Basic Insurance Concepts and Principles

c.reduction

Installing deadbolt locks on the doors of a home is an example of which method of handling risk? a.transfer b.self insurance c.reduction d.avoidance

d.the loss may be intentional

Not all losses are insurable and there are certain requirements that must be met before a risk is a proper subject for insurance. These requirements include all of the following EXCEPT a.the loss must not be catastrophic b.there must be a sufficient number of homogeneous exposure units to make lossses reasonably predictable. c.the loss produced by the risk must be definite. d.the loss may be intentional.

B.debator in the life of the creditor

Which of the filling is not an example of a valid insurable interest A.child in parents lives B.debtor in the life of the creditor C.business partners in each other's lives D.employer in key employees life

a.a family

The legal definition of "person" would NOT include which of the following? a.a family b.an individual human being c.a business entity d.a corporation

C.a peril

A tornado that destroys property would be an example of which of the following A.a loss B.a physical hazard C. a peril D. a pure risk

D.whether an insurable interest exists between the individuals

If an applicant for a life insurance policy and person to be insured by the policy are two different people the underwriter would be concerned about A.the gender of the applicant B.the type of policy requested C.which individual will pay the premium D.whether an insurable interest exists between the individuals

C.pure risk

A situation in which a person can only lose or have no change represents A.adverse selection B.hazard C.pure risk D.speculative risk

d.the cause of loss insured against.

Peril is most easily defined as a.an unhealthy attitude about safety. b.the chance of a loss occurring. c.something that increases the chance of loss. d.the cause of loss insured against.

A.is not honest about his health on a application for insurance

The insurer may suspect that a moral hazard exists if the policyholder A.is not honest about his health on an application for insurance B.is prone to depression C.is indifferent to activities that may be dangerous D.always drives over the speed limit

C.moral hazard

An individual's tendency to be dishonest would be indicative of a A. pure hazard B. physical hazard C. moral hazard D. morale hazard

B.risk

Insurance is the transfer of A.peril B.risk C.loss D.hazard

d.homogeneous

Units with the same or similar exposure to loss are referred as a.catastrophic loss exposure b.insurable risks c.law of large numbers d.homogeneous

d.profitable distribution of exposures

What describes a situation when poor risks are balanced with preferred risks and average risks are in the middle? a.adverse selection b.equitable spread of risk c.ideally insurable risk d.profitable distribution of exposures

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

Adverse selection is a concept best describes as A.only offering coverage best described as B.risks with higher probability of loss seeking insurance more often than other risks C.underwriters slanting the odds in favor of the company D.poor choices of applicants to be covered

a.legal hazard

The growing tendency of individuals to file lawsuits and to claim tremendous amounts for alleged damages is known as a.legal hazard b.double indemnity c.legal risk d.fraud

c.preferred risks and poor risks are balanced with average risks in the middle

To achieve the profitable distribution of exposures a.poor risks and average risk make up majority of the coverage. b,a majority of the coverage goes up. c.preferred risks and poor risks are balanced with average risks in the middle d.the most coverage goes to average risks and preferred risks while less goes to poor risks.

d.reciprocal

Which of the following insurance options would be considered a risk sharing arrangement? a.stock b.mutual c.surplus lines d.reciprocal

b.policy owner

Which of the following individuals must have the insurable interest in the insured? a.producer b.policyowner c.beneficiary d.underwriter

B.insureds cannot be randomly selected

Which statement regarding insurable risks is NOT correct? A. an insurance rush must involve a loss that is definite as to cause,time,place and amount. B. insureds cannot be randomly selected C. insurance cannot be mandatory D. the insurable risk needs to be statistically predictable

D.morale

A person who does not lock the doors or does not repair leaks show an indifferent attitude. This person presents what type of hazard A.moral B.legal C.physical D.morale

a.hazards

Events or conditions that increase the chances of an insured loss occurring are referred as a.hazards b.exposures c.risks d.perils

D.purchase insurance

Which of the following is the most common way to transfer risk? A.increase control of claims B.lessen the possibility of loss C.name a beneficiary D.purchase insurance

C.premiums

All of the following are examples of risk retention EXCEPT A.copayments B.self-insurance C.premiums D.deductibles

d.utmost good faith

The insurer must be able to rely in the application and the insured must be able to rely on the insurer to pay valid claims. In the forming of an insurance contract this is referred to as a.reasonable expectations b.a warranty c.implied warranty d.utmost good faith

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

Which of the following is NOT a goal of risk retention a.to minimize the insureds level of liability in the event of a loss. b.to reduce expenses and improve cash flow. c.to increase control of claim reserving and claim settlements. d.to fund losses thst cannot be insured.