Question 1

What term describes a risk that presents only the possibility of loss, with no chance of gain?

Accepted Answer

A pure risk. Pure risks are the only type insurable because they involve only the chance of loss or no loss, never a gain.

Question 2

What type of risk involves the possibility of either loss OR gain, such as investing in the stock market?

Accepted Answer

Speculative risk. Speculative risks are generally not insurable because they include the possibility of financial gain.

Question 3

What is a 'particular risk,' as opposed to a 'fundamental risk'?

Accepted Answer

A particular risk affects only individuals or small groups (e.g., a house fire), whereas a fundamental risk affects large segments of society (e.g., earthquakes or war).

Question 4

Which category of risk refers to risks that remain relatively constant over time, such as fire or theft?

Accepted Answer

Static risks. Unlike dynamic risks (which change with economic or social conditions), static risks are tied to natural events or human behavior and are more predictable.

Question 5

List four characteristics that make a risk insurable.

Accepted Answer

An insurable risk must be: (1) due to chance, (2) definite and measurable, (3) statistically predictable (large numbers of similar exposure units), and (4) not catastrophic to the insurer.

Risk & Underwriting – P&C Insurance License Exam

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