Question 1

A special form of planned retention by which part or all of a give loss exposure is retained by the firm is called

Accepted Answer

A) hedging. 
B) self-insurance. 
C) passive retention. 
D) noninsurance transfer. 
A) hedging. 
B) self-insurance. 
C) passive retention. 
D) noninsurance transfer.

Question 2

Which of the following is an example of consequential (indirect)loss?

Accepted Answer

A) the theft of a person's jewelry 
B) the destruction of a firm's manufacturing plant by an earthquake 
C) the cost of renting a substitute vehicle while a collision-damaged car is being repaired 
D) the vandalism of a person's automobile 
A) the theft of a person's jewelry 
B) the destruction of a firm's manufacturing plant by an earthquake 
C) the cost of renting a substitute vehicle while a collision-damaged car is being repaired 
D) the vandalism of a person's automobile

Question 3

Janice mistakenly thought that Medicare covers the cost of a long-term care in a nursing home.So she did not purchase long-term care insurance or save in case she needed a long stay in a nursing home.Janice's treatment of the risk of a long-term stay in a nursing home is best described as

Accepted Answer

A) planned retention. 
B) unplanned retention. 
C) risk transfer. 
D) risk control. 
A) planned retention. 
B) unplanned retention. 
C) risk transfer. 
D) risk control.

Question 4

A pure risk is defined as a situation in which there is

Accepted Answer

A) only the possibility of loss or no loss. 
B) only the possibility of profit. 
C) a possibility of neither profit nor loss. 
D) a possibility of either profit or loss. 
A) only the possibility of loss or no loss. 
B) only the possibility of profit. 
C) a possibility of neither profit nor loss. 
D) a possibility of either profit or loss.

Question 5

The use of fire-resistive materials when constructing a building is an example of

Accepted Answer

A) risk transfer. 
B) risk control. 
C) risk avoidance. 
D) risk retention. 
A) risk transfer. 
B) risk control. 
C) risk avoidance. 
D) risk retention.

Question 6

ABC Insurance Company sells auto insurance in one state.Recently,the state legislature passed a law that limits the use of an individual's credit history by insurers when selecting applicants to insure.This change in law will increase the possibility of unprofitable results for ABC.This type of hazard is an example of

Accepted Answer

A) physical hazard. 
B) legal hazard. 
C) moral hazard. 
D) attitudinal hazard. 
A) physical hazard. 
B) legal hazard. 
C) moral hazard. 
D) attitudinal hazard.

Question 7

Taylor Tobacco Company is concerned that the company may be held liable in a court of law and ordered to pay a large damage award to a smoker harmed by the company's cigarettes.The characteristics of the judicial system that increase the frequency and severity of loss are known as

Accepted Answer

A) moral hazard. 
B) particular risk. 
C) speculative risk. 
D) legal hazard. 
A) moral hazard. 
B) particular risk. 
C) speculative risk. 
D) legal hazard.

Question 8

One of the speculative financial risks considered in an enterprise risk management program is the risk of loss because of adverse changes in commodity prices,interest rates,foreign exchange rates,and the value of money.This risk is called

Accepted Answer

A) property risk. 
B) financial risk. 
C) strategic risk. 
D) operational risk. 
A) property risk. 
B) financial risk. 
C) strategic risk. 
D) operational risk.

Question 9

The premature death of an individual is an example of a

Accepted Answer

A) pure risk. 
B) speculative risk. 
C) nondiversifiable risk. 
D) physical hazard. 
A) pure risk. 
B) speculative risk. 
C) nondiversifiable risk. 
D) physical hazard.

Question 10

A family's automobile that is a total loss as a result of a collision is an example of which of the following types of risk?
I.Speculative risk
II.Diversifiable risk

Accepted Answer

A) I only 
B) II only 
C) both I and II 
D) neither I nor II 
A) I only 
B) II only 
C) both I and II 
D) neither I nor II

Question 11

A peril is

Accepted Answer

A) a moral hazard. 
B) the cause of a loss. 
C) a condition that increases the chance of a loss. 
D) the probability that a loss will occur. 
A) a moral hazard. 
B) the cause of a loss. 
C) a condition that increases the chance of a loss. 
D) the probability that a loss will occur.

Question 12

The long-run relative frequency of an event based on the assumption of an infinite number of observations with no change in the underlying conditions is called

Accepted Answer

A) objective probability. 
B) objective risk. 
C) subjective probability. 
D) subjective risk. 
A) objective probability. 
B) objective risk. 
C) subjective probability. 
D) subjective risk.

Question 13

Which of the following are personal risks that can cause great economic insecurity?
I.Alcohol and drug addiction
II.Inadequate retirement income

Accepted Answer

A) I only 
B) II only 
C) both I and II 
D) neither I nor II 
A) I only 
B) II only 
C) both I and II 
D) neither I nor II

Question 14

A risk that affects only individuals or small groups and not the entire economy is called a

Accepted Answer

A) diversifiable risk. 
B) pure risk. 
C) speculative risk. 
D) nondiversifiable risk. 
A) diversifiable risk. 
B) pure risk. 
C) speculative risk. 
D) nondiversifiable risk.

