounts exchanged
are uneven
Adhesive Correct Answer: The terms of the insurance contract stick, they are not negotiable; in
the event of a lawsuit the courts favor the insured for this reason
Insurable interest - Property Correct Answer: At inception of policy and at time of loss
Insurable Interest - Life Correct Answer: At inception of policy
Warranty Correct Answer: A promise made by the insured to the insurer
Representation Correct Answer: Misrepresentation must be material to void contract
Concealment Correct Answer: When the insured is silent about a fact that is material to the item
that is being insured
How does one calculate the actual cash value? Correct Answer: Replacement cost - depreciation
Who is required to offer COBRA? Correct Answer: Employers who have 20 or more full time
employees and offer group health insurance
Misconduct firing doesnt qualify
What is the cost of COBRA to a former employee? Correct Answer: The entire cost plus 2%
extra for administration fees
Who is qualified for 18 months of coverage under COBRA? Correct Answer: Termination of
employment
Moving from full-time to part time status
Who is qualified for 29 Months of coverage under COBRA? Correct Answer: If the employee
meets the social security definition of disability
Who is qualified for 36 Months of coverage under COBRA? Correct Answer: Benefits related to
Death of a covered employee
Divorce or legal separation of a covered employee
Loss of dependent status
Eligibility for Medicare is met
