Risk and Insurance Exam 1
Which of the following definitions of pre-mature death is most widely used by financial planners?
Death that leaves unfulfilled family or business obligations.
Other than the Dec page, the first section of an insurance policy usually is the
Definitions section.
Which risk exposure to individuals often is called living death?
Disability
Which is most likely to be a combination of both a physical and morale hazard?
Drunk driving
Which of the following is/are a source of unemployment insurance benefits funding?
Employer payroll taxes
A written provision adding or removing coverage to or from an existing property and casualty insurance policy is called a(an)
Endorsement
The law of large numbers states that the greater the number of risk exposure units, the more certain it becomes that the actual loss experience will be ______ the probable loss experience.
Equal to
The risk of severe flooding in New Orleans is a ______ risk.
Fundamental Note: Physical and Certain aren't type of risks.
A student enjoyed a fun night of booze and drugs. Somehow, he made it to an 8:00 a.m. final exam, but got everything wrong, flunked the class, and was kicked out of college. What was the peril?
Getting kicked out of college, peril is the result
Where it applies, the sovereign immunity doctrine protects ______ from negligence lawsuits.
Governments
Which is not a reason health care costs in the US have risen dramatically over the past 40 years?
Health insurers are earning a higher return on equity than in the past.
Not quite one-half of deaths in the US are attributable to which two causes?
Heart disease and cancer
Arson is an example of a ______ hazard.
Moral
what is Morale hazard?
Morale hazard arises when the model of their phone becomes outdated, and they no longer care about it. They are indifferent to their phone getting damaged because their insurance would allow them to get a new one. Their indifferent attitude toward their phone leads to unconsciously changed behavior.
Which is an unintentional tort?
Negligence
As part of a lawsuit, a negligent party is sued for loss of companionship caused by the negligence. Which type of damage is this?
Non-economic
Insurance is more widely and inexpensively available when risks are
Objective, pure, and static.
Which is always true? A property owner
Owes no special care to trespassers.
Hurricane Andrew, a Category 5 storm, roared across the Southern tip of Florida on August 24, 1992. Approximately 175 thousand people were made homeless, and 250,000 buildings were damaged. From the standpoint of any single resident in South Florida, the losses were ______, but for South Florida, they were ______.
Particular / fundamental
Which is the most likely cause of losses?
Perils
The party filing a lawsuit is the
Plaintiff
Which is another name for insurers?
Policy issuers
Which courts usually have the responsibility for determining the distribution of property deceaseds own in their own names at death?
Probate
Which is least likely to be a type of liability damages?
Property damages
Which is not an economic damage in a liability lawsuit?
Punitive damages Note: Damages are economic, non-economic, or punitive
If a risk isn't speculative, it's
Pure
out of control of human, If only losses can occur but no gain, the risk is
Pure
Morale hazards
Refer to a person's mental attitude.
The owner of an office building pays the cost of replacement whenever one of the building's windows is damaged. Which risk management technique is the company using for window damage?
Retention
Insurance works best when future outcomes are
Risky.
Which statement about negligence is false?
Robbery is a form of negligence. Note: The act is intentional, but the harm is unintentional.
Which of the following is not one of the four basic risk management techniques?
Self-Insurance
Which of the following is least likely to be a method of risk transfer?
Self-insurance
Which is the name for the type of risk that can be felt but not measured?
Subjective
Which statement about unemployment benefits is false?
The dollar amount of benefits is the same from state to state.
Which of the following P&C insurance policy sections usually contains a description of exclusions?
The exclusions section
Which of the following insurance policy sections contains a description of coverages?
The insuring agreement
In risk management, uncertainty describes an event where
The probability of its outcome cannot be measured.
In law, an initial event in a sequence of events sufficiently related to a loss that is held to be the cause of the loss is
The proximate cause doctrine.
Which statement is true about the law of large numbers?
There cannot be insurance if the law doesn't apply.
Which is not one of the separate CSO 2017 Mortality Tables?
Tobacco products users, both male and female
Requiring customers to sign hold-harmless agreements prior to sky diving is an example of which risk management technique from the viewpoint of a sky diving school?
Transfer using non-insurance
Insurance without a deductible is an example of which of the following risk management techniques?
Transfer. Note: Had there been a deductible, the answer would be both transfer and retention.
In general, insureds can cancel their insurance policies at any time. That's because insurance policies are
Unilateral contracts.
In general, liability insurance is available for only which type of wrong?
Unintentional torts
Another name for imputed liability is
Vicarious liability.
Risks that are either objective or subjective measure
Whether risks are measurable.
Which statement about state unemployment insurance benefit eligibility is most likely to be false?
Workers on strike against their employers are eligible for unemployment benefits.
Is anyone exempt from the ORPMAN stand for negligence?
Yes, mentally incompetent individuals.
As a risk management technique, avoidance is often the first method of choice because
(1) If avoidance is possible, there won't be insurance premiums. 2. If avoidance is possible, there will be no need for risk reduction strategies. 3. There will be no direct losses from completely avoided risks.
Which lines of insurance are part of the L/H part of the insurance industry, not the P/C part?
(1) Life (2) Health (4) Disability
Standardization of insurance policies helps achieve which of the following insurance company benefits?
