Risk Management Test 1, Finance Quiz - Auto Insurance and Society, Finance 350 - Chapter 3, Quiz #5 questions, Quiz #4 questions - finance 350, Finance Quiz 2 (possible questions), Insurance Quiz 3, Finance 350 Homeowners Section 2 Quiz, Quiz 11 - Fi...

all of the following are risk managment objectives prior to the occurence of loss EXCEPT

continuing operations after a loss

collision

defined as the upset of your covered auto or nonowned auto or its impact with another vehicle or object

Risk

defined as uncertainty concering the occurrence of a loss (whether or not a loss will occur)

wihch of the following statements about self insurance is true

it is a form of planned retention (I only)

loss reduction

measures that reduce the severity of a loss after it occurs

noninsurance transfer

methods other than insurance by which a pure risk and its potential financial consequences are transferred to another party

When must an insurable interest legally exist in property insurance?

only at the time of a loss

unilateral contract

only one party makes a legally enforceable promise

named-perils coverage

only those perils specifically named in the policy are covered

Homeowners 3 (Special Form)

open-perils coverage on the dwelling and other structures but covers personal property on a named-perils basis

mutual insurers

owned by policy owners

advance premium mutual

owned by the policyholders and does not issue issue assessable policies

all of the following are characteristics of the liability risk that most people face EXCEPT

owning liabliity insurance eliminates the posisibility of being held legally liable

arbitration

parties in a dispute agree to be bound by the decision of an independent third party

barb who is self employed is the main breadwinner for her family. barb doesnt have disability income insurance because she has never stopped to consider the impact of a long term dissability upon her family. bards treatment of the risk of disability is best descriebd at

passive retention

life insurance

pays death benefits to designated beneficiaries when the insured dies

gap insurance

pays the difference between the amount your insurer pays for a totaled car and the amount owed on the car loan or lease

an earthquake is an example of a

peril

An insured agreeing to assume the legal liability of another part by the written or oral contract defines:

Contractual Liability

broker

someone who legally represents the insured even though he or she receives a commission from the insurer

The deductible for automobile collision losses is an example of a

straight deductible

retention level

the dollar amount of losses that the firm will retain

risks are those that occur very infrequently and have only a slight marginal impact upon their occurrence. For example , office supplies may on occasion go missing or be stolen, or employees may ocacasionally lose or damage lower cost equiptment entrusted to their position (such as ID badges or cell phones)

Low frequency, low severity

negligence

the failure to exercise the standard of care required by the law to protect others from an unreasonable risk of harm

contract of adhesion

the insured must accept the entire contract with all of its terms and conditions

principle of insurable interest

the insured must be in a position to lose financially if a covered loss occurs

passive retention

unknowingly retained because of ignorance, indifference, laziness, or failure to identify an important risk

excluded perils, losses, and property

3 Types of Exclusions

no other method of treatment is available, the worst possible loss is not serious, and losses are fairly predictable

3 Situations in which Retention can be Effectively Used

3. Which of the following 100,000 whole life insurance polices issued by the same company to 32 years old man, would required the highest five year premium a. Continuous premium (ordinary) life b. Whole life paid-up at 65 c. 10-year payment whole life d. 20- year payment whole life

A

What information is contained in the insuring agreement of an insurance policy?

A description of the property or life to be insured

Another name for a dependent agent is: a. Exclusive agent b. Captive agent c. Direct writing agent d. All of the above

All the above

Other structures is 10%, personal property is 50%, and loss of use is 30% of Coverage A

Amount of Coverage for Coverages B, C, and D

If a person cannot buy automobile insurance in the regular market, then the next step is usually a. No-fault plan b. A safe driver plan c. The safety driver plan d. Self-insurance e. An assigned risk plan

An assigned risk plan

A list of covered property with specific amounts of insurance is

a schedule

pure risk

a situation in which there are only the possibilities of loss or no loss

The policy provisions requiring the filing of proof of loss with the insurer is an example of a

Condition

7. Marie would like to save money on her homeowner's premium. All of the following steps help her to reduce her homeowner's premium Except a. Raising the deductible in the homeowners policy to a higher amount b. Shopping around a homeowner policy c. Installing burglar alarms, smoke detection, and dealt-bolt locks. d. Insuring the value of the land beneath the home

D

loss prevention

measures that reduce the frequency of a particular loss

valued policy, valued policy laws, replacement cost insurance, and life insurance

Exceptions to the Principle of Indemnity

Captive insurers are not: a. Subsidiary insurance companies b. An alternate to self-insurance c. Formed by other businesses to obtain insurance at cost d. Cooperative insurers

Formed by other businesses to obtain insurances at a cost

What type of insurance makes up 41% of all life insurance policies

Group

Hazard

Increase chance of loss

A Credit-based score that is highly predictive for future claims cost is an individual's

Insurance Score

frequency equals

NUMBER of losses

Which of the following statements about the capital retention approach for determining life insurance needs is (are) true. I. It assumes that life insurance proceeds will be liquidated to provide income to survivors II. It requires the preparation of a personal balance sheet. Neither I nor II

Neither I nor II

Which of the following statements about yearly renewable term insurance is true? I. It requires evidence of insurability for renewal II. It use is appropriate only if a person currently has no life insurance Neither I nor II

Neither I nor II

Which of the following about the sale of property and liability insurance through the direct response systems is true? I. Selling expenses are higher because market segmentation tends to be less precise that other marketing methods II. It is the most appropriate system for selling complex products

Neither I or II

When a person doesn't die that has life insurance what happens?

Neither the insurer or the person collect

Proof of financial responsibly for future accidents can be demonstrated by: a. Purchasing automobile liability insurance in the amount prescribed by the state b. Furnishing a surety bond generating payment of the prescribed limit c. The deposit of a stipulated amount of cash or securities with the appropriate official d. None of the above

Purchasing automobile liability insurance in the amount prescribed by the state

prevent profiting from insurance and to preserve the principle of indemnity

Purpose of Other-Insurance Provisions

an individuals personal estimate of the chance of loss is

a subjective probability

Low-frequency, low-severity loss exposures are best handled by

Retention

enterprise risk

a term that encompasses all major risks faced by a business firm

What is the best insurance to buy?

Term Insurance

JKL Insurance Company estimates that 14 out of every 100 homeowners it insures will file a claim each year. Last year JKL insured 200 homeowners. According to the law of large numbers, what should happen if JKL insures 2000 homeowners this year?

The actual results will closely approach the expected results

all of the following statements about avoidance are true EXCEPT

it can be used for any loss exposure facing a firm

emergency program

communities are provided with a flood hazard boundary map and residents are allowed to purchase limited amounts of insurance at subsidized rates

The policy provisions requiring the filing of proof of loss with the insurer is an example of a:

condition

The HO-8 policy (modified coverage form) is designed for older homes, where the losses are NOT paid based on replacement cost.

True

a useful measure for an organization is the total of the organizations expenditures for treating loss exposures including reatined losses, loss contorl expenses, insurance premiums, and other related expenses. this measure is

cost of tisk

the best way to decrease your premiums is by

increasing your deductible

When Ben applied for life insurance, he was asked if he smoke or dipped. Ben answered "no". Ben actually smoked 2 packs a day. The policy was issued at the "preferred, nonsmoker rate." If Ben dies 6 months after the policy is issued, upon what grounds will the insurer be able to legally deny the claim?

misrepresentation

manuscript policy

policy designed specifically to the firm's wants and needs

fair market value

the price a willing buyer would pay a willing seller in a free market

David owns a commercial building with a replacement cost of $4 million. The building is insured on a replacement cost basis for $3 million under a fire insurance policy that has and 80 percent coinsurance clause. How much will David collect if the building sustains a covered fire loss with a replacement cost of $320,000.

$300,000 amount of the insurance policy/% coinsurance x value of building all multiplies by loss

coinsurance formula

(Amount of insurance carried / amount of insurance required) multiplied by the loss amount

readjustment period

1 or 2 year period following the breadwinner's death to give the family time to adjust its standard of living

Steps in the Risk Management Process:

1) Identify exposures 2) measure and analyze loss exposures 3) select appropriate combination of techniques 4) implement and monitor the risk management program

post loss objectives (5):

1) survival of firm 2) continue operating 3) stability of earnings 4) continued growth 5) social responsibility to minimize effects a loss will have

there aree four responses available to businesses dependeing on the catefgory a given risk is placed

1. accept the risk as a cost of doing business, and ecided to retain and budget of teh risk ( self- insuring the risk, low freqnecy- low severity ) 2. retain and budget for the cost of the risk, but take steps to reduce or avoid it ( high frequency - low severity ) 3. transfer the costs associated with the risk to at hird party, such as an insuracne company( low frequency- high severity) 4. avoid the risk altoghether by fundamentally changing some aspect of the business ( high frequency- high severity )

traditional risk managemtn response matrix

1. low frequency of losses- low severity of losses retention- self insure 2. High severity of losses- Low frequency of losses transfer- insure through third party 3. High frequency of losses- low severity of losses 4. retention- reduce risk through loss control 5. high severity of losses- high frequency of losses avoidance

Janice purchases a living room set for $1000 and insured this furniture on an actual cash value basis. Two years later the living room set was destroyed by a covered peril. At the time of the loss, the property had depreciated in value by 25%. The replacement cost of the furniture at the time of the loss was $1200. Assuming no deductible, how much will Janice receive from her insurer

1200$

Janice purchases a living room set for $1000 and insured this furniture on an actual cash value basis. Two years later the living room set was destroyed by a covered peril. At the time of the loss, the property had depreciated in value by 25%. The replacement cost of the furniture at the time of the loss was $1200. Assuming no deductible, how much will Janice receive from her insurer

1200$

. Sarah is using approach to determine how much life insurance to buy. Her cash needs are 10,000 her income needs are 140,000 and special needs are 100,000. Sarah has the following assets: 20,000 in bank account, 30,000 in retirement plan and 40,000 in investment account. Sarah owns no individual life insurance. She is covered by a $ 50,000 group life insurance policy through her employer. Based on this information, how much additional life insurance should Sarah purchase?

