Page 1 of 169
LIFE & HEALTH INSURANCE EXAMS STUDY PACK WITH
COMPLETE SOLUTION | QUESTIONS AND VERIFIED
ANSWERS | 100% CORRECT ( 2025 UPDATE)
In insurance, a type of risk that involves the chance of loss or gain
and which is therefore uninsurable is called
.....ANSWER.....speculative risk: Speculative risk is risk that may
result in loss or gain. This type of risk is generally uninsurable.
A hurricane is an example of a(n) .....ANSWER.....Peril: A
hurricane is an example of a peril. A peril is a condition that
involves danger or risk and is the cause of a loss. Insurance
policies are written to provide financial protection against losses
from stated perils.
Which of the following is an example of pure risk?
.....ANSWER.....the loss of life: The loss of a life is a good
example of pure risk because there is no possible gain in this
situation.
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Which of the following is defined as increasing the severity or
frequency of loss? .....ANSWER.....Hazard: A hazard does indeed
increase the number of, or the severity of, losses.
Mary refuses to fly on a commercial airplane for her business.
This is an example of risk ________. .....ANSWER.....Avoidance:
Mary refuses to fly on a commercial airplane for her business.
This is an example of risk avoidance.
The banding together of individuals who collectively agree to
cover a loss suffered by any group member is the definition of
which method of handling risk? .....ANSWER.....share the risk:
Under risk-sharing each member of a group agrees to share the
financial burden of a loss that could be suffered by any member.
Pamela replaces the batteries in her smoke alarms throughout the
house and tests them once a year. This is an example of
.....ANSWER.....risk reduction: Risk reduction is an option to lessen
the possibility of loss when a risk cannot be avoided. In this case,
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the risk of fire that could result in severe loss is reduced through
having active fire alarms.
Which of the following is considered an element of insurable
risk? .....ANSWER.....The risk of loss must be measurable with a
dollar value defined.
Adverse selection can be described as .....ANSWER.....the fact
that people in poor health are more likely to buy and keep
insurance. Adverse selection is selection against an insurer. It
refers to the tendency of persons who are likely to make a claim
based on their circumstances to buy and keep insurance. For
example, a person who is sick is more likely to buy health
insurance and to keep the policy in force than a healthy person.
This term is the principle that the greater the number of incidents
of a random process, the more likely that the expected number
of incidents and the actual numbers of incidents will be the same.
.....ANSWER.....law of large numbers: The law of large numbers
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describes the principle that the greater the number of incidents
of a random process, the more likely that the expected number
of incidents and the actual numbers of incidents will be the same.
This fact allows the insurer to predict the extent of risk.
Both mutual insurance companies and stock insurance companies
have which of the following features in common?
.....ANSWER.....Both can issue dividends:The stock company can
issue dividends to its stockholders; the mutual company can issue
dividends to its policyowners.
The Grand Halvorson Lodge has 250 members, united by a
common Danish heritage. For 50 years they have also run an
annual carnival for the purpose of sponsoring families in need of
medical care for their children. All the money brought in through
dues and fund-raising events is used to support their non-profit
work with needy families. The Grand Halvorson Lodge offers life
insurance to its members. What type of insurer is it considered?
LIFE & HEALTH INSURANCE EXAMS STUDY PACK WITH
COMPLETE SOLUTION | QUESTIONS AND VERIFIED
ANSWERS | 100% CORRECT ( 2025 UPDATE)
In insurance, a type of risk that involves the chance of loss or gain
and which is therefore uninsurable is called
.....ANSWER.....speculative risk: Speculative risk is risk that may
result in loss or gain. This type of risk is generally uninsurable.
A hurricane is an example of a(n) .....ANSWER.....Peril: A
hurricane is an example of a peril. A peril is a condition that
involves danger or risk and is the cause of a loss. Insurance
policies are written to provide financial protection against losses
from stated perils.
Which of the following is an example of pure risk?
.....ANSWER.....the loss of life: The loss of a life is a good
example of pure risk because there is no possible gain in this
situation.
,Page 2 of 169
Which of the following is defined as increasing the severity or
frequency of loss? .....ANSWER.....Hazard: A hazard does indeed
increase the number of, or the severity of, losses.
Mary refuses to fly on a commercial airplane for her business.
This is an example of risk ________. .....ANSWER.....Avoidance:
Mary refuses to fly on a commercial airplane for her business.
This is an example of risk avoidance.
The banding together of individuals who collectively agree to
cover a loss suffered by any group member is the definition of
which method of handling risk? .....ANSWER.....share the risk:
Under risk-sharing each member of a group agrees to share the
financial burden of a loss that could be suffered by any member.
Pamela replaces the batteries in her smoke alarms throughout the
house and tests them once a year. This is an example of
.....ANSWER.....risk reduction: Risk reduction is an option to lessen
the possibility of loss when a risk cannot be avoided. In this case,
,Page 3 of 169
the risk of fire that could result in severe loss is reduced through
having active fire alarms.
Which of the following is considered an element of insurable
risk? .....ANSWER.....The risk of loss must be measurable with a
dollar value defined.
Adverse selection can be described as .....ANSWER.....the fact
that people in poor health are more likely to buy and keep
insurance. Adverse selection is selection against an insurer. It
refers to the tendency of persons who are likely to make a claim
based on their circumstances to buy and keep insurance. For
example, a person who is sick is more likely to buy health
insurance and to keep the policy in force than a healthy person.
This term is the principle that the greater the number of incidents
of a random process, the more likely that the expected number
of incidents and the actual numbers of incidents will be the same.
.....ANSWER.....law of large numbers: The law of large numbers
, Page 4 of 169
describes the principle that the greater the number of incidents
of a random process, the more likely that the expected number
of incidents and the actual numbers of incidents will be the same.
This fact allows the insurer to predict the extent of risk.
Both mutual insurance companies and stock insurance companies
have which of the following features in common?
.....ANSWER.....Both can issue dividends:The stock company can
issue dividends to its stockholders; the mutual company can issue
dividends to its policyowners.
The Grand Halvorson Lodge has 250 members, united by a
common Danish heritage. For 50 years they have also run an
annual carnival for the purpose of sponsoring families in need of
medical care for their children. All the money brought in through
dues and fund-raising events is used to support their non-profit
work with needy families. The Grand Halvorson Lodge offers life
insurance to its members. What type of insurer is it considered?
