Basic insurance concept and principles

What do individuals use to transfer their risk of loss to a large group

Insurance

The legal definition of "person" would NOT include which of the following

a family

a tornado that destroys property would be an example of which of which of the following.

a peril

The protection of the insurer from adverse selection is provided in part by

a profitable distribution of exposures

Which of the following s consider to be a morale hazard

driving recklessly

A contract which one party undertakes to indemnify another against loss is called

insurance

All of the following actions by a person could be described as risk avoidance EXCEPT

investing in the stock market

The insurer may suspect that a moral hazard exists if the policyholder

is not honest about his health on an application for insurance.

The growing tendency of individuals to file lawsuits and to claim tremendous amounts for alleged damages is know as

legal hazard

A situation in which a person can only lose or have no change represents

pure risk

For the purpose of insurance risk is defined as

the uncertainty or chance of loss

Events or conditions that increase the chances of an insurance loss occurring are referred to as

hazards

The risk management technique that is used to prevent a specific loss by not exposing oneself to that activity is called

avoidance

Units with the same or similar exposure to loss are referred to as

homogeneous

Which statement regarding insurable risks is NOT correct

insureds cannot be randomly selected

Profitable distribution of exposures serves the purpose of

protecting the insurer against adverse selection

Which of the following is NOT a goal of risk retention

to minimize the insureds level of liability in the event of loss

All of the following are examples of risk retention EXCEPT

premiums

What describes a situation when poor risks are balanced with preferred risks, and average risks are in the middle

profitable distribution of exposures

According to California Insurance Code, which of the following can be classified as an insurable event

pure risks

Following a career change an insurance is not longer required to perform many physical activities so he has implemented a program where he walks and jogs for 45 minutes each morning. The insured has also eliminated most fatty foods from his diet. Which method of dealing with risk does this scenario describe

reduction

Insurance is a contract by which one seeks to protect another form

loss

An individuals tendency to be dishonest would be indicative of a

moral hazard

A person who does not lock the doors or does not repair leaks shows an different attitude. This person presents what type of hazard

morale

The causes of loss insured against in n insurance policy are known as

perils

Which of the following individuals must have insurable interest in the insured

policyowner

Adverse selection is a concept best described as

risks with higher probability of loss seeking insurance more often than other

Events in which a person has both the chance of winning or losing are classified as

speculative risk

Peril is most easily defined as

the cause of loss insured against