LOMA 281

MEETING CUSTOMER NEEDS WITH

INSURANCE AND ANNUITIES

PRACTICE TEST

2024

1. A company wants to insure its inventory against theft. Which of the following is a

characteristic of an insurable risk in this case?

a) The loss must be accidental and unintentional.

b) The loss must be large and catastrophic.

c) The loss must be measurable and verifiable.

d) The loss must be predictable and calculable.

*Answer: c) The loss must be measurable and verifiable.*

Rationale: For a risk to be insurable, the loss must be measurable and verifiable,

meaning that the amount and value of the loss can be determined objectively and

accurately. Option a) is also a characteristic of an insurable risk, but not specific to

this case. Option b) is incorrect, as the loss should be relatively small and noncatastrophic to avoid adverse selection and moral hazard. Option d) is also incorrect,

as the loss should be unpredictable and random to ensure a fair distribution of risk.

2. A homeowner wants to insure his house against fire. Which of the following is a

common risk class for this type of insurance?

a) Property insurance.

b) Liability insurance.

c) Life insurance.

d) Health insurance.

*Answer: a) Property insurance.*

Rationale: Property insurance covers the physical damage or loss of property due to

perils such as fire, theft, or vandalism. Option b) is incorrect, as liability insurance

covers the legal responsibility for the harm caused to others by the insured's actions

or negligence. Option c) is incorrect, as life insurance covers the death or disability

of the insured person. Option d) is incorrect, as health insurance covers the medical

expenses or income loss due to illness or injury of the insured person.

3. A driver wants to insure his car against collision. Which of the following is a

characteristic of an insurable risk in this case?

a) The loss must be definite and certain.

b) The loss must be fortuitous and unforeseen.

c) The loss must be common and homogeneous.

d) The loss must be independent and non-correlated.

*Answer: b) The loss must be fortuitous and unforeseen.*

Rationale: For a risk to be insurable, the loss must be fortuitous and unforeseen,

meaning that the occurrence and timing of the loss must be beyond the control and

expectation of the insured. Option a) is incorrect, as the loss should be definite but

not certain, meaning that the occurrence, time, place, and cause of the loss can be

identified but not predetermined. Option c) is incorrect, as the loss should be

uncommon but homogeneous, meaning that the frequency of the loss should be low

but similar among the members of the risk pool. Option d) is incorrect, as the loss

should be independent but not non-correlated, meaning that the occurrence of one

loss should not affect or influence another.

4. A traveler wants to insure his luggage against loss or damage during a flight.

Which of the following is a common risk class for this type of insurance?

a) Aviation insurance.

b) Marine insurance.

c) Travel insurance.

d) Motor insurance.

*Answer: c) Travel insurance.*

Rationale: Travel insurance covers the risks associated with traveling, such as

luggage loss or damage, trip cancellation or interruption, medical emergencies, or

personal liability. Option a) is incorrect, as aviation insurance covers the risks

related to aircraft operation, ownership, or maintenance. Option b) is incorrect, as

marine insurance covers the risks related to watercraft operation, ownership, or

cargo transportation. Option d) is incorrect, as motor insurance covers the risks

related to vehicle operation, ownership, or damage.