130,000

Sarah is using approach to determine how much life insurance to buy. Her cash needs are 10,000 her income needs are 140,000 and special needs are 100,000. Sarah has the following assets: 20,000 in bank account, 30,000 in retirement plan and 40,000 in investment account. Sarah owns no individual life insurance. She is covered by a $ 50,000 group life insurance policy through her employer. Based on this information, how much additional life insurance should Sarah purchase?

130,000

acme company has three identical manufacturing plants, one on the texas gulf coast, one in southern alabama, and one in florida. each plant is valued at 50 million. acmes risk manager is concerned about the damage which could be caused by a single hurrican. the risk manager believes there is an extremly low probability that a single hurrican could destroy two or all three plants because they are located so far apart. what is themaximum possible loss associated with a single hurricane

150 million

Coverage E: Personal Liability and Coverage F: Medical Payments to Others

2 Coverages in Section II of the Homeowners Contract

to prevent the insured from profiting from a loss and to reduce moral hazard

2 Fundamental Purposes of Indemnity

collision and other-than-collision coverage

2 Optional Coverages for Part D: Damage to Your Auto

reduce premiums and prevent overutilization of policy benefits

2 Purposes of Coinsurance in Health Insurance

gambling creates a new speculative risk while insurance handles an already existing pure risk and gambling can be socially unproductive while insurance is socially productive

2 Reasons Gambling is Not Insurance

special and general damages

2 Types of Compensatory Damages

additional living expenses, fair rental value, and prohibited use

3 Benefits of Coverage D

size of emergency fund must be increased, society is deprived of certain goods and services, and worry and fear are present

3 Burdens on Society Because of Risk

named insureds and residents of the household who are your relatives, other persons under age 21, and a full-time student away from home

3 Categories of Persons Insureds for Section I of the Homeowners Contract

intentional torts, strict liability, and negligence

3 Categories of Torts

crime, breach of contract, and tort

3 Classes of Legal Wrongs

Cost of doing business, fraudulent claims, and inflated claims

3 Costs of Insurance to Society

Dwelling Property 1: Basic Form, Dwelling Property 2: Broad Form, Dwelling Property 3: Special Form

3 Forms of the ISO Dwelling Program

firms should prepare for losses in the most economical way, reduction of anxiety, and meeting any legal obligations

3 Pre-Loss Objectives of Risk Management

to eliminate small claims, to reduce premiums, and to reduce moral hazard

3 Purposes of Deductibles

to prevent the insured from collecting twice for the same loss, to hold the negligent person responsible for the loss, and to hold down insurance rates

3 Purposes of Subrogation

to prevent gambling, to reduce moral hazard, and to measure the amount of the insured's loss in property insurance

3 Purposes of an Insurable Interest

event does not normally occur in the absence of negligence, the defendant has exclusive control over the cause of the accident, and the injured party has not contributed to the accident in any way

3 Requirements for Res Ipsa Loquitur

trespasser, licensee, and invitee

3 Special Groups where Standard of Care is Different

property risks, liability risks, and loss of business income

3 Types of Commercial Risks

contracts, hedging price risks, and incorporation of a business firm

3 Types of Noninsurance Transfers

avoidance, loss prevention, loss reduction

3 Types of Risk Control

retention, noninsurance transfers, and insurance

3 Types of Risk Financing

David owns a commercial building with a replacement cost of $4 million. The building is insured on a replacement cost basis for $3 million under a fire insurance policy that has and 80 percent coinsurance clause. How much will David collect if the building sustains a covered fire loss with a replacement cost of $320,000.

300,000

claim expenses, first-aid expenses, damage to property of others, and loss-assessment charges

4 Additional Coverages in Section II of the Homeowners Contract

vehicle shown in the declarations, newly acquired autos, trailer owned by the named insured, and a temporary substitute vehicle

4 Categories of "Your Covered Autos"

pooling of losses, payment of fortuitous losses, risk transfer, and indemnification

4 Characteristics of Insurance

contributory negligence, comparative negligence, last clear chance rule, and assumption of risk

4 Defenses Against Negligence

existence of a legal duty, failure to perform that duty, damage or injury to the claimant, and a proximate cause relationship

4 Elements of Negligence

existence of a legal duty to protect others from harm, the failure to perform the legal duty, damage or injury to the claimant, and proximate clause relationship

4 Essential Elements of Negligence

child uses a dangerous weapon, is acting as an agent for the parents, is operating a family vehicle, or damages personal property of others

4 Exceptions to Parents Not Being Responsible for their Children's Torts

cancellation, nonrenewal, automatic termination, and other termination provisions

4 Parts of the Termination Provision

offer and acceptance, consideration, competent parties, and legal purpose

4 Requirements of an Insurance Contract

identify loss exposures, measure and analyze the loss exposures, select the appropriate techniques, and implement and monitor the program

4 Steps in the Risk Management Process

physical, moral, attitudinal (morale), and legal

4 Types of Hazards

pure, modified, add-on, and choice no-fault plans

4 Types of No-Fault Insurance

premature death, insufficient income during retirement, poor health, and unemployment

4 Types of Personal Risks

indemnification for loss, reduction of worry and fear, source of investment funds, loss prevention, and enhancement of credit

5 Benefits of Insurance to Society

Coverage A: Dwelling, Coverage B: Other Structures, Coverage C: Personal Property, Coverage D: Loss of Use, and Additional Coverages

5 Coverages in Section I of the Homeowners Contract

rising liability costs, inefficiency in compensating injured victims, uncertainty of legal outcomes, high jury awards, and long delays in settling lawsuits

5 Defects of the Current Tort System

aleatory, unilateral, conditional, personal, and contract of adhesion

5 Legal Characteristics of Insurance Contracts

automobile insurance plan, joint underwriting association, reinsurance facility, Maryland Automobile Insurance Fund, and specialty insurers

5 Options of Auto Insurance for High-Risk Drivers

survival of the firm, continued operation, stability of earnings, continued growth, and social responsibility

5 Post-Loss Objectives of Risk Management

employer-employee relationship, vicarious liability laws, family purpose doctrine, joint business venture, and dram shop laws

5 Types of Imputed Negligence

acme company has three identical manufacturing plants, one on the texas gulf coast, one in southern alabama, and one in florida. each plant is valued at 50 million. acmes risk manager is concerned about the damage which could be caused by a single hurrican. the risk manager believes there is an extremly low probability that a single hurrican could destroy two or all three plants because they are located so far apart. what is the probable maximum loss associated with a single hurricane

50 million

Unless changed by endorsement, what is the amount of coverage for personal property under the HO-3 policy?

50% of the amount of insurance on the dwelling

declarations, definitions, insuring agreement, exclusions, conditions, and miscellaneous provisions

6 Basic Parts of an Insurance Contract

large number of exposure units, accidental or an unintentional loss, determinable and measurable loss, must not be catastrophic, must be calculable, and must be economically feasible

6 Characteristics of an Ideally Insurable Risk

3. Which of the following is not exclusion listed in section II of the homeowner's policy? a. Activities of the named insured's minor children b. Business activities and professional services c. Transmission of a communicable disease d. Intentional injuries

A

4) Automobile assigned risk plans a. Help poor risks obtain insurance b. Are designed to force people to purchase automobile insurance c. Have provided a substantial underwriting profits of insurance d. Reduce the overall cost of automobile insurance e. Provide inexpensive auto insurance to any driver who can pay the premium

A

5. Factors that affect the cost of homeowners insurance include which of the following? a. Construction costs, age of home, and insurance score b. Premium amount, age and ethnicity of insured, and net income of insured c. Credit history, age of insured, and negligence score d. None of the above

A

Proof of financial responsibly for future accidents can be demonstrated by: a. Purchasing automobile liability insurance in the amount prescribed by the state b. Furnishing a surety bond generating payment of the prescribed limit c. The deposit of a stipulated amount of cash or securities with the appropriate official d. None of the above

A

Which of the following is not always true? a. Premiums are level throughout the policy period b. The face amount of the policy is paid if the insured lives to age 65 c. There is a build-up of cash value that can be borrowed by the policyholder d. It offers the policyholder the flexibility to meet a wide variety of financial objectives

A

Fortuitous Means

Accidental

Underwriters seek to prevent

Adverse Selection

Bev lives in the suburbs and works downtown. She drives to work, and her most direct route to work requires her to drive through a bad area. Bev does not drive through this area. She instead drives a route that adds 10 minutes to her trip. Which risk management technique is she using?

