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Morale hazard arises when the model of their phone becomes outdated, and they no longer care about it.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