Insurance MCQ Questions and Answers

Welcome to the Insurance MCQ Questions and Answers quiz. This comprehensive quiz covers key concepts related to insurance, including risk management, policy types, underwriting, and terminologies. Each question is designed to enhance your understanding and includes a detailed explanation to clarify the concepts.

Whether you're preparing for exams, interviews, or just brushing up on insurance fundamentals, this test will help you gain a strong grasp of the subject. Dive in and expand your knowledge of the insurance industry!

1. What is insurance?

a) A legal requirement for all businesses

b) A method of risk management used to hedge against the risk of a contingent loss

c) A government tax on property

d) A type of investment in stocks

Answer:

b) A method of risk management used to hedge against the risk of a contingent loss

Explanation:

Insurance is a means of protection from financial loss. It is a form of risk management primarily used to hedge against the risk of a contingent or uncertain loss. An entity that provides insurance is known as an insurer, insurance company, or insurance carrier.

2. What is a 'premium' in insurance terms?

a) The amount paid for claims

b) The cost of managing an insurance policy

c) The amount paid for purchasing an insurance policy

d) A reward for not claiming insurance

Answer:

c) The amount paid for purchasing an insurance policy

Explanation:

In insurance, a premium is the amount of money charged by an insurance company for active coverage. The sum a person pays depends on what type of insurance they are buying and what the risk factors are seen to be.

3. What is 'life insurance'?

a) A policy that covers property damage

b) Insurance that provides financial compensation for the death of the insured

c) A policy that covers medical expenses

d) Insurance for retirement savings

Answer:

b) Insurance that provides financial compensation for the death of the insured

Explanation:

Life insurance is a contract between an insurance policy holder and an insurer or assurer, where the insurer promises to pay a designated beneficiary a sum of money upon the death of an insured person.

4. What does 'underwriting' mean in insurance?

a) The process of selling insurance policies

b) The process of evaluating risk and determining the premium that needs to be charged for insurance

c) The process of filing an insurance claim

d) The distribution of dividends to insurance policyholders

Answer:

b) The process of evaluating risk and determining the premium that needs to be charged for insurance

Explanation:

Underwriting in insurance involves the process of evaluating the risk of insuring a home, car, driver, or individual, such as in the case of life insurance, to determine if it's profitable for the insurance company to take the chance.

5. What is 'property insurance'?

a) Insurance that covers the insured's life

b) Insurance that covers vehicle-related risks

c) Insurance that covers risks to property, such as fire, theft, or weather damage

d) Insurance that covers professional liability

Answer:

c) Insurance that covers risks to property, such as fire, theft, or weather damage

Explanation:

Property insurance provides protection against most risks to property, such as fire, theft, and some weather damage. This includes specialized forms of insurance such as fire insurance, flood insurance, earthquake insurance, home insurance, or boiler insurance.

6. What is a 'deductible' in an insurance policy?

a) The amount paid to the insurance company to buy a policy

b) The amount the policyholder must pay before the insurance company pays a claim

c) The maximum amount the insurance company will pay

d) The bonus paid to policyholders for no claims

Answer:

b) The amount the policyholder must pay before the insurance company pays a claim

Explanation:

A deductible is the amount paid out of pocket by the policyholder before an insurance provider will pay any expenses. It is normally quoted as a fixed quantity and is a part of most policies covering losses to the policyholder.

7. What is 'health insurance'?

a) A financial plan that covers the cost of hospitalization

b) Insurance that covers life and property

c) Insurance that covers medical and surgical expenses of the insured

d) Insurance that covers the health of a business

Answer:

c) Insurance that covers medical and surgical expenses of the insured

Explanation:

Health insurance is a type of insurance coverage that covers the cost of an insured individual's medical and surgical expenses. Depending on the type of health insurance coverage, either the insured pays costs out-of-pocket and receives reimbursement, or the insurer makes payments directly to the provider.

8. What is 'liability insurance'?

a) Insurance for loan liabilities

b) Insurance that provides protection from claims arising from injuries or damage to other people or property

c) Insurance covering only the policyholder's assets

d) Life insurance for individuals

Answer:

b) Insurance that provides protection from claims arising from injuries or damage to other people or property

Explanation:

Liability insurance is a part of the general insurance system of risk financing to protect the purchaser from the risks of liabilities imposed by lawsuits and similar claims. It protects the insured in the event he or she is sued for claims that come within the coverage of the insurance policy.

