Q.1 Which of the following best defines the principle of utmost good faith in insurance contracts?
Both parties must act honestly and disclose all material facts.
The insurer must offer the lowest premium.
The insured can hide minor details from the insurer.
The insurer can avoid claims if the insured is late in payment.
Explanation - Utmost good faith (uberrimae fidei) requires both the insurer and insured to disclose all material information relevant to the contract.
Correct answer is: Both parties must act honestly and disclose all material facts.
Q.2 Which type of insurance provides coverage for accidental death or injury?
Life insurance
Health insurance
Accident insurance
Property insurance
Explanation - Accident insurance specifically covers the insured against death or injury caused by accidents.
Correct answer is: Accident insurance
Q.3 In insurance law, what is the primary purpose of indemnity?
To punish the wrongdoer
To restore the insured to their original financial position
To provide lifelong financial benefits
To increase profit for the insurer
Explanation - Indemnity ensures the insured is compensated to the extent of the loss, preventing gain from insurance.
Correct answer is: To restore the insured to their original financial position
Q.4 Which of the following is an example of a non-insurable risk?
Fire damage to a house
Car accident
Loss of reputation due to personal behavior
Flood damage
Explanation - Non-insurable risks are those that are uncertain, speculative, or not financially measurable, like reputational loss.
Correct answer is: Loss of reputation due to personal behavior
Q.5 Which party in an insurance contract bears the risk?
The insured
The insurer
The government
The broker
Explanation - The insurer assumes the financial risk in return for the payment of a premium by the insured.
Correct answer is: The insurer
Q.6 Which of the following is true about the principle of subrogation?
The insured can sue the insurer directly
The insurer can assume the rights of the insured after paying a claim
The insurer has no claim against third parties
The insured loses their claim rights permanently
Explanation - Subrogation allows the insurer to step into the shoes of the insured to recover loss from third parties responsible for the damage.
Correct answer is: The insurer can assume the rights of the insured after paying a claim
Q.7 Which type of insurance covers loss or damage to property caused by perils like fire or theft?
Life insurance
Health insurance
Property insurance
Liability insurance
Explanation - Property insurance provides protection against risks that may damage or destroy property.
Correct answer is: Property insurance
Q.8 The principle of contribution in insurance means:
The insured must pay extra premium for multiple insurers
The insurers share the loss proportionally if the same risk is covered by multiple policies
The insured contributes to a government fund
The insurer contributes to charity
Explanation - Contribution prevents the insured from claiming full compensation from multiple insurers for the same loss.
Correct answer is: The insurers share the loss proportionally if the same risk is covered by multiple policies
Q.9 Which of the following best describes a 'moral hazard' in insurance?
Natural disasters affecting insured property
Carelessness or dishonesty by the insured increasing the risk
Fluctuation in stock market prices
Delayed premium payments
Explanation - Moral hazard arises from the insured’s behavior that may increase the likelihood or severity of a loss.
Correct answer is: Carelessness or dishonesty by the insured increasing the risk
Q.10 What does a 'co-insurance clause' in a property insurance policy imply?
The insured shares a portion of the loss with the insurer
Two insurers cover the same risk independently
The insurer pays the entire loss without limits
The government reimburses a portion of loss
Explanation - Co-insurance requires the insured to bear a part of the loss if the property is underinsured.
Correct answer is: The insured shares a portion of the loss with the insurer
Q.11 Which type of insurance covers legal liability arising from negligence?
Health insurance
Liability insurance
Property insurance
Life insurance
Explanation - Liability insurance protects the insured against claims from third parties for negligence or harm caused.
Correct answer is: Liability insurance
Q.12 Which term refers to the amount the insured must pay out-of-pocket before insurance coverage begins?
Premium
Deductible
Indemnity
Reinsurance
Explanation - A deductible is the portion of a loss that the insured must pay before the insurer covers the rest.
Correct answer is: Deductible
Q.13 In marine insurance, what does the term 'perils of the sea' cover?