Avoidance

1) Under the needs approach, when is the family dependency period assumed to end 1 or 2 years after the breadwinner's death When the youngest child reaches age 18 When the surviving spouse reaches age 65 When the surviving spouse dies

B

All of the following statements about covered perils and loss settlement under an unendorsed Homeowners 3 policy are true except a. The dwelling is covered on an open-perils basis b. Personal property losses are settled on a replacement cost basis c. Losses due to the dwelling may be settled on an actual cash value basis d. Personal property is covered on a named-peril basis

B

Why does the insured get the benefit of the doubt if an insurance policy contains any ambiguities or uncertainties?

Because insurance contracts are contracts of adhesion

Temporary evidence of insurance until a policy is actually issued is provided by a

Binder

producer cooperatives

Blue cross/Shield

Pre-loss objectives of risk management include which of the following? I. Preparing for potential losses in the most economical way II. Reduction of anxiety

Both I and II

Pre-loss objectives of risk management include which of the following? I. Preparing for potential losses in the most economical way II. Reduction of anxiety

Both I and II

Which of the following about problems arising from the use of a coinsurance clause is true? I. The amount of insurance should be periodically evaluated to avoid a coinsurance penalty because of inflation II. An agreed value coverage option is one method used to solve the problem of values that fluctuate throughout the policy term

Both I and II

Which of the following about problems arising from the use of a coinsurance clause is true? I. The amount of insurance should be periodically evaluated to avoid a coinsurance penalty because of inflation II. An agreed value coverage option is one method used to solve the problem of values that fluctuate throughout the policy term

Both I and II

Which statement about a company's cost of risk is true? I. Cost of risk includes insurance premiums and retained losses. II. Reducing cost of risk increases profitability

Both I and II

Which statement about a company's cost of risk is true? I. Cost of risk includes insurance premiums and retained losses. II. Reducing cost of risk increases profitability

Both I and II

1) All of the following losses are covered under the personal liability homeowner's policy Coverage E except: a. You accidentally bump into a shelf holding expensive glassware while shopping and everything shatters. b. Your pet dog bites a young boy riding his bike in front of your home. c. While practicing for the test to get your motorcycle permit, you crash the bike and smash the glass window at The Pita Pit. d. While hosting a bonfire at your home after a WVU football game you catch fire to the neighbor's home.

C

3) Which of the following statement about the characteristics of current no-fault laws is true? a. Most laws in force today are pure no-fault laws b. Most laws apply to both bodily injury and property damage c. Most laws permit payment of survivor spouse and/ or children d. States with add-on plans restrict the right of accident victims to sue negligent drivers.

C

6. Which of the following statement about buying homeowners insurance is true? a. There is no reason to carry insurance equal to more than 80 percent of a dwelling's replacement cost. b. The deduction for depreciation will be increased if a personal property replacement cost endorsement is purchased c. The insurance consumer should carry adequate insurance and add any necessary endorsement that match his/her specific need. d. There is little reason to compare cost since the lack of competition results in little price variation among companies.

C

Coverage C of the homeowner's policy is extended to all of the following except a. Property borrowed for use by the insured b. Machinery used in maintenance of the premises c. Pets owned by the insured d. Clothing of a daughter living at college

C

Peril

Cause of Loss

Private insurers are broadly organized as either

Corporate or unincorporated uninsurers

2. Which of the following statements about the insurer's obligation to provide a legal defense under the personal liability coverage (Coverage E) of the homeowners policy is (are) True? a. The insurer agree to defend the insured even if the suit is groundless, false, or fraudulent b. The insurer's obligation to defend the insured ceases after the policy limits are exhausted amount paid by payments of a judgment or settlement. c. The minimum amount of liability insurance is 100,000 for each occurrence d. All of the above are true

D

9) Which of the following statement about he factors affecting automobile insurance rates is true? a. Because the chance of accidents due to mechanical malfunction or poor maintenance is increased, the cost of collision coverage increases as a car gets older b. Because of high speeds in rural areas, rural drivers tend to pay more for insurance than city drivers. c. Young unmarried male drivers tend to have fewer accidents than young married male drivers in the same age category d. Person who drive a car to and from work rend to be charged higher rates than those who use a car for pleasure payments.

D

Section 1 of the HO-3 policy provides coverage for all of the following except a. Loss of use b. Personal property c. Other structures d. Medical payments

D

Special limits of liability exist on which of the following? a. Gold, silver, and platinum b. Jewelry, watches and furs c. Watercraft of all types d. All of the above

D

As the number of exposure units increases, the variation between actual and expected loss will

Decrease and the percentage of variation will decrease

Regarding the four basic coverage's in Sect. 1 of the Homeowners 3 policy, which of the following are the correct titles? Coverage A: Dwelling Coverage B: Other structures Coverage C: Personal Property Coverage D: Loss of use

Dwelling

5) Vicarious liability for the operation of an automobile may exist a. In those states which have a family propose doctrine b. In the case of an agent-principle relationship c. When an employee operates a personal automobile on the business of the employer d. Where the owner has given another person permission to operate the automobile e. In all of the cases listed above

E

6) If a person cannot by automobile insurance in the regular market, then the next step is usually a. No-fault plan b. A safe driver plan c. The safety driver plan d. Self-insurance e. An assigned risk plan

E

8) Advocate of the "no-fault" approach to compensating auto accident victims argue that such plan would a. Speed the compensation of injured persons b. Reduce litigation and help to clear the congested courts. c. Result in more equitable compensation to injured persons d. Reduce the cost of who's who are injured e. Lead to all of the following above

E

The required insurance limits under state financial responsibility laws are relatively high.

False

The required insurance limits under state financial responsibility laws are relatively high. T/F

False

Homeowners 2 (Broad), Homeowners 3 (Special), Homeowners 4 (Contents Broad), Homeowners 5 (Comprehensive), Homeowners 6 (Unit-Owners), Homeowners 8 (Modified Coverage)

Five Types of Homeowner's Insurance Contracts

Purposes of the coinsurance (percentage participation) clause in health insurance contracts include which of the following? I.To reduce premiums II. To discourage utilization of coverage for expensive medical procedures

I only

Purposes of the coinsurance (percentage participation) clause in health insurance contracts include which of the following? I. To reduce premiums II. To discourage utilization of coverage for expensive medical procedures

I only

Which of the following about the definition of the insured is true? I. In some cases, a person who is not specifically named may be classified as an insured II. Under no circumstances can more than one person be named as the insured

I only

Which of the following about the definition of the insured is true? I. In some cases, a person who is not specifically named may be classified as an insured II. Under no circumstances can more than one person be named as the insured

I only

Which of the following statement about the needs approach for estimating the amount of life insurance to purchase is (are) true? I. It involves an analysis of various family needs which must be met if a family breadwinner dies. II. It use is appropriate only if a person currently has no life insurance protection.

I only

which of the following statements about liability risks are true

I only

Which of the following statement about the needs approach for estimating the amount of life insurance to purchase is (are) true? I. It involves an analysis of various family needs which must be met if a family breadwinner dies. II. It use is appropriate only if a person currently has no life insurance protection.

I. It involves an analysis of various family needs which must be met if a family breadwinner dies.

10. Which of the following statement about variable universal life insurance is (are) true? I. Variable universal life insurance has fixed premium payments II. Variable universal life insurance allows the policy owner to decide where the cash value is invested.

II only

9. The purchase of term insurance Justified by which of the following circumstance? I. The insured wants to save money through the policy for a specific need. II. The insured has a temporary need for life insurance protection.

II only

Fundamental purposes of the principle of indemnity include which of the following? I. To reduce physical hazards II. To prevent the insured from profiting from insurance

II only

Fundamental purposes of the principle of indemnity include which of the following? I. To reduce physical hazards II. To prevent the insured from profiting from insurance

II only

The purchase of term insurance Justified by which of the following circumstance? I. The insured wants to save money through the policy for a specific need. II. The insured has a temporary need for life insurance protection.

II only

Which of the following situations would be covered under the liability section of the PAP? I. A mechanic is sued by pedestrian who is injured when the mechanic has an accident while road testing the insured's auto. II. The daughter of the named insured is sued after she has an accident when a new friend she just met lets her drive her car.

II only

Which of the following statement about variable universal life insurance is (are) true? I. Variable universal life insurance has fixed premium payments II. Variable universal life insurance allows the policy owner to decide where the cash value is invested.

II only

Which of the following statements regarding use of retention is true? I. Retention is best used for loss exposures that have a low frequency and a high severity. II. A financially strong firm can have a higher retention level than a firm whose financial position is weak

II only

Which of the following statements regarding use of retention is true? I. Retention is best used for loss exposures that have a low frequency and a high severity. II. A financially strong firm can have a higher retention level than a firm whose financial position is weak

II only

Which of the following types of loss exposures may be appropriately handled through the purchase of insurance? I. High-frequency, low-severity II. Low-frequency, high-severity

II only

an automobile that is a total loss as a result of a collision is an example of which of the following types of risks

II only

which of the following statements about chance of loss and risks are true

II only

Which of the following types of loss exposures may be appropriately handled through the purchase of insurance? I. High-frequency, low-severity II. Low-frequency, high-severity

II only Low-frequency, high-severity

Risk Management

Identifies loss exposures faced by an organization and selects the most appropriate techniques for treating such exposures

Which of the following about offer and acceptance for insurance contracts is true?

In property insurance, the offer and acceptance are usually in writing but may be oral

Which of the following about offer and acceptance for insurance contracts is true?

