Sample Quizzes For Preparation: Insurance
Chapter 11: Insurance – Quiz
1. Which of the following is a key purpose of insurance?
A. Increasing profit margins
B. Avoiding government regulation
C. Risk reduction
D. Enhancing business expansion only
2. What does the principle of indemnity ensure?
A. The insured profits from a loss
B. The insured is restored to their original financial position
C. Premiums remain fixed
D. Compensation is double the loss
3. Which of the following is an insurable risk?
A. Gambling losses
B. Fire damage to factory
C. Change in fashion trends
D. Speculative stock investment
4. What type of risk is typically not insurable?
A. Fire
B. Theft
C. Speculative investment
D. Medical expenses
5. What is the term for the grouping of premiums to support compensation claims?
A. Premium balancing
B. Risk accumulation
C. Pooling of risk
D. Insurance hedging
6. Which of the following is a personal risk?
A. Lawsuit by customer
B. Fire in warehouse
C. Loss of a family member’s income
D. Product recall
7. What is subrogation?
A. Paying multiple premiums
B. Gaining profit from a claim
C. Insurer gaining rights to claim from third party
D. Refusing claims due to error
8. Which document is issued temporarily before the final policy is provided?
A. Proposal form
B. Claim form
C. Cover note
D. Endorsement
9. What does the principle of utmost good faith require?
A. Paying premiums early
B. Disclosing all material facts
C. Minimising expenses
D. Changing insurers frequently
10. What is the role of an insurance broker?
A. Manufacture policies
B. Advise and arrange insurance for clients
C. Investigate fraud
D. Set government policy
11. What factor is NOT likely to affect an insurance premium?
A. Risk level
B. Value of item
C. Weather
D. Past claims
12. Which principle applies when more than one insurer shares a claim payout?
A. Indemnity
B. Contribution
C. Subrogation
D. Pooling
13. Which of the following documents is used to make an official insurance claim?
A. Proposal form
B. Cover note
C. Policy document
D. Claim form
14. What is the purpose of a proposal form?
A. Make a claim
B. Outline risk and request cover
C. Confirm premium refund
D. Cancel the policy
15. What is a premium?
A. Compensation paid to claimant
B. Fee for advice from broker
C. Regular payment made to insurer
D. Total insurance payout
16. What is one reason some risks are non-insurable?
A. They are always profitable
B. They are unpredictable or immeasurable
C. They always happen
D. They require low premiums
17. What principle prevents the insured from profiting off insurance claims?
A. Utmost good faith
B. Indemnity
C. Contribution
D. Risk pooling
18. What makes a risk insurable?
A. High premiums
B. Speculative nature
C. Pure and measurable
D. Unpredictable and random
19. Which principle allows an insurer to claim damages from a third party after paying compensation?
A. Utmost good faith
B. Insurable interest
C. Contribution
D. Subrogation
20. A person takes out life insurance on their friend. Why is this not valid?
A. Premium too high
B. Proposal form incomplete
C. No insurable interest
D. Lack of compensation clause
21. What does insurable interest require?
A. Personal liking
B. Financial loss on damage
C. Legal permission
D. Random chance
22. A house worth $100,000 is insured for $50,000 and suffers damage worth $40,000. What compensation is paid?
A. $40,000
B. $20,000
C. $50,000
D. $100,000
23. What is the correct formula for calculating compensation under indemnity?
A. Loss × Insured amount
B. Value × Premium rate
C. (Insured/Value) × Loss
D. (Value × Loss) / Premium
24. What does the insurance policy document represent?
A. Proposal of contract
B. Legal contract between insurer and insured
C. Verification of identity
D. Refund approval
25. What is one function of the insurance industry?
A. Enforce criminal laws
B. Invest in non-insurable ventures
C. Provide financial protection
D. Regulate import tariffs
26. What is an important characteristic of a good insurance system?
A. High profit margins
B. Transparency and fairness
C. Compulsory for all
D. Avoidance of government oversight
27. Why is validity of insurance principles critical when making a claim?
A. To delay the process
B. To ensure fair and legal claim
C. To avoid pooling
D. To increase profit
28. A valid insurance claim must always involve:
A. A speculative gain
B. A calculable and documented loss
C. A potential income
D. A hidden risk
29. Why are proposal forms important?
A. They initiate premium refund
B. They verify damage
C. They disclose risk and initiate policy
D. They help cancel the cover
30. What principle ensures that the insured has something to lose if the event occurs?
A. Pooling
B. Subrogation
C. Contribution
D. Insurable interest
Marking Key and Explanations
- C – Insurance reduces the financial impact of risks.
- B – Indemnity restores, not enriches.
- B – Fire damage is measurable and pure risk.
- C – Speculative risks cannot be calculated.
- C – Pooling is the collective premium fund.
- C – Death of income earner is a personal risk.
- C – Subrogation transfers claim rights to insurer.
- C – Cover note is temporary proof.
- B – Disclosure of all facts is necessary.
- B – Brokers assist in selecting policies.
- C – Weather unpredictability isn’t premium factor directly.
- B – Contribution spreads claim over multiple insurers.
- D – Claim form is submitted to insurer.
- B – Proposal outlines the initial insurance request.
- C – Premium is paid regularly to maintain cover.
- B – Some risks can’t be measured.
- B – No profit is allowed from loss.
- C – Pure, measurable risks are insurable.
- D – Subrogation permits insurer recovery.
- C – No financial stake = no insurable interest.
- B – Must face financial loss.
- B – (50000/100000) × 40000 = 20000
- C – Standard indemnity calculation.
- B – It is the official insurance contract.
- C – Financial protection is key purpose.
- B – Trust and reliability are crucial.
- B – Ensures fairness and prevents abuse.
- B – Must be measurable and real.
- C – Initiates insurance policy.
- D – Ensures policyholder has financial stake.