Accidental fire on board
Earthquake damage
Risks inherent in sea navigation, like storms or sinking
Piracy on land
Explanation - 'Perils of the sea' include natural maritime hazards that can cause loss or damage to ships or cargo.
Correct answer is: Risks inherent in sea navigation, like storms or sinking
Q.14 What is the primary function of reinsurance?
To increase the insured’s premium
To allow insurers to share risks with other insurers
To eliminate deductibles
To cover moral hazards
Explanation - Reinsurance helps insurers reduce their risk exposure by transferring part of it to another insurer.
Correct answer is: To allow insurers to share risks with other insurers
Q.15 Which of the following is considered a contingent insurance policy?
Life insurance
Health insurance
Insurance taken on the life of another person
Fire insurance on a building
Explanation - Contingent insurance arises when the benefit depends on the occurrence of a specific event affecting another person.
Correct answer is: Insurance taken on the life of another person
Q.16 In insurance, 'proximate cause' refers to:
The last event in a chain of events
The most direct cause of the loss
A minor contributory cause
The insured’s moral hazard
Explanation - Proximate cause identifies the main cause that sets the chain of events leading to the loss, which determines liability under the policy.
Correct answer is: The most direct cause of the loss
Q.17 Which of the following is NOT required for a valid insurance contract?
Offer and acceptance
Insurable interest
Premium payment
Moral hazard
Explanation - While moral hazard is a consideration, it is not a requirement for a valid insurance contract, unlike offer, acceptance, insurable interest, and consideration (premium).
Correct answer is: Moral hazard
Q.18 Which insurance principle prevents the insured from profiting from a claim?
Indemnity
Utmost good faith
Subrogation
Contribution
Explanation - Indemnity ensures compensation restores the insured to the original financial position, preventing profit from insurance.
Correct answer is: Indemnity
Q.19 Which type of life insurance provides coverage for a specific period only?
Whole life insurance
Term life insurance
Endowment insurance
Health insurance
Explanation - Term life insurance covers the insured for a defined term, paying a benefit only if death occurs during that term.
Correct answer is: Term life insurance
Q.20 Which of the following best describes 'reinstatement' in property insurance?
Restoring the policy after cancellation
Payment of compensation to the insured without repairing the property
Restoring damaged property to its original condition
Sharing the loss among multiple insurers
Explanation - Reinstatement refers to repairing or replacing damaged property so that the insured is restored to the original position.
Correct answer is: Restoring damaged property to its original condition
Q.21 Which of the following is a key feature of health insurance?
Payment upon death only
Covers medical expenses due to illness or injury
Guarantees profit for the insured
Covers property damage
Explanation - Health insurance provides financial protection for medical treatment costs arising from sickness or accidents.
Correct answer is: Covers medical expenses due to illness or injury
Q.22 In insurance, a 'waiting period' refers to:
The time before the policy can be purchased
The period during which no claims are payable after policy inception
The duration of the insurance contract
The time taken to process a claim
Explanation - A waiting period is a specified time after the start of coverage during which certain benefits are not payable.
Correct answer is: The period during which no claims are payable after policy inception
Q.23 Which of the following would be classified as a 'named peril' in property insurance?
Any damage without exception
Fire or theft explicitly listed in the policy
All natural disasters automatically covered
Damage caused by moral hazard
Explanation - Named peril policies cover only the specific risks listed, unlike all-risk policies.
Correct answer is: Fire or theft explicitly listed in the policy
Q.24 Which of the following describes a 'premium' in insurance?
The maximum amount payable under the policy
The amount paid by the insured for coverage
The deductible to be paid before claims
The compensation received after a loss
Explanation - Premium is the consideration paid by the insured to the insurer in return for assuming the risk.
Correct answer is: The amount paid by the insured for coverage
Q.25 Which type of insurance is specifically designed to cover employers against claims from employees?
Workers’ compensation insurance
Health insurance
Life insurance
Property insurance
Explanation - This insurance provides coverage to employers against liability for work-related injuries or illnesses of employees.
Correct answer is: Workers’ compensation insurance