Question 15

All of the following are examples of personal risks EXCEPT

Accepted Answer

A) poor health. 
B) unemployment. 
C) premature death. 
D) loss of business income. 
A) poor health. 
B) unemployment. 
C) premature death. 
D) loss of business income.

Question 16

Jim and Paula Franklin started a dry cleaning business.The business may be successful or it may fail.The type of risk that is present when either a profit or loss could occur is called

Accepted Answer

A) pure risk. 
B) subjective risk. 
C) nondiversifiable risk. 
D) speculative risk. 
A) pure risk. 
B) subjective risk. 
C) nondiversifiable risk. 
D) speculative risk.

Question 17

Williams Company installed smoke detectors,a sprinkler system,and fire extinguishers in its new manufacturing facility.These devices are all examples of

Accepted Answer

A) risk control. 
B) noninsurance transfer. 
C) risk avoidance. 
D) risk retention. 
A) risk control. 
B) noninsurance transfer. 
C) risk avoidance. 
D) risk retention.

Question 18

Which of the following is a reason why premature death may result in economic insecurity?
I.Additional expenses associated with death may be incurred.
II.The income of the deceased person's family may be inadequate to meet its basic needs.

Accepted Answer

A) I only 
B) II only 
C) both I and II 
D) neither I nor II 
A) I only 
B) II only 
C) both I and II 
D) neither I nor II

Question 19

All of the following statements about risk retention are true EXCEPT

Accepted Answer

A) It may be used intentionally if commercial insurance is unavailable. 
B) It may be used passively because of ignorance. 
C) Its use is most appropriate for low-frequency,high-severity types of risks. 
D) Its use results in cost savings if losses are less than the cost of insurance. 
A) It may be used intentionally if commercial insurance is unavailable. 
B) It may be used passively because of ignorance. 
C) Its use is most appropriate for low-frequency,high-severity types of risks. 
D) Its use results in cost savings if losses are less than the cost of insurance.

Question 20

Which of the following is (are)often consequences of long-term disability?
I.Continuing medical expenses
II.Loss or reduction of employee benefits

Accepted Answer

A) I only 
B) II only 
C) both I and II 
D) neither I nor II 
A) I only 
B) II only 
C) both I and II 
D) neither I nor II

Exam 1: Risk and Its Treatment

A special form of planned retention by which part or all of a give loss exposure is retained by the firm is called

Which of the following is an example of consequential (indirect)loss?

Janice mistakenly thought that Medicare covers the cost of a long-term care in a nursing home.So she did not purchase long-term care insurance or save in case she needed a long stay in a nursing home.Janice's treatment of the risk of a long-term stay in a nursing home is best described as

A pure risk is defined as a situation in which there is

The use of fire-resistive materials when constructing a building is an example of

Taylor Tobacco Company is concerned that the company may be held liable in a court of law and ordered to pay a large damage award to a smoker harmed by the company's cigarettes.The characteristics of the judicial system that increase the frequency and severity of loss are known as

One of the speculative financial risks considered in an enterprise risk management program is the risk of loss because of adverse changes in commodity prices,interest rates,foreign exchange rates,and the value of money.This risk is called

The premature death of an individual is an example of a

A family's automobile that is a total loss as a result of a collision is an example of which of the following types of risk? I.Speculative risk II.Diversifiable risk

A peril is

The long-run relative frequency of an event based on the assumption of an infinite number of observations with no change in the underlying conditions is called

Which of the following are personal risks that can cause great economic insecurity? I.Alcohol and drug addiction II.Inadequate retirement income

A risk that affects only individuals or small groups and not the entire economy is called a

All of the following are examples of personal risks EXCEPT

Jim and Paula Franklin started a dry cleaning business.The business may be successful or it may fail.The type of risk that is present when either a profit or loss could occur is called

Williams Company installed smoke detectors,a sprinkler system,and fire extinguishers in its new manufacturing facility.These devices are all examples of

Which of the following is a reason why premature death may result in economic insecurity? I.Additional expenses associated with death may be incurred. II.The income of the deceased person's family may be inadequate to meet its basic needs.

All of the following statements about risk retention are true EXCEPT

Which of the following is (are)often consequences of long-term disability? I.Continuing medical expenses II.Loss or reduction of employee benefits

Insurance and Risk

Introduction to Risk Management

Enterprise Risk Management

Types of Insurers and Marketing Systems

Insurance Company Operations

Financial Operations of Insurers

Government Regulation of Insurance

Fundamental Legal Principles

Analysis of Insurance Contracts

Life Insurance

Life Insurance and Contractual Provisions

Buying Life Insurance

Annuities and Individual Retirement Accounts

Health-Care Reform;individual Health Insurance Coverages

Employee Benefits: Group Life and Health Insurance

Employee Benefits: Retirement Plans

Social Insurance

The Liability Risk

Auto Insurance

Auto Insurance Continued

Homeowners Insurance,section I

Homeowners Insurance,section II

Other Property and Liability Insurance Coverages

Commercial Property Insurance

Commercial Liability Insurance

Crime Insurance and Surety Bonds

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