Question 1

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

Accepted Answer

A)  Actual results will increasingly differ from probable results. 
B)  Actual results will more closely approach probable results. 
C)  Nondiversifiable risk will decrease. 
D)  Objective risk will increase. 
A)  Actual results will increasingly differ from probable results. 
B)  Actual results will more closely approach probable results. 
C)  Nondiversifiable risk will decrease. 
D)  Objective risk will increase.

Question 2

Which of the following is an example of private insurance?

Accepted Answer

A)  unemployment insurance 
B)  Social Security 
C)  life insurance 
D)  federal deposit insurance 
A)  unemployment insurance 
B)  Social Security 
C)  life insurance 
D)  federal deposit insurance

Question 3

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

Accepted Answer

A)  sharing of losses by an entire group 
B)  inability to predict losses with any degree of accuracy 
C)  substitution of actual loss for average loss 
D)  increase of objective risk 
A)  sharing of losses by an entire group 
B)  inability to predict losses with any degree of accuracy 
C)  substitution of actual loss for average loss 
D)  increase of objective risk

Question 4

Ashley opened an all-you-can-eat buffet restaurant. The price per-person was based on what Ashley believed an average restaurant patron would consume. The restaurant began to lose money. Ashley concluded that her patrons had "above average" appetites, and were attracted to her restaurant because they could eat as much as they wanted while being charged an average price. A similar phenomenon exists in insurance markets. This problem is called

Accepted Answer

A)  legal hazard. 
B)  adverse selection. 
C)  attitudinal hazard. 
D)  nondiversifiable risk. 
A)  legal hazard. 
B)  adverse selection. 
C)  attitudinal hazard. 
D)  nondiversifiable risk.

Question 5

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

Accepted Answer

A)  The loss must be accidental. 
B)  The loss should be catastrophic. 
C)  The premium must be economically feasible. 
D)  There must be a large number of exposure units. 
A)  The loss must be accidental. 
B)  The loss should be catastrophic. 
C)  The premium must be economically feasible. 
D)  There must be a large number of exposure units.

Question 6

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 will not make the loan to Gina unless the home is insured. Using insurance to secure the collateral for a loan illustrates which of the following benefits of insurance to society?

Accepted Answer

A)  enhancement of credit 
B)  reduction of fear and worry 
C)  source of investment funds 
D)  incentives for loss prevention 
A)  enhancement of credit 
B)  reduction of fear and worry 
C)  source of investment funds 
D)  incentives for loss prevention

Question 7

According to the law of large numbers, what should happen as an insurance company increases the number of loss exposures that it insures?

Accepted Answer

A)  Fewer losses should be expected to occur. 
B)  The amount of premiums needed to cover losses should decrease. 
C)  The volatility of the insurance company's underwriting results should increase. 
D)  The difference between actual and expected results should decrease. 
A)  Fewer losses should be expected to occur. 
B)  The amount of premiums needed to cover losses should decrease. 
C)  The volatility of the insurance company's underwriting results should increase. 
D)  The difference between actual and expected results should decrease.

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

Which of the following is an example of private insurance?

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

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 insurance company increases the number of loss exposures that it insures?

Risk and Its Treatment

Introduction to Risk Management

Enterprise Risk Management and Related Topics

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 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

Filters

Exam 2: Insurance and Risk

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

Which of the following is an example of private insurance?

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

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 insurance company increases the number of loss exposures that it insures?

Risk and Its Treatment

Introduction to Risk Management

Enterprise Risk Management and Related Topics

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 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

Filters