Unit 2: Nature of Insurance, Risk, Perils and Hazards

A business becoming incorporated is an example of risk _____

transfer

A business becoming incorporated is an example of risk___

transfer

A hold-harmless clause is an example of risk

transfer

Which of the following involves sharing an uncertain risk with another similar group?

transfer

Purchasing insurance is an example of risk...

transference

Which of the following can be defined as "the potential for loss"?

Risk

What type of risk involves the potential for loss with no possibility for gain?

Pure risk

Which of these statements regarding insurance is false?

As the number of insured increases, the number of losses decreases

which of the following is NOT an example of risk retention?

Not doing a business deal after deciding it would be to risky

Which of the following can be defined as a cause of loss?

Peril

Which of the following types of risk is insurable?

Pure

ABC Company is attempting to minimize the severity of potential losses within its company. The company is engaged in risk...

reduction

Which of these statements is NOT a characteristic of the law of large numbers?

Rates can be calculated to compensate for losses.

An insurer has a contractual agreement which transfers a portion of its risk exposure to another insurer. What type of contractual arrangement is this?

Reinsurance contract

How can an insurance company minimize exposure to loss?

Reinsuring risks

Which term describes the elimination of a hazard?

Risk avoidance

Which of the following describes the act of insuring a risk against possible loss?

Risk transfer

What type of risk involves the potential for loss AND the possibility for gain?

Speculative

A condition that increases the possibility of financial loss is called a(n)

hazard

For insurance purposes, similar objects which are exposed to the same group of perils are referred to as

homogenous exposure units

Risk _____ is the process of analyzing exposures that create risk and designing programs to handle them.

management

The law of large numbers enables an insurer to...

predict losses

An insurable risk requires

that the chance of loss be calcuable or predictable