(2) Claims data is comparable from insurer to insurer, leading to more accurate underwriting. (3) Court decisions have broader applications leading to better understanding of policies and their coverages.
Which two of the following are not among the top three causes of accidental deaths in the US population?
(2) Suicide (5) Flu
Which is false?
A business's customers are licensees. Note: They are invitees.
In general, for which of the following risks is retention the most appropriate risk management technique?
A grocery store's risk of loss due to shoplifting
Exaggerating losses in an insurance claim is
A moral hazard.
Defamation of character is
A personal injury.
Liability from inherently dangerous activities and defective products is an example of
A strict liability tort.
Of the following, which is the least common section found in P&C insurance policies?
A subrogation clause
The situation where those who purchase insurance mostly are the high-risk applicants who are most likely to have excess claims is referred to as
Adverse selection.
Which cause of death is increasing as a percent of all death?
Alzheimer's
On average, about 0.8% of the US population dies each year, but that percentage is increasing slowly. This statistic suggests that dying is _____ risk.
An objective, can measure
A property insurance policy gives insurers flexibility in deciding how to reimburse an insured's loss using either actual cash value or replacement cost. This feature is found in which section of insurance policies?
Appraisal
Which of the following is the best example of a moral hazard?
Arson, you see incentive for loss/ know you are protected
At death, which of a person's assets must be probated?
Assets individually owned
The parents of a young child who excitedly dashes out into the street to buy an ice cream cone from a vendor and is injured by a passing car might be able to successfully sue the vendor for negligence under the legal concept of
Attractive nuisance doctrine.
A company will not hire anyone who smokes tobacco products. Most likely, which risk control method is it using?
Avoidance
Generally, the first risk management technique considered should be
Avoidance
In the United States, who is generally considered to be the father of insurance?
Ben Franklin
Which statement about the legal basis of liability is true?
Breach of contracts is covered by civil law.
Suppose Jason's negligence with a campfire caused flames to spread, destroying a neighbor's storage building. The neighbor's own property insurance paid for a replacement storage building. But the neighbor sued Jason, and in the court trial, the judge ruled that the neighbor wasn't entitled to any further compensation since he had been indemnified by the property insurance. The judge's reasoning refutes which of the following legal principles in insurance?
Collateral source rule
How many of the following are examples of risk transfer?
1. Insurance 2. Hold harmless agreements 3. Hedging
Which of the following statements is true?
1. Unless a law makes an activity illegal, the activity is not a crime. 2. Civil law consists of torts and contracts.
what are the four types of basic risk management techniques
1. avoidance 2. transfer 3. retention 4. loss control
A college student just purchased a new vehicle. He added a 6-month auto insurance policy by calling his auto insurance agent at 3:17 PM on February 12. To the nearest minute, when does coverage begin?
12:01 AM on February 12
On average in the US, women outlive men by about ______ year(s).
5.5
According to the Bureau of Labor Statistics, ______ of a worker's pre-retirement earnings will be needed at retirement to maintain the same standard of living.
75-85%
Mr. Smith ran a stop sign and crashed into Mr. Dimkoff, causing $10,000 of damage to Dimkoff's car. Mr. Smith was 80% to blame for the accident, while Dimkoff was 20% to blame. Under the principle of comparative negligence, how much will Dimkoff recover from Smith?
8,000 Note: Since Dimkoff was 20% to blame, he will collect 80% of the damage, i.e., 80% of $10k = $8k. Observe, observe, observe...
Which of the following is not a morale hazard?
Icy roads
Self-insurance is virtually impossible for which of the following?
Individuals
Which is false?
Insurance works best for speculative risks, not pure.
The CSO Mortality Tables are based on
Insured lives.
Which of the following branches of law might be both a civil law and a criminal law issue?
Intentional tort
A modern trend is for courts to treat ______ and ______ the same when they suffer injuries from a property owner's negligence.
Invitees and licensees
Which statement about the ISO is true?
It began operating in the 1970s.
Defenses against negligence include which of the following?
Last clear chance
From a liability risk exposure, which of the following is an example of a personal injury?
Libel
parents have insurable interest in the lives of their children because of
Love and affection
Risk transfer using insurance is most appropriate when the frequency of losses is ____ and the potential severity of losses is ____.
Low, high
Loss control activities
May be justified by non-economic benefits.
Which expenses usually increase in the year after a worker retires?
a. Travel expenses b. Dining at restaurants c. Medical
14. Which of the following statements about risk avoidance as a risk management technique is true?
a. Avoidance is not a logical choice if the foregone opportunity costs exceed the benefits of avoidance. b. Often, risks are retained and not avoided because they aren't recognized.
Loss control activities take place
a. Before losses occur. b. While losses are occurring. c. After losses have occurred.
The insurance industry is divided into two nearly equal parts called
a. P&C and L/H.
In general, insurance works best for
a. Pure, not speculative, risks. c. Objective, not subjective, risks.
In general, risk managers
a. Retain risks that are predictable. b. Manage risks that are less predictable.
For which part of mortality table graph is the death rate most likely to digress at least a little from what would otherwise be a smooth line without humps?
a. The first year of life b. Teenage years
Drinking alcohol and then driving drunk in an auto is an example of which two types of hazards?
b. Physical and morale
As a risk management tool, an auto insurance policy with a $250 deductible is an example of
b. Transfer c. Retention