- | Page
KENTUCKY LIFE AND HEALTH INSURANCE
EXAM PREP| QUESTIONS AND VERIFIED
ANSWERS| 100 % CORRECT| GRADE A (NEW
UPDATE)
Question: What’s the difference between pure and speculative
risk?
ANSWER: Pure risk involves only the possibility of loss, while
speculative risk can result in either loss or gain. Since speculative risk includes a chance of gain, it is uninsurable.
Question: What’s the difference between a peril and a hazard?
ANSWER: A peril is the direct cause of a loss, while a hazard is
a condition that increases the chances of that loss occurring.Insurance protects against perils, and hazards are taken into account during underwriting.
Question: What are 3 hazards most related to life insurance?
ANSWER:
- Moral hazard: Smoking and willingness to defraud
- Morale hazard: Being overweight or inactive
- Physical hazard: Where one works
- | Page
Question: What are the 5 basic risk management techniques?
ANSWER:
- Avoid the risk
- Reduce it
- Retain the risk
- Share the risk
- Transfer it (Risk transfer is what insurance companies achieve
today)
Question: What are the basic elements of an insurable risk?
ANSWER: Criteria a risk must meet to be insured (e.g., it must
be definable, measurable, accidental, and not catastrophic).
Question: Describe adverse selection:
ANSWER: The tendency of a person with greater risk to seek
out and maintain insurance, often linked to moral hazard.
Question: What is underwriting?
ANSWER: The process where companies determine if they will
insure someone based on risk factors.
- | Page
Question: Describe the law of large numbers:
ANSWER: A mathematical principle of probability that
underlies insurance premium rate calculations, stating that the larger the number of similar risks, the more predictable the losses.
Question: What are actuaries?
ANSWER: Insurance mathematicians.
Question: What uses mortality tables and what uses morbidity
tables?
ANSWER: Mortality tables are used for life insurance
premiums; morbidity tables are used for health insurance premiums.
Question: What is loss exposure?
ANSWER: The state of being subject to a possible loss.
Question: What does it mean to be definable?
ANSWER: Definite as to time, cause, and location.
- | Page
Question: What does it mean to be measurable?
ANSWER: Companies will state how much they will pay for a
covered loss.
Question: Is loss due to war covered?
ANSWER: No.
Question: Can accidental be self-inflicted?
ANSWER: No.
Question: Why do mutual companies, but not stock insurance
companies, issue participating policies?
ANSWER: Mutual companies’ ownership is represented by the
policyholders, who receive policy dividends through "participating policies." Stock companies are owned by shareholders, and dividends are taxed, while mutual company dividends are tax-free.