9. What is an 'insurance claim'?

a) A request for payment based on the terms of an insurance policy

b) The process of transferring an insurance policy

c) A claim for a deduction in insurance premiums

d) A declaration of the value of property insured

Answer:

a) A request for payment based on the terms of an insurance policy

Explanation:

An insurance claim is a formal request by a policyholder to an insurance company for coverage or compensation for a covered loss or policy event. The insurance company validates the claim and, once approved, issues payment to the insured.

10. What is 'reinsurance'?

a) The process of renewing an insurance policy

b) Insurance for insurers to protect against large claims

c) A secondary insurance for policyholders

d) The return of a part of the insurance premium

Answer:

b) Insurance for insurers to protect against large claims

Explanation:

Reinsurance is insurance that an insurance company purchases from another insurance company to insulate itself from the risk of a major claims event. With reinsurance, the company passes on some part of its own insurance liabilities to the other insurance company.

11. What is 'term life insurance'?

a) A life insurance policy with a fixed rate of payments for a limited period

b) A life insurance policy that covers the entire life of the insured

c) A life insurance policy for businesses

d) A life insurance policy with variable premiums

Answer:

a) A life insurance policy with a fixed rate of payments for a limited period

Explanation:

Term life insurance is a type of life insurance policy that provides coverage at a fixed rate of payments for a limited period, the relevant term. After that period expires, coverage at the previous rate of premiums is no longer guaranteed and the client must either forgo coverage or potentially obtain further coverage with different payments or conditions.

12. What is 'whole life insurance'?

a) Insurance that covers specific term periods

b) A life insurance policy that covers for a set number of years

c) A life insurance policy that covers the insured's entire lifetime

d) Insurance with coverage for health and property

Answer:

c) A life insurance policy that covers the insured's entire lifetime

Explanation:

Whole life insurance is a life insurance policy which is guaranteed to remain in force for the insured's entire lifetime, provided required premiums are paid, or to the maturity date. It typically combines a death benefit with a savings portion.

13. What is 'auto insurance'?

a) Insurance for business vehicles only

b) Insurance that provides protection against physical damage and/or bodily injury resulting from traffic collisions

c) Insurance that covers only auto repairs

d) Insurance for transport companies

Answer:

b) Insurance that provides protection against physical damage and/or bodily injury resulting from traffic collisions

Explanation:

Auto insurance is a policy purchased by vehicle owners to mitigate costs associated with getting into an auto accident. It covers the insured party, the insured vehicle, and third parties. Different policies specify the circumstances under which each item is covered.

14. What is a 'policyholder' in insurance terms?

a) The insurance company that issues the policy

b) The person or entity that owns an insurance policy

c) The beneficiary of the insurance policy

d) The agent selling the insurance policy

Answer:

b) The person or entity that owns an insurance policy

Explanation:

A policyholder is the person or entity in whose name an insurance policy is registered. The policyholder is the one who contracts for an insurance policy that indemnifies (protects) him against loss of property or life or health.

15. What is 'homeowner’s insurance'?

a) Insurance that covers only the structure of a home

b) Insurance that covers personal liability and theft

c) A type of property insurance that covers a private residence

d) Insurance that covers mortgage payments

Answer:

c) A type of property insurance that covers a private residence

Explanation:

Homeowner’s insurance is a form of property insurance that covers losses and damages to an individual's house and assets in the home. It also provides liability coverage against accidents in the home or on the property.

16. What does 'actuarial science' involve in insurance?

a) The science of creating insurance policies

b) The science of sales techniques in insurance

c) The discipline that applies mathematical and statistical methods to assess risk in insurance

d) The study of legal aspects of insurance

Answer:

c) The discipline that applies mathematical and statistical methods to assess risk in insurance

Explanation:

Actuarial science is the discipline that applies mathematical and statistical methods to assess risk in the insurance and finance industries. Actuaries are professionals trained in this discipline.

17. What is 'professional liability insurance'?

a) Insurance that covers liabilities incurred from professional advice

b) Insurance for the liability of manufacturing products

c) Insurance that covers the personal liability of professionals

d) Insurance for workplace injuries

Answer:

a) Insurance that covers liabilities incurred from professional advice

Explanation:

Professional liability insurance, also known as professional indemnity insurance, is a form of liability insurance which helps protect professionals who provide advice or service from bearing the full cost of defending against a negligence claim made by a client, and damages awarded in such a civil lawsuit.

