AVIATION INSURANCE AND
RISK MANAGEMENT
PRACTICE TEST 35
QUESTIONS
Question 1: Which risk treatment method is illustrated when a �ight school stops o�ering mountain checkouts because management judges the exposure unacceptable?
Choices:
1) Risk avoidance 2) Risk retention 3) Risk transfer 4) Risk �nancing
Correct Answer: Risk avoidance
Explanation: Risk avoidance eliminates the exposure by discontinuing the activity that creates it. Retention accepts the risk, while transfer shifts some �nancial consequences to another party.Page 1
Question 2: A risk manager identi�es a frequent pattern of minor ramp collisions and installs wing-walker procedures and recurrent marshaller training. Which risk treatment is primarily being used?
Choices:
1) Risk transfer 2) Loss reduction 3) Risk avoidance 4) Passive retention
Correct Answer: Loss reduction
Explanation: Loss reduction aims to decrease the frequency or severity of losses while the activity continues. Training and procedures are controls intended to reduce ramp-collision losses.
Question 3: Which statement best distinguishes pure risk from speculative risk?
Choices:
1) Pure risk always produces a gain 2) Speculative risk is always insurable 3) Pure risk involves only loss or no loss, while speculative risk can result in gain or loss 4) Pure risk exists only when property is owned Correct Answer: Pure risk involves only loss or no loss, while speculative risk can result in gain or loss Explanation: Pure risk has outcomes of loss or no loss. Speculative risk includes the possibility of gain as well as loss and is generally not the type of risk transferred through ordinary insurance.Page 2
Question 4: An operator keeps the �rst $25,000 of each covered hull loss and insures amounts above that level. What risk-�nancing technique does the $25,000 represent?
Choices:
1) Avoidance 2) Reinsurance 3) Subrogation 4) Retention
Correct Answer: Retention
Explanation: The operator is retaining the �rst $25,000 of each loss. A deductible is a common form of planned risk retention.Question 5: Which insurance principle is intended to restore an insured �nancially to approximately the position occupied immediately before a covered loss without allowing a pro�t from the loss?
Choices:
1) Indemnity 2) Subrogation 3) Contribution 4) Estoppel
Correct Answer: Indemnity
Explanation: The principle of indemnity limits recovery to the insured's covered �nancial loss, subject to policy terms and limits, so insurance does not become a source of pro�t.Page 3