Alberta General Insurance Level 1 Practice Exam

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What is reinsurance?

  1. A type of health insurance

  2. Insurance for personal property

  3. Insurance for insurance companies

  4. A government subsidy for insurers

The correct answer is: Insurance for insurance companies

Reinsurance is a form of insurance that is purchased by insurance companies to protect themselves against a large loss. This means that when an insurance company sells a policy to a customer, they may then purchase reinsurance to cover a portion of that risk. Reinsurance is not a type of health insurance (A) or insurance for personal property (B), as those types of insurance typically cover the individual or their property directly. It also does not refer to a government subsidy (D) for insurers, as reinsurance is a transaction between two private companies. The correct answer is C, as it accurately describes the purpose and function of reinsurance in the insurance industry.

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