RiskWise: Insurance and Your Financial Future certification exam assessment practice question and answer (Q&A) dump including multiple choice questions (MCQ) and objective type questions, with detail explanation and reference available free, helpful to pass the RiskWise: Insurance and Your Financial Future exam and earn RiskWise: Insurance and Your Financial Future certificate.
Table of Contents
Question 1
What role does ‘underwriting’ play in the insurance industry?
A. Underwriting assesses the risk and determines the premium for coverage.
B. Underwriting monitors investment growth within insurance policies.
C. Underwriting guarantees claim approvals regardless of risk.
D. Underwriting involves the collection of premiums after claims are paid.
Answer
A. Underwriting assesses the risk and determines the premium for coverage.
Explanation
Underwriting is essential for risk evaluation and premium setting. Underwriting evaluates the likelihood of a loss occurring for a specific applicant by analyzing factors such as health, occupation, financial profile, and past claims history. This assessment allows insurers to categorize the applicant’s risk level, decide whether to offer coverage, set policy terms, and establish an appropriate premium that aligns with the expected cost of potential claims.
Question 2
How do insurers determine the premium for a policyholder?
A. Using the law of supply and demand.
B. Through random selection to ensure fairness.
C. By assessing the risk profile and coverage amount.
D. Based solely on the policyholder’s income.
Answer
C. By assessing the risk profile and coverage amount.
Explanation
Insurers evaluate risk and coverage to determine premiums, ensuring they are adequate for potential claims. Premiums are calculated by examining variables that influence the probability and size of future claims, including age, location, health, lifestyle, coverage limits, and policy features. Insurers use this analysis to match the cost of coverage with the policyholder’s specific risk exposure, ensuring that premiums adequately fund potential losses while keeping pricing fair and sustainable.
Question 3
In insurance policies, how is the concept of moral hazard most accurately described?
A. Risk assessment based on moral principles
B. Adjusting premiums based on risk levels
C. Increased risk due to insured behavior changes after coverage
D. Ensuring ethical practices in underwriting
Answer
C. Increased risk due to insured behavior changes after coverage
Explanation
Moral hazard refers to the increase in risk when insured parties alter their behavior because they have insurance coverage. Moral hazard occurs when a policyholder becomes less cautious or adopts riskier behavior because they are protected financially by insurance. This behavioral shift raises the likelihood of a claim, which insurers must anticipate and manage through underwriting guidelines, policy conditions, deductibles, and monitoring mechanisms to maintain the balance between protection and responsible conduct.
Question 4
Which of the following is the best definition of ‘risk management’?
A. The act of eliminating all potential risks in financial planning.
B. A method to ensure that all investments yield positive returns.
C. The process of identifying, assessing, and controlling threats to an organization’s capital and earnings.
D. The strategy of avoiding any financial activities that could lead to losses.
Answer
C. The process of identifying, assessing, and controlling threats to an organization’s capital and earnings.
Explanation
Risk management involves a systematic approach to identifying and mitigating potential threats. Risk management involves systematically evaluating potential hazards—such as operational failures, market volatility, legal liabilities, or environmental events—and implementing strategies to mitigate their impact. Organizations use this process to prioritize risks, apply prevention or reduction measures, transfer risk through insurance, and strengthen resilience to protect financial stability.
Question 5
What role does actuarial science play in risk evaluation for insurance?
A. Actuarial science collects data to improve customer service.
B. Actuarial science establishes policy termination procedures.
C. Actuarial science uses mathematical models to assess risk probabilities.
D. Actuarial science designs advertising campaigns for insurance products.
Answer
C. Actuarial science uses mathematical models to assess risk probabilities.
Explanation
Actuarial science applies mathematical models to evaluate risk probabilities accurately. Actuarial science relies on statistics, probability theory, and financial mathematics to estimate the frequency and severity of future loss events. Actuaries analyze large datasets to project claim patterns, determine reserves, and support pricing decisions, enabling insurers to maintain solvency, set sustainable premiums, and ensure long-term financial performance based on quantifiable risk insights.