PF chapter 21-23
In the business cycle, the trough is followed by recovery.
true
Insurers cannot predict which specific individuals will suffer losses.
true
Some risks are not serious enough to insure
true
You cannot buy insurance on a house you do not own
true
Risk transfer is the process of accepting the consequences of risk.
false
Risk Avoidance
lowers the chance for loss by not doing the activity that could result in the loss.
pure risk
chance of loss with no chance of gain
Specified losses an insurance policy does not cover are called
Exclusion
Making an investment to help offset against loss is called
Hedging
means putting the policyholder back in the same financial condition he or she was in before the loss occurred.
Indemnification
Which of the following would not be an insurable risk?
a speculative risk
Essentially, insurance is a way to enrich policyholders.
false
It is not possible to protect yourself from the consequences of pure risks
false
Life insurance typically becomes a higher priority for people as they enter their retirement years and their children marry and start lives of their own.
false
Having more than one type of policy, such as auto insurance and homeowners insurance, with the same insurer can result in a
multi-line discount
buying insurance is an example of
risk shifting
liability risk
the chance of loss that may occur when your errors or actions result in injuries to others or damages to their property.
In which period of the business cycle has the economy hit the bottom?
trough
Economic risk may result in gain or loss because of changing economic conditions.
true
Factories begin laying off workers during the decline period of the business cycle.
true
Generally, the higher the deductible, the lower the insurance premium.
true
The financial strength of an insurer can be a major factor in keeping down insurance costs.
true
All of the following types of insurance protect against personal risk except
property insurance.
Risk Management
an organized strategy for controlling financial loss from pure risks.
Which of the following techniques is not recommended for a serious risk?
assume the risk
Which of the following will likely result in lower insurance costs?
buy more than one type of insurance from the same company
The amount of money payable to a policyholder upon discontinuation of a life insurance policy is called the face amount.
false
The premiums for group plans are usually considerably higher than for individual plans.
false
The three major insurable risks are pure, economic, and speculative.
false
A condition that creates or increases the likelihood of some loss is called a
hazard
is a method for spreading individual risk among a large group of people.
insurance
Which of the following is an example of a speculative risk?
placing a bet on a horse race
Under an insurance policy, the insurer agrees to assume an identified risk when the policyholder pays a fee called the
premium
Understanding the types of risk you will face and their potential consequences is called
risk assessment
Using seat belts or installing smoke alarms in your home are examples
risk reduction