In property insurance, the offer and acceptance are usually in writing but may be oral

Larry has $25,000 of bodily injury liability coverage under his PAP. This limit is the minimum amount required by his state to be considered financially responsible. While on vacation, Larry visited a neighboring state that has a minimum financial responsibility of $50,000 for bodily injury. Which of the following statements describes the situation for Larry while he was in the neighboring state?

Larry's policy automatically provided $50,000 of liability coverage

Which of the following describes how losses will be settled if a property insurance policy is written on a replacement cost basis?

Losses are settled without a deduction for depreciation

Objectives of Risk Management:

Pre-loss Post Loss

The human life Value is defined as the

Present value of the family's share of a deceased breadwinner's future earnings.

7. The human life Value is defined as the

Present value of the family's share of a deceased breadwinner's future earnings.

The purpose of other-insurance provisions is to

Preserve the principle of indemnity

3) In reviewing his company's operations, a risk manager noticed that all of the company's finished goods were stored in a single warehouse. The risk manager recommended that the finished goods be divided among 3 warehouses to prevent all of the finished goods from being destroyed by the same peril. Dividing the finished goods among 3 warehouses illustrates:

Risk Control

severity equals

SIZE of losses

Part A: Liability Coverage, Part B: Medical Payments Coverage, Part C: Uninsured Motorists Coverage, Part D: Coverage for Damage to Your Auto, Part E: Duties After a Loss, and Part F: General Provisions

Six Parts of PAP Coverages for Auto Insurance

Which of the following about stock insurers is true

Stockholders bear and losses and share any profits

Which of the following about stock insurers is true?

Stockholders bear any losses and share any profits

The deductible for automobile collision losses is an example of a

Straight deductible

Neil needs insurance that is unavailable in the state where he lives. To obtain insurance from a non-admitted insurer, Neil should contact a

Surplus line broker

Joyce was injured by an uninsured drunk driver while she was riding in a friend's car. Joyce and her friend each have a PAP with an uninsured motorist limit of $50,000. How much will be paid to each policy if it is determined that Joyce has $70,000 of bodily injury?

The friend's policy will pay $50,000 and Joyce's policy will pay $20,000

Risk management is concerned with

The identification and treatment of loss exposures

Which of the following about subrogation is true?

The insured's right to collect benefits may be forfeited if the insured interferes with the insurer's rights after a loss

All of the following about the independent agency system are true except a. Agents are often authorized to adjust small claims b. Agents are compensated on the basis of commission c. The insurer rather than the agent owns the renewal rights to the business d. The agent is an independent business person who represents several insurers

The insurer rather than the agent owns the renewal rights to the business

The homeowners policy is a package policy that can be used to cover the dwelling, other structures, personal property, additional living expenses, and personal liability claims.

True

Risk, as defined in insurance is

Uncertainty concerning loss

Patricia purchased a PAP. Her car was rear-ended by a driver who fled the scene. Patricia suffered whiplash, migraine headaches, and she was unable to work. Which of the following coverage's will cover her lost work earnings?

Uninsured Motorists

Blake was severely injured by an uninsured driver. Blake did not purchase uninsured motorist coverage, and the other driver, although held liable in court, could not pay the settlement the court ordered. After exhausting all other means of recovery, Blake was able to obtain some relief from a state fund designed to compensate individuals like Blake. These state funds are called

Unsatisfied judgement funds

The voluntary relinquishment of a legal right is called

Waiver

Heather sued Robert for injuries suffered in an automobile accident. Based upon the cases presented, the jury concluded that Heather was 40 percent at fault in the accident and Robert was 60 percent at fault. Under the common law doctrine of contributory, the jury should award Heather a. Nothing b. 40 percent c. 60 percent of her actual damages d. 100 percent of her actual damages

a

The doctrine of contributory negligence a. has been replaced in many jurisdictions by the doctrine of comparative negligence b. Is a doctrine that benefits the injured party c. Is currently applied only in the field of employers d. Applies only in cases of automobile accidents e. None of the above

a

Which of the following statements about an excess insurance plan is true. Answer- a. The insurer does not participate in a loss until it exceeds the amount the firm has decided to retain b. The insurer pays first up to some specific level; the insured then pays all losses exceeding the insurer's retention level c. Losses in excess of a specified amount are not covered d. The insured and insurer share equally in any loss that occurs

a

independent agency system

a business firm that usually represents several unrelated insurers, owns the expirations or renewal rights to the business, and the independent agent is compensated by commissions that vary by line of insurance

dram shop law

a business that sells liquor can be held liable for damages that may result from the sale of liquor

which of the following statements about captive insurance companies is true

a captive insurance company may be owned by several parents (II only)

avoidance

a certain loss exposure is never acquired or undertaken or an existing loss exposure is abandoned

holding company

a company that directly or indirectly controls an authorized insurer

hazard

a condition that creates or increases the frequency or severity of a loss

aleatory contract

a contract where the values exchanged may not be equal but depend on an uncertain event

stock insurer

a corporation owned by stockholders in which the board of directors has ultimate responsibility for the corporation's financial success

mutual insurer

a corporation owned by the policyholders in which the board of directors appoint executives

retention

a firm retains part or all of the losses that can result from a given loss

variable life insurance

a fixed-premium policy in which the death benefit and cash values vary according to the investment experience of a separate account maintained by the insurer

regular program

a flood map is prepared dividing the community into specific zones and the community agrees to adopt more stringent flood control and land use measures

principle of utmost good faith

a higher degree of honesty is imposed on both parties to an insurance contract than is imposed on parties to other contracts

tort

a legal wrong for which the law allows a remedy in the form of money damages

participating policy

a life insurance policy that pays dividends

vicarious liability law

a motorist's negligence is imputed to the vehicle's owner

demutualization

a mutual insurer is converted into a stock insurer

fraternal insurer

a mutual insurer that provides life and health insurance to members of a social or religious organization

mediation

a neutral third party tries to arrange a settlement without resorting to litigation

assumption of risk

a person who understands and recognizes the danger inherent in a particular activity cannot recover damages in the event of an injury

last clear chance rule

a plaintiff who is endangered by his or her own negligence can still recover damages from the defendant if the defendant has a last clear change to avoid the accident but fails to do so

excess insurance

a plan in which the insurer does not participate in the loss UNTIL THE ACTUAL LOSS EXCEEDS THE AMOUNT A FIRM HAS DECIDED TO RETAIN

excess insurance

a plan in which the insurer does not participate in the loss until the actual loss exceeds the amount a firm has decided to retain

risk management

a process that identifies loss exposures faced by an organization and selects the most appropriate techniques for treating such exposures

deductible

a provision by which a specified amount is subtracted from the loss payment otherwise payable to the insured; used to eliminate small claims and the administrative expense

deductible

a provision by which a specified amount is subtracted from the total loss payment that otherwise would be payable

diversifiable risk

a risk that affects only individuals or small groups and not the entire economy

nondiversifiable risk

a risk that affects the entire economy or large numbers of persons or groups within the economy

speculative risk

a situation in which either profit or loss is possible

elimination (waiting) period

a stated period of time at the beginning of a loss during which no insurance benefits are paid

warranty

a statement that becomes part of the insurance contract and is guaranteed by the maker to be true in all respects

legal wrong

a violation of a person's legal rights or a failure to perform a legal duty owed to a certain person or to society as a whole

Which of the following is not exclusion listed in section II of the homeowner's policy? a. Activities of the named insured's minor children b. Business activities and professional services c. Transmission of a communicable disease d. Intentional injuries

a. Activities of the named insured's minor children

Factors that affect the cost of homeowners insurance include which of the following? a. Construction costs, age of home, and insurance score b. Premium amount, age and ethnicity of insured, and net income of insured c. Credit history, age of insured, and negligence score d. None of the above

a. Construction costs, age of home, and insurance score

Which of the following 100,000 whole life insurance polices issued by the same company to 32 years old man, would required the highest five year premium a. Continuous premium (ordinary) life b. Whole life paid-up at 65 c. 10-year payment whole life d. 20- year payment whole life

a. Continuous premium (ordinary) life

Automobile assigned risk plans: a. Help poor risks obtain insurance b. Are designed to force people to purchase automobile insurance c. Have provided a substantial underwriting profits of insurance d. Reduce the overall cost of automobile insurance e. Provide inexpensive auto insurance to any driver who can pay the premium

a. Help poor risks obtain insurance

6. Which of the following is not always true? a. Premiums are level throughout the policy period b. The face amount of the policy is paid if the insured lives to age 65 c. There is a build-up of cash value that can be borrowed by the policyholder d. It offers the policyholder the flexibility to meet a wide variety of financial objectives

a. Premiums are level throughout the policy period

Which of the following statements about an excess insurance plan is true? a. The insurer does not participate in a loss until it exceeds the amount the firm has decided to retain b. The insurer pays first up to some specific level; the insured then pays all losses exceeding the insurer's retention level c. Losses in excess of a specified amount are not covered

a. The insurer does not participate in a loss until it exceeds the amount the firm has decided to retain

according to the law of large numbers what should happen as an insurer increases the number of units insured

actual results will more closely approach expected results

jkl insurance company estimates that 14 out of every 100 homeowners it insures will files a claim each year. last year jkl insured 200 homeowners. according to law of large numbers what should happen in jkl insures 2000 homeowners this year

actual results will more closely approad the expected results

The job of preparing equitable classification systems and rate schedules belong to

actuaries

according to the law of large numbers, what happens as the number of exposure units increases

