Insurance and Risk Management Flashcards
7 cards from real PSI practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Insurance and Risk Management flashcards as text
Which of the following is an example of a 'morale hazard'?
Answer: An insured who becomes careless about locking doors because they have theft insurance
Morale hazard is indifference to loss due to having insurance — the insured becomes less careful because they know a loss will be covered.
A 'retroactive date' on a claims-made policy means that:
Answer: No coverage applies to incidents that occurred before that date
A retroactive date sets the earliest point in time from which a covered incident may have occurred; losses before this date are excluded.
Under personal auto insurance, 'uninsured motorist coverage' protects the insured when:
Answer: The at-fault driver has no liability insurance
Uninsured motorist coverage pays for the insured's bodily injury damages caused by a driver who carries no liability insurance.
What is the 'law of large numbers' and how does it apply to insurance?
Answer: It states that the larger the group of similar exposures, the more predictable the actual losses will be
The law of large numbers allows insurers to predict losses accurately because actual experience approaches the expected (theoretical) probability as the group size grows.
A 'valued policy' differs from a standard property policy in that it:
Answer: Pays a pre-agreed amount upon total loss rather than actual cash value
A valued policy pays the stated face amount upon total loss without requiring proof of actual value at the time of loss.
Which of the following best describes 'excess and surplus lines' insurance?
Answer: Specialty coverage placed with non-admitted carriers for risks that standard markets decline
Excess and surplus lines (E&S) insurance covers unusual or high-hazard risks that admitted carriers refuse, placed through licensed surplus lines brokers.
What is the significance of the 'insuring agreement' section of an insurance policy?
Answer: It states the insurer's promise to pay for covered losses and defines the scope of coverage
The insuring agreement is the insurer's core promise — it describes what is covered, under what circumstances, and the general scope of the coverage provided.