18. What is 'premium financing' in insurance?

a) The act of lending money to pay insurance premiums

b) Setting high premiums for insurance policies

c) Financing the operations of an insurance company

d) The calculation of insurance premiums

Answer:

a) The act of lending money to pay insurance premiums

Explanation:

Premium financing is the lending of funds to a person or company to cover the cost of an insurance premium. Premium finance loans are often provided by third-party finance entities known as premium financing companies.

19. What is an 'insurance broker'?

a) A person who underwrites insurance policies

b) A person who sells insurance for multiple insurers

c) An agent who sells insurance for a single insurer

d) A person who assesses insurance claims

Answer:

b) A person who sells insurance for multiple insurers

Explanation:

An insurance broker is a specialist in insurance and risk management. Brokers act on behalf of their clients and provide advice in the interests of their clients. A broker will help you identify your individual and/or business risks to help you decide what to insure, and how to manage those risks in other ways.

20. What is 'group insurance'?

a) A single insurance policy that covers a group of people

b) Insurance that is available only to large groups

c) Insurance for corporate groups

d) A policy that covers various types of insurance

Answer:

a) A single insurance policy that covers a group of people

Explanation:

Group insurance is an insurance that covers a defined group of people, for example, the members of a society or professional association, or the employees of a particular employer. Group coverage can help reduce the cost of insurance because it reduces the insurer's risk.

21. What is 'marine insurance'?

a) Insurance covering water-based sports activities

b) Insurance specifically for marines and military personnel

c) Insurance that covers the loss or damage of ships, cargo, terminals, and transport by which property is transferred

d) Insurance covering coastal properties

Answer:

c) Insurance that covers the loss or damage of ships, cargo, terminals, and transport by which property is transferred

Explanation:

Marine insurance covers the loss or damage of ships, cargo, terminals, and any transport by which property is transferred, acquired, or held between the points of origin and the final destination. It plays a crucial role in the shipping and logistics industries.

22. What is 'business interruption insurance'?

a) Insurance that covers the costs associated with starting a new business

b) Insurance that covers the loss of income that a business suffers after a disaster

c) Insurance that covers the expenses for business trips

d) Insurance for protecting against competition interruption

Answer:

b) Insurance that covers the loss of income that a business suffers after a disaster

Explanation:

Business interruption insurance is a type of insurance that covers the loss of income that a business suffers after a disaster. The income loss covered may be due to disaster-related closing of the business facility or due to the rebuilding process after a disaster.

23. What is 'annuity' in insurance terms?

a) A single payment made by an insurance company

b) A series of payments at regular intervals, often used as a retirement income

c) A lump-sum investment in an insurance policy

d) A bonus given to policyholders

Answer:

b) A series of payments at regular intervals, often used as a retirement income

Explanation:

An annuity is a financial product that pays out a fixed stream of payments to an individual, primarily used as an income stream for retirees. Annuities are created and sold by financial institutions, which accept and invest funds from individuals and then issue a series of payments at a later date.

24. What is 'casualty insurance'?

a) Insurance covering accidents or mishaps

b) Insurance for personal injuries

c) Insurance covering loss or damage to property

d) Insurance covering only vehicular accidents

Answer:

c) Insurance covering loss or damage to property

Explanation:

Casualty insurance is a broad category of coverage against loss of property, damage or other liabilities. This insurance includes vehicle insurance, liability insurance, theft insurance, and elevator insurance. It does not include life insurance, fire insurance, and marine insurance.

25. What is 'underinsured' coverage?

a) Insurance that provides additional coverage for high-risk individuals

b) Coverage for when the insured has some coverage, but not enough to cover the full loss

c) Insurance for items that are difficult to insure

d) A basic insurance policy offering minimal coverage

Answer:

b) Coverage for when the insured has some coverage, but not enough to cover the full loss

Explanation:

Underinsured coverage refers to an insurance policy provision that extends coverage to include property damage and bodily injuries caused by a driver who has inadequate insurance. In the event of a claim, this coverage will make up the difference up to the limit of the policy if the at-fault driver's insurance is insufficient.