Exam 2: Insurance and Risk

Which of the following types of risks is normally uninsurable by private insurers?

From the viewpoint of the insurer,all of the following are characteristics of an ideally insurable risk EXCEPT

According to the law of large numbers,what should happen as an insurer increases the number of units insured?

Adverse selection occurs

A group of farmers agreed that if any farmer suffered a property loss,the loss would be spread over the entire group.In this way,each farmer is responsible for the average loss of the group rather than the actual loss that the farmer sustained.Which characteristic of insurance is embodied in this agreement?

Apex Insurance Company wrote a large number of property insurance policies in an area where earthquake losses could occur.When the president of Apex was asked if she feared that a severe earthquake might put the company out of business,she responded,"Not a chance.We transferred most of that risk to other insurance companies." An arrangement by which an insurer that initially writes insurance transfers to another insurer part or all of the potential losses associated with such insurance is called

If insurers were to provide indemnification for losses that were deliberately caused,which characteristic of ideally insurable risks would not be met?

In addition to marketing life insurance,life insurers typically sell which of the following products? I.Retirement annuities II.Disability income insurance

Which of the following is a characteristic of insurance?

Which of the following is implied by the requirement that a loss should be determinable and measurable to be insurable? I.The loss must be definite as to place. II.The loss must be definite as to amount.

Gina would like to buy a house.She will pay 10 percent of the cost of the house as a down payment and borrow the other 90 percent from a mortgage lender.The home will serve as collateral for the loan.The lender requires Gina to purchase property insurance on the home so that the collateral supporting the loan will be protected.This scenario illustrates which of the following benefits of insurance to society?

Which of the following is implied by the pooling of losses?

According to the law of large numbers,what happens as the number of exposure units increases?

Which of the following statements regarding insurance and hedging is (are)true? I.Insurance involves the transfer of insurable risk while hedging handles risk that is typically uninsurable. II.Both insurance and hedging rely on the law of large numbers to reduce risk.

Which of the following statements regarding private insurance and government insurance is (are)true? I.Private insurance includes life and health insurance and property and liability insurance. II.All government insurance is social insurance.

Which of the following statements regarding insurance and gambling is (are)true? I.Insurance is used to handle existing pure risks,while gambling creates a new speculative risk. II.Insurance usually involves risk avoidance,while gambling typically involves only risk reduction.

The tendency for unhealthy people to seek life or health insurance at standard rates is an example of

LMN Insurance markets homeowners insurance.The LMN homeowners policy combines property and casualty insurance in the same contract.Insurance policies combining property and casualty coverage in the same contract are called

All of the following are social costs associated with insurance EXCEPT

Methods by which insurers may minimize or avoid catastrophic losses include which of the following? I.The use of reinsurance II.Concentrating coverage written in one geographic region