acutal results will more closely approach probable results

ABC appliance offers a warranty requiring an annual fee. the warranty may be purchased at the trime of sale or at any time wihtin the first year after the date of purchase is twice the time of purchase fee. when asked why the fee was higher after the date of purchse, the president said "buying a warranty is coluntary. weve noted that those who buuy the warranty after the purchase date have a greater need for the service." charging the smae rate or a lower rate after the date of purchase would expose ABC to what rpoblem that also impacts private insurers

adverse selection

ashley opened up an all you can eat buffet. the cost per person was based upon what ashley believed an average restaurant partron would consume. the restaurant began to lose money. she concluded that her patrons had above average appetities and were attracted to her restaurant because htey could wat as much as they wanted while being charged an everage price. this problem in insurance is called

adverse selection

the tendency for unhealthy people to seek life for health insurance at standard rates is

adverse selection

no-fault auto insurance

after an auto accident involving bodily injury, each party collects from his or her own insurer regardless of fault

implied authority

agent has the right to perform all incidental acts necessary to exercise the express powers

open-perils coverage

all losses are covered except those losses specifically excluded

aggregate deductible

all losses that occur during a specified time period are accumulated to satisfy the deductible amount

occurrence

an accident, including continuous or repeated exposure to substantially the same general harmful conditions, which results in bodily injury or property damage during the policy period

reinsurance

an arrangement by which the primary insurer that initially writes the insurance transfers to another insurer (called the reinsurer) part or all of the potential losses associated with such insurance

respondeat superior

an employer can be held liable for the negligent acts of employees while they are acting on the employer's behalf

personal producing general agent (PPGA)

an independent agent who receives special financial consideration for meeting minimum sales requirements

personal articles floater (PAF)

an inland marine floater that provides comprehensive protection on valuable personal property

contractual liability

an insured agrees to assume the legal liability of another party by a written or oral contract

nonadmitted insurer

an insurer not licensed to do business in a particular state

reciprocal (interinsurance) exchange

an unincorporated organization in which insurance is exchanged among the members (or subscribers)

loss exposure

any situation or circumstance in which a loss is possible, regardless of whether a loss actually occurs

loss exposure

any situation which loss is POSSIBLE

surplus lines

any type of insurance for which there is no available market and the coverage must be placed with a nonadmitted insurer

single limit

applies to both bodily injury and property damage liability: total amount of insurance applies to the entire accident without a separate limit for each injured person

underinsured motorists coverage

applies when a negligent third-party driver carries liability insurance but the limits carried are less than the insured's actual damages for bodily injury

Dennis was involved in an accident. He believes the damage to his auto is $6,000. His insurer believes the damage is only $3,500. Which PAP provision is designed to handle disputes between the insurer and the insured over the amount of the loss?

appraisal provision

Under one doctrine, a person who understands the danger inherent in an activity cannot recover damages in the event of injury from the activity. The doctrine is the

assumption of risk doctrine

carelessness or indifference to a loss is an example of

attitudinal hazard

Which type of hazard is defined as the carelessness or indifference to a loss that may increase the severity of frequency of loss?

attitudinal or morale

all of the following are programs to insure fundamental risks EXCEPT

auto physical damage insurance

abandoning an existing loss exposure is an example of

avoidance

bed lives in the suburbs and words downtown. she drives to work, and her most direct route to work would require her to pass through an area where car jacking and drive by shootings are common. bed doesnt drive through this area. Instead she uses a route which adds 10 mins to her commute. which risk managemnt technique

avoidance

all of the following are methods of non insurance transfer EXCEPT

avoiding dangerous activities

punitive damages

awards designed to punish people and organizations for egregious acts so that others are deterred from committing the same act

special damages

awards for losses that can be determined and documented

general damages

awards for losses that cannot be specifically measured or itemized (pain and suffering)

compensatory damages

awards that compensate injured victims for the losses actually incurred

All of the following categories of torts Except: a. Intentional tort b. Breach of contract c. Strict liability d. Negligence

b

Which of the following are NOT duties after an accident or loss? a. If injury exists, call an ambulance b. If you caused the accident, admit fault c. Promptly notify your agent/company or risk jeopardizing your coverage d. Get the name and address of any witnesses

b

Under the needs approach, when is the family dependency period assumed to end: a. 1 or 2 years after the breadwinner's death b. When the youngest child reaches age 18 b. When the surviving spouse reaches age 65 c. When the surviving spouse dies

b. When the youngest child reaches age 18

Why does the insured get the benefit of the doubt if an insurance policy contains any ambiguities or uncertainties?

because insurance contracts are contracts of adhesion

active retention

being consciously aware of risk and planning to retain all or part of it

primary beneficiary

beneficiary who is first entitled to receive the policy proceeds on the insured's death

Temporary evidence of insurance until a policy is actually issued is provided by a

binder

loss control includes which of the following

both I and II

which of the following are often consequences of long term diability

both I and II

which of the following is a reason why premature death may result in economic insecurity

both I and II

casualty insurance

broad field that covers whatever is not covered by fire, marine, and life insurance; include auto, liability, burglary and theft, workers compensation, and health insurance

7) Criticism of the tort system as it relates to the automobile include all Except which of the following? a. Some people are not compensated under the system b. In many instances the compensation is inadequate c. The cost of operating insurance companies is too high d. The systems is needlessly slow, decaying compensation e. The system is needlessly expensive

c

All of the following about the independent agency system are true except a. Agents are often authorized to adjust small claims b. Agents are compensated on the basis of commission c. The insurer rather than the agent owns the renewal rights to the business d. The agent is an independent business person who represents several insurers

c

All of the following are exclusions under the medical payments coverage of the PAP except a. Injuries incurred while riding a motorcycle b. Injuries incurred while an auto is being used without the presumption that permission would have been granted to us the auto c. Injuries incurred in an auto while it is used in a share-the-expense care pool

c

Captive insurers are not a. Subsidiary insurance companies b. An alternate to self-insurance c. Formed by other businesses to obtain insurance at cost d. Cooperative insurers

c

Regarding enterprise risk management, which of the following is not true a. Is necessary because of adverse changes in price, rates, and the value of money b. Includes pure, speculative, strategic, operational, and financial risk Answer- c. It only considers pure risk faced by management d. It combines many unified treatment programs to face risks

c

Which of the following about the medical payments coverage in PAP is true? a. The amount of the benefit is typically $100,000 b. Covered expenses must be incurred within 6 months of the accident c. Covered expenses include the cost of funeral services d. The benefit limit applies on a per-accident basis rather than on a per-person basis

c

Which of the following statement about the characteristics of current no-fault laws is true? a. Most laws in force today are pure no-fault laws b. Most laws apply to both bodily injury and property damage c. Most laws permit payment of survivor spouse and/ or children d. States with add-on plans restrict the right of accident victims to sue negligent drivers.

c. Most laws permit payment of survivor spouse and/ or children

Criticism of the tort system as it relates to the automobile include all Except which of the following? a. Some people are not compensated under the system b. In many instances the compensation is inadequate c. The cost of operating insurance companies is too high d. The systems is needlessly slow, decaying compensation e. The system is needlessly expensive

c. The cost of operating insurance companies is too high

Which of the following statement about buying homeowners insurance is true? a. There is no reason to carry insurance equal to more than 80 percent of a dwelling's replacement cost. b. The deduction for depreciation will be increased if a personal property replacement cost endorsement is purchased c. The insurance consumer should carry adequate insurance and add any necessary endorsement that match his/her specific need. d. There is little reason to compare cost since the lack of competition results in little price variation among companies.

c. The insurance consumer should carry adequate insurance and add any necessary endorsement that match his/her specific need.

All of the following losses are covered under the personal liability homeowner's policy Coverage E except: a. You accidentally bump into a shelf holding expensive glassware while shopping and everything shatters. b. Your pet dog bites a young boy riding his bike in front of your home. c. While practicing for the test to get your motorcycle permit, you crash the bike and smash the glass window at The Pita Pit. d. While hosting a bonfire at your home after a WVU football game you catch fire to the neighbor's home.

c. While practicing for the test to get your motorcycle permit, you crash the bike and smash the glass window at The Pita Pit.

Essential for an insurable exposure is

calculable chance of loss

human life value

can be defined as the present value of the family's share of the deceased breadwinner's future earnings

Objective Risk

can be determined by an actuary, whose job is to comb through data and identify how likely something is to happen. Based on your age, sex, home address, and lifestyle habits (like alcohol and tobacco use, weight, family health history, etc.), an actuary can predict (with some level of accuracy) how much longer you can expect to live.

Actuary

can give you objective risk estimates of the likelihood of a crash or your expected lifespan based on the data, whereas you have your own subjective risk estimates based on your own perception and bias regarding your driving ability and future health.

2) RIP Company manufactures herbicide and pesticide. The company had difficulty finding affordable liability insurance. RIP established its own insurance company based in Bermuda for the purpose of insuring RIP's loss exposures. The company RIP formed is called a

captive insurer

RIP Company manufactures herbicide and pesticide. The company had difficulty finding affordable liability insurance. RIP established its own insurance company based in Bermuda for the purpose of insuring RIP's loss exposures. The company RIP formed is called a

captive insurer

whole life insurance

cash-value life insurance policy that provides lifetime protection

alpha insurance company insures a broad range of risks including whatever is not covered by fire, marine, and life insurers. What term best describes the wide range fo risks written by alpha insurance

casualty insurace

definitions

clearly defines the meaning of key words or phrases so that coverage under the policy can be determined more easily

Ken fell asleep while driving late at night. He crossed the centerline and hit a car approaching from the other direction. The following losses occurred · The driver of the other car suffered $30,000 in bodily injuries · Ken's car sustained $5,000 in damages · Ken incurred $5,000 in medical expenses · The car that Ken hit was a total loss Which of Ken's Personal Auto Policy (PAP) coverage's will cover the damages to the car that Ken hit?

collision coverage

enterprise risk management

combines into a single unified treatment program all major risks faced by the firm

personal selling distribution systems

commissioned agents solicit and sell life insurance products to prospective insureds

attractive nuisance doctrine

condition that can attract and injure children based on the principles that children may not be able to recognize inherent danger

An insured agreeing to assume the legal liability of another part by the written or oral contract defines:

contractual liability

Private insurers are broadly organized as either

corporate or unincorporated insurers

which statement about a companys cost of risk is true

cost of risk includes insurance premiums and retained losses AND reducing the cost of risk increases profitability (I and II)`

personal lines

coverages that insure the real estate and personal property of individuals and families or provide them with protection against legal liability

Homeowners 8 (Modified Coverage Form)

covers loss to the dwelling and other structures on the basis of repair cost

liability insurance

covers the insured's legal liability arising out of property damage or bodily injury to others

insurance score

credit-based rating that is highly productive of future claim costs

sources of information that ca be used by a risk manager to identify pure loss exposures include all EXCEPT

currency exchange rate

underwriting cycle

cyclical pattern in underwriting standards, amount of premiums charged, and profitability in the industry

) Billy Bob has a 1995 Chevy truck with limited market value (not worth a lot o money). He is unsure about how he should manage the risk of an accident. Choose the best risk management technique for Billy Bob. a. Collision Insurance b. Loss Control c. Avoidance d. Retention

d

All but which of the following might be interposed as a defense by a negligent party in a tort action? a. Assumption of risk b. Contributory negligence c. Comparative negligence d. res ipsa loquitor e. Last clear chance

d

All of the following are exceptions to the principle of indemnity expect a. Life insurance b. Valued Policies c. Replacement cost property insurance d. Actual cash value property insurance

d

All of the following statements about endorsements and riders are true except a. The are usually written b. They can be used to add or delete policy provisions c. They normally take the precedent over other conflicting policy provisions d. They are primary used to circumvent the purpose of legislation requiring specific policy provisions

d

Another name for a dependent agent is a. Exclusive agent b. Captive agent c. Direct writing agent d. All of the above

d

Subjective probability a. Is a personal estimate o chance of loss b. It must coincide with objective probability c. Is influenced by a variety of factors including sex, personality, and intelligence d. Two of the above

d

Which of the following statements about the insurer's obligation to provide a legal defense under the personal liability coverage (Coverage E) of the homeowners policy is (are) True? a. The insurer agree to defend the insured even if the suit is groundless, false, or fraudulent b. The insurer's obligation to defend the insured ceases after the policy limits are exhausted amount paid by payments of a judgment or settlement. c. The minimum amount of liability insurance is 100,000 for each occurrence d. All of the above are true

d. All of the above are true

Marie would like to save money on her homeowner's premium. All of the following steps help her to reduce her homeowner's premium Except a. Raising the deductible in the homeowners policy to a higher amount b. Shopping around a homeowner policy c. Installing burglar alarms, smoke detection, and dealt-bolt locks. d. Insuring the value of the land beneath the home

d. Insuring the value of the land beneath the home

Which of the following statement about he factors affecting automobile insurance rates is true? a. Because the chance of accidents due to mechanical malfunction or poor maintenance is increased, the cost of collision coverage increases as a car gets older b. Because of high speeds in rural areas, rural drivers tend to pay more for insurance than city drivers. c. Young unmarried male drivers tend to have fewer accidents than young married male drivers in the same age category d. Person who drive a car to and from work rend to be charged higher rates than those who use a car for pleasure payments.

d. Person who drive a car to and from work rend to be charged higher rates than those who use a car for pleasure payments.

All of the following statements about endorsements and riders are true except a. The are usually written b. They can be used to add or delete policy provisions c. They normally take the precedent over other conflicting policy provisions d. They are primary used to circumvent the purpose of legislation requiring specific policy provisions

d. They are primary used to circumvent the purpose of legislation requiring specific policy provisions

All of the following are exceptions to the principle of indemnity except: a. Life insurance b. Valued Policies c. Replacement cost property insurance d. Actual cash value property insurance

d. actual cash value property insurance

the reqirement that losses should be accidental and unintentional in order to be insurable results in which of the following

decrease in moral hazard and more accutate prediction of future losses ( I and II)

collateral source rule

defendant cannot introduce any evidence that shows the injured party has received compensation from other collateral sources

premature death

defined as the death of a family head with outstanding unfulfilled financial obligations

risk management manual

describes in some detail the risk management program of the firm and can be a very useful tool for training managers, supervisors, and new employees

Homeowners 4 (Contents Broad Form)

designed for tenants who rent apartments, houses, or rooms

Homeowners 6 (Unit-Owners Form)

designed for the owners of condominium units and cooperative apartments

All of the following are considered financial risk EXCEPT

destruction of a production facility caused by an explosion

net amount at risk

difference between the legal reserve and face amount of insurance

a risk that affects only individuals or small groups and not the entire economy is called a

diversifiable risk

trespasser

does not have any obligation to keep the land in reasonably safe condition but cannot deliberately injure or trap the person

financial responsibility law

does not require proof of financial availability until after the driver has his or her first accident or until after conviction for certain offenses

Vicarious liability for the operation of an automobile may exist a. In those states which have a family propose doctrine b. In the case of an agent-principle relationship c. When an employee operates a personal automobile on the business of the employer d. Where the owner has given another person permission to operate the automobile. e. In all of the cases listed above

e. In all of the cases listed above

Advocate of the "no-fault" approach to compensating auto accident victims argue that such plan would a. Speed the compensation of injured persons b. Reduce litigation and help to clear the congested courts. c. Result in more equitable compensation to injured persons d. Reduce the cost of who's who are injured e. Lead to all of the following above

e. Lead to all of the following above

data recorder

electronic device that can be installed in a vehicle to track certain driving behaviors

all of the following are benefits to society that result from insurance EXCEPT

elimination and moral hazard

A provision in a disability income insurance policy that requires a person to be disabled for 60 days before receiving benefits is an example of an

elimination period

fina would like to buy a house, she would pay 10% fo the cost of the hosue as a down payment and borrow the other 90% from a mortgage lender. the home will serve as collateral for the loal. the lender requires gina to purchase property insurance on the home so that the collateral supporting the loan will be protected. this scenario illustractes

enchancement of credit

coinsurance clause

encourages the insured to insure the property to a stated percentage of its insurable value

miscellaneous-type vehicle endorsement

endorsement to cover motorcycles, mopeds, and similar vehicles

advanced premium mutual

enough to cover predicted losses

a phrase that encompasses all the major risks face by a business firm is

enterprise risk

katelyn was just named risk manager of ABC company. she has decided to create a risk management program which considers all of the risks face by ABC- pure, speculative, operational, and strategic- in a single risk management program.

enterprise risk management program

contingent beneficiary

entitled to life insurance proceeds if the primary beneficiary dies before the insured

fraternal insurers

everybody agrees to be a member, pay dues

ABC insurance retains the first million of each property damage loss and purchases insurance for that part of any property oloss that excceeds 1 million. the insurance for property losses about 1 million is

excess insurance

ABC insurance company calculated the amound that is expected to pay in claims under each policy sold. rather than selling the insurance for the amount it expected to pay in claims, abs added an allownace to cover the cost of doing business, including commissions, taxes, and acquisition expenses. this allowance is called

expense loading

convergence

financial institutions can now sell a wide variety of financial products that earlier were outside their core business area

universal life insurance

flexible premium policy that provides protection under a contract that unbundles the protection and saving components

all of the following are examples of personal risks EXCEPT

flood

to better understand her companys operations, a risk manager asked a production manager to draw a diagram tracing the steps in the rpoduction and idstribution of the companys products. such a disgram which is useful in risk identificaiotn is called

flowchart

government property insurance programs

for perils that are difficult to insure privately or may not be available at affordable rates from private insurers

equity in rating

fundamental purpose of coinsurance

which of the followign statements about the insurance industry as a source of investment funds is true

funds result in a lower cost of captial than would exist in the absence of insurance and they tend to promost exonomic growht and full employment ( I and II)

which fo the foloowing is a form of casualty insurance

general liability insurace

inland marine insurance provides coverage for

goods being shipped on land

social insurance

government insurance programs with certain characteristics

risk retention group

group captive that can write any type of liability coverage except employers' liability, workers compensation, and personal lines

insurance as opposed to gambling

handles existing pure risk

assessment mutual

has the right to assess the policyholders an additional amount if the insurer's financial operations are unfavorable

risks are those that are almost certain to occur, and would likely be devastating upon thier occurence. for example a preoperty managerment company that learns one o fits properties is so structually unsound as to be highly dangerous and completley beyond repair

high frequency, high severity

which of the following types of loss exposures are best handled by the use of avoidance

high frequency, high severity

Risks are those that occur freuqenly but still have only a slightor marginal impact upon thier occurrence. an exmaple of such a risk may include shoplifting losses at a retail store, in which any individual therft is not terribly insignificant

high frequency, low severity

which of the followign is least liekly to occur during a "hard" insurance market period

higher insurer profits

Which homeowner policy is designed for the tenants of rented premises?

homeowners 4

cal was just hired as xyz companys first risk manager. cal would like to employ the risk management process. the first step in the process cal should follow is

identify potential losses faced by xyz comapny

a risk manager is concerned with

identifying potential losses and selecting the appropriate techniques for treating losses (I and II)

all of the following statements about the administration of a risk management program are true EXCEPT

if a risk management is properly designed, periodic review of the program is unnecessary

comparative negligence

if both the plaintiff and the defendant contribute to the plaintiff's injury, the financial burden is shared by both parties according to their respective degrees of fault

contributory negligence

if the insured person's conduct falls below the standard of care required for his or her protection and such conduct contributed to the injury, the insured person cannot collect damages

liberalization clause

if the insurer broadens the coverage it offers without charging a higher premium within 60 days before inception of the policy or policy period, the broadened coverage applied immediately to the present policy

estate clearing fund

immediate cash is needed for burial expenses, uninsured medical bills, debts, administration costs, and taxes

supplementary payments

in addition to the policy limits and a legal defense, the insurer will pay bond premiums, interest after a judgment, loss of daily earnings, and other reasonable expenses

why is a large number of exposure units generally requited before a pure risk is insurable

in enables the insurer to predict losses more acaccurately

all of the following are social costs associated with insurance EXCEPT

increased cost of capital

8) Ryan decided to review hi personal management program. His car is 10 years old and he would receive little money from his insurer is his car is damaged. Ryan decided to drop his physical damage insurance on the car. From a risk management perspective, dropping physical damage insurance on the car is best described as

increasing the use of retention in the risk management program

Ryan decided to review hi personal management program. His car is 10 years old and he would receive little money from his insurer is his car is damaged. Ryan decided to drop his physical damage insurance on the car. From a risk management perspective, dropping physical damage insurance on the car is best described as

increasing the use of retention in the risk management program

ryan decided to review his personal risk management program. his car is 10 years old and he would recieve little money from his insurer if the car was damaged or destroyed. ryan decided to drop the physical dammage insurance on the car. from a risk mangement perspective dripping the physical damage insurance on the car is best described as

increasing the use of retention in the risk mangement program

property insurance

indemnifies property owners against the loss or damage of real or personal property caused by various perils

Jenna opened a successful restaurant. one night after the restaurant had closed a fire started when the electrical system malfunctioned. in addition to the physical damage to the restaurant, jenna also lost profits that could have been earned while the restaurant was closed for repairs. the lost profits are an example of

indirect loss

the extra expense incurred by a business to stay in operation following a fire is an example of

indirect loss

which of the following statements is true concerning private insurance

individuals and businesses purchase private insurance (II only)

all of the following are burdens to society because of the presence of risk EXCEPT

individuals may profit from accepting a speculative risk

which of the ofllowing statement sregarding insurance and hedging is true

insurance incolves the transfer of insurable risk while hedging handles risk that is typically uninsurable ( I only)

whichof the following statements regarding insurance and gambling is true

insurance is used to handle existing pure risks, while gambling creates a new speculative

A Credit-based score that is highly predictive for future claims cost is an individual's

insurance score

uninsured motorists coverage

insured person's insurer agrees to pay the accident victim for bodily injury (and property damage in some states) caused by a driver with no insurance, a hit-and-run driver, or a negligent driver whose insurer is insolvent

direct writer

insurer in which the salesperson is an employee of the insurer, not an independent contractor

Homeowners 5 (Comprehensive Form)

insures the dwelling, other structures, and personal property on an open-perils basis

concealment

intentional failure of the applicant for insurance to reveal a material fact to the insurer

Degree of Risk

is just the relative variation of actual loss from expected loss.

Loss Exposure

it means that loss is possible, but it may or may not occur. For instance, a building could flood, a defective product could result in a lawsuit, or your dog could bite the neighbor.

all of the following are disadvantages of using insurance in a risk management program EXCEPT

it results in considerable fluctuations in earnings after losses occur

an insurance company estimates it objective risk for 10,000 exposures to be 10%. Assuming the probability of loss remains the same, what would happen to the objective risk if the number of exposures were to increase to 1 million

it would decrease to 1%

which of the following statements concerning the selection of risk management techniques and insurance market conditions is true

its easier to purchase affordable insurance during a soft makret than during a hard one

all of the following statements about risk retention are true EXCEPT

its use is most appropriate for low frequency

An individual who had a chance and failed to avoid an accident would likely be liable under the doctrine of

last clear chance

ABS health insurance company sells health insurance in one state. recently that states legislature passed a law forbidding health insurers form considering an individuals health history when selecting applicats to insure. this change in law will increase the possinility of unprofitable results for ABC

legal hazard

Taylor Tabacco Company is concerned that the company may be held liable in a court of law and ordered to pay a large damage award. The characteristics of the judicial system that increase the frequency and severity of losses are known as

legal hazard

some characteristics of the judicial system and regulatory environment increase the frequency and severity of loss

legal hazard

personal injury

legal liability arising out of situations such as false arrest, wrongful eviction, slander or libel, and violation of privacy

Coverage that protects the insured against 3rd party claims for bodily injury or property damage caused by negligence or imposed by statue or contract is

liability coverage

bronson casualty company sells casualty insurance only. which of the ofollowing coverages could you purchase

liability insurace

strict (absolute) liability

liability is imposed regardless of negligence or fault

ben is concerned that if he injures someone or damages someones property he could be held legally responsible and required to pay damages

liability risk

surplus lines broker

licensed to place business with a nonadmitted insurer

direct response system

life and health insurance products are sold directly to consumers without a face-to-face meeting with an agent

all of the following are classified as casualties insurances EXXCEPT

life insurance

entire-contract clause

life insurance policy and attached application constitute the whole contract between the parties

Savings Bank Life Insurance

life insurance that was originally sold by mutual savings banks in three states

the use of fire resistive material when constructing a building is an example of

loss control

williams company installed smoke detectors, spinkler system, and fire extenguishers in its new manufacturing facility. These devices are all examples of

loss control

parker department stores has been hurt in recent months by a alrge increase in shoplifting losses. parkers risk manager concluded that hwile the frequency of shoplifting losses was high the severity is still relatively low. what is the appropriate risk management techniques to apply to this problem

loss control and retention

a situation or circumstance in which a loss is possible, regardless of whether a loss occurs is called a

loss exposure

which of the following is implied by the requirement that a loss should be determinable and measurable to be insurable

loss must be definite as to place and definite as to amount (I and II)

following good health habits can be categorized as

loss prevention

If a business makes multiple copies of important records and divides inventory betwen multiple locations they are practicing which risk management technique

loss reduction

risks are those that may not occur often, but when they do, the consequenses are profound. examples of these risks inculde such things as fire and natural disaster losses or third party liability and employment lawsuits

low frequency, high severity

when should a particular activity be insured

low frequency, high severity

which of the following types of loss exposures may be appropriately handles through the purchase of insurance

low frequency, high severity (II only)

an insurance policy specifically written and designed to meet the needs of an insurance purchaser is called

manuscript policy

whaich of the following types of risks is normally uninsurable by private insurer

market risks

the worst loss that could ever happen to a firm is

maximum possible loss

Curt borrowed money from a bank to purchase a fishing boat. He purchased property insurance on the boat. Curt had difficulty making loan payments because he did not catch many fish, and fish prices were low. Curt intentionally sunk the boat, collected from his insurer, and paid off the loan balance.

moral hazard

faking an accident to collect insurance proceeds is an example of a

moral hazard

LMN insurance markets homeowners inssurance. the lmn homeowners policy combines property and casualty insurance in the same contract. Insurance policies combining property and casualty coverage in the same contract are

multiple line policies

invitee

must warn of dangerous conditions and has the obligation to inspect the premises and eliminate any dangerous condition revealed by the inspection

Homeowners 2 (Broad Form)

named-perils policy that insures the dwelling, other structures, and personal property against loss form certain listed perils

Failure to do what an ordinary and reasonably prudent person would do under the same or similar circumstance defines:

negligence

. Which of the following statements about yearly renewable term insurance is true? I. It requires evidence of insurability for renewal II. It use is appropriate only if a person currently has no life insurance

neither

8. Which of the following statements about the capital retention approach for determining life insurance needs is (are) true. I. It assumes that life insurance proceeds will be liquidated to provide income to survivors II. It requires the preparation of a personal balance sheet.

neither

Which of the following about the sale of property and liability insurance through the direct response systems is true? I. Selling expenses are higher because market segmentation tends to be less precise that other marketing methods II. It is the most appropriate system for selling complex products

neither

which of the following statements about financial risk is true

neither I nor II

brad started a pest control business. to protect his personal assets againest liabliity arising out of the business, brad icnorporated the business. Brads use of the corporate form of organization to shield against personal liability claims illustrates

noninsurance transfer

a resaturant owner leased a meeting room at the palce to a a second party. the lease specified that the second party would be respondible for any liability airsing out of the use of the meeting room and that the owner would be "held harmelss" for any damages. the restaurant owners use of the hold harmless agreement is

noninsurance trasfer

tyndal products company produces cereal. the company has entered into contracts to deliver 500000 boxes of cereal during the next 18 months. the company is concerned that the prices of two ingredients, corn and wheat, may increase over the next 18 months. The company used grain futures contracts to hedge the price risk associated with these commodities. tyndals use of hedging illustrates which risk management technique

nonisurance transfer

current assumption whole life insurance

nonparticipating whole life policy in which the cash values are based on the insurer's current mortality, investment, and expense experience

the long run relative frequency of an event based on the assumption of an infinite number of observations with no change in the underlying conditions is called

obecjtive probability

ABC insurance company plans to sell homeowners insurance in five western states. ABC expects that 8 homeowners out of every 100, on average, will report claims each year. The variation between the rate of loss that ABC expects to occur and the rate of loss that actually does occur is

objective risk

estoppel

occurs when a representation of fact made by one person is reasonably relied on by that person to such an extent that it would be inequitable to allow the first person to deny the truth of the representative

fortuitous loss

one that is unforeseen and unexpected by the insured and occurs as a result of chance

all of the following are disadvantages of non insurance transfers EXCEPT

only potential losses that can be transferred are those that are not commercially insurable

a pure risk is defined as a situation in which there is

only the possibility of loss or no loss

risk management policy statement

outlines the risk management objectives of the firm as well as company policy with respect to treatment of losses

captive insurer

owned by a parent firm for the purpose of insuring the parent firm's loss exposures

medical payments to others

pays the reasonable medical expenses of another person who is accidentally injured while on an insured location, or by the activities of an insured

brenda identifiied all of the pure loss exposures fer family faces. the she ananlyzed these loss exposures, developed a plan to treat these risks, and implemented the paln. the process brenda conducted is

personal risk mangement

which of the follwoing is a result of adverse selection

persons most likely to have losses are also most liekly to seek insurance at standard rates

dense fog that increases the chance of an automobile accident is an example of a

physical hazzard

cathys car hit a patch of ice on the road. the car skidded off the road and hit a tree. the presence of ice on the road is

physicla hazzard

mass merchandising

plan for selling individually underwritten property and casualty coverages to group members

mark owns a 1998 sedan. the last time mark renewed his auto insurance, he decided to drop the physical damamge insurance on this vehicle. how is mark dealing with the auto physical damage exposure in his personal risk management program

planned retention

grace period

policyholder has a period of 31 days to pay an overdue premium

ownership clause

policyholder possesses all contractual rights in the policy while the insured is living

a group of farmers agreed that if any farmer suffered a property loss, the loss would be spread over the entire group. in this way, each farmer is responsible for the average loss of the group rather than the actual loss that the farmer sustained. which cahracteristic of insurance is embodied in this agreement

pooling of losses

reasons why market financial and production risks are often uninsurable include which of the following

potential to produce a catastrophic loss is great and chance of loss cannot be accurately estimated (I and II)

pre-loss

prepare for potential loss (safety programs) meet and legal obligations (government regulations)

preloss objectives of risk managment include which of the following

preparing for potential losses in the most economical way and reduction of enxiety (I and II)

What is the definition of the human life value approach

present value of the families share fo the deceased bread winners future earnings

The purpose of other-insurance provisions is to

preserve the principle of indemnity

capital retention approach

preserves the capital needed to provide income to the family so the income-producing assets are available for distribution later to the heirs

laura ecans is risk manager of lmn company. laura decided to retain vertain property losses. all of the following are methods which laura can use to fund retain certain property losses. all of the ofllowign are methods which laura can use to fund retained proeprty losses EXCEPT

private insurance

the worst loss that is likely to happen is

probable maximum loss

loss severity is defined as

probable size of the losses which may occur during some period

Loss severity is defined as the

probable size of the losses which may occur during some period of time

loss frequency is defined as

probably number of losses that may occur during some period

soft market conditions

profitability improving, premiums declining, and insurance is easier to obtain

hard market conditions

profits declining and underwriting losses

commercial lines

property and casualty coverages for business firms, nonprofit organizations, and government agencies

the term "multiple line insurance" is used to describe a type of insurance that combines whihc of the following coverages in to a single contract

property and casualty insurance

which of the following types of risks best meets the requirements for being insurable by private insurers

property risk

all of the following are potential advantages of retention Except

protection from catastrophic losses

personal liability insurance

protects an insured when a claim or suit for damages is brought because of bodily injury or property damage allegedly caused by an insured's negligence

title insurance

protects the owner of property or the lender of money for the purchase of property against any unknown defects in the title to the property under consideration

personal umbrella policy

provides an addition $1 to $10 million of liability insurance after the underlying coverage is exhausted

inland marine floaters

provides broad coverage on property frequently moved from one location to another and on property used in transportation and communications

inflation guard endorsement

provides for an annual pro rata increase in the limits of insurance under coverages A, B, C, and D

low-cost auto insurance

provides minimum amounts of liability insurance at reduced rates to motorists who cannot afford regular insurance or have limited financial assets to protect

conditions

provisions in the policy that place limitations on the insurer's promise to perform and imposes duties on the insured

Insuarnce is only interested in protecting against

pure risk

the premature death of an individual is an example of an

pure risk

apex insurance company wrote a large number of property insurance policies in an area where earthquake losses could occur. when the president of apex was asked if she feared that a server earthquake might put the company out of business she respondded "not a chance. we transferred most of that risk to other insurance companies" anarrangement by which an insurer that initially writes insurance transfers to another insurer part or all of the potential losses associated with such insurance is called

reinsurance

actual cash value =

replacement cost minus depreciation

agent

represents insurer

broker

represents the insured

licensee

required to warn of any unsafe condition or activity on the premises that is not apparent, but there is no obligation to inspect the premises

compulsory insurance law

requires motorists to carry at least a minimum amount of liability insurance before the vehicle can be licensed or registered

A pedestrian injured by an object falling from a building would probably attempt to establish liability on the basis of the doctrine of

res ipsa loquitor

Vicarious liability involves a situation where one person becomes legally liable because of the negligence of another. One of the doctrine upon which vicarious liability may be based is

respondent superior

no pay, no play laws

restrict uninsured motorists from suing negligent drivers for noneconomic damages, such as compensation for pain and suffering

Low-frequency, low-severity loss exposures are best handled by

retention

low frequency, low severity loss exposures are best handled by

retention

which of the followign statements regarding the use of retention is true

retention is best used for loss exposures that have a low frequency and a high serverity AND financially strong firm can have a higher retention level that a firm whose financial position is week (I and II)

in addition to marketing life insurance, life insurers typically sell which of the ofllowing

retirement annuities, disability income insurance (I and II)

loss history report

reveals prior claim experience of a home

MLX frug company would like the market a new hypertension drug. While the FDA was testing the drug, it discovered that the drug produced a harmful side effect. When MLX learned of the FDA's test result, MLX abandoned its plan to produce and distribute the drug.

risk avoidance

all of the following are characteristics of insurance EXCEPT

risk avoidance

In reviewing his company's operations, a risk manager noticed that all of the company's finished goods were stored in a single warehouse. The risk manager recommended that the finished goods be divided among 3 warehouses to prevent all of the finished goods from being destroyed by the same peril. Dividing the finished goods among 3 warehouses illustrates

risk control

in reviewing his companys operations, a risk manger noticed that all of the companys finished goods were stored in a single warehouse. the risk manager recoomended that the finished goods be divided among three warehouses to prevent all of the finished goods from being destroyed by the same peril. dividing the goods is

risk control

from the insured's perspective, the use of deductibles in insurance contracts is an example of

risk retention

members of mid south petroleum distributors, a trade group, had trouble obtaining affordable pollution liability insurance. the members formed a group captive that is exempt from many state laws that apply to other insurers. the group captive is called

risk retention group

purchasing health insurance illustrated the use fo which personal risk management technique

risk transfer

joint and several liability rule

several people may be responsible for the injury, but a defendant who is only slightly responsible may be required to pay the full amount of damages

which of the following is implied by the pooling of losses

sharing the losses by an entire group

variable universal life insurance

similar to universal life insurance policies but policyholders determine how the premiums are invested and does not guarantee a minimum interest rate or minimum cash value

one branch of government insurance programs has a number of distinguishing characteristics. these programs are compulsory, they are financed by mandatory contributions rather than general tax revenues, and benefits are weighing in facor of low income groups. these government insurance programs are called

social insurance programs

agent

someone who legally represents the principal and has the authority to act on the principal's behalf

self-insurance

special form of planned retention by which part or all of a given loss exposure is retained by the firm

jim and pula franklin stated a dry cleaning business. the business may be successful or it may fail. the type of risk that is present when either a profit or loss could occur is

speculative risk

pooling

spreading of losses incurred by the few over the entire group, so that in the process, average loss is substituted for actual loss

unsatisfied judgment funds

state fund for compensating auto accident victims who have exhausted all other means of recovery

declarations

statements that provide information about the particular property or activity to be insured

law of large numbers

states that the greater the number of exposures, the more closely will the actual results approach the probably results that are expected

uncertainty based on a persons mental condition or state of mind is known as

subjective risk

principle of subrogation

substitution of the insurer in place of the insured for the purpose of claiming indemnity from a third party for a loss covered by insurance

Improve your credit record, consider a higher property insurance deductible and/ or an policy, and carry adequate insurance are all

suggested tips for buying a homeowners policy

Improve your credit record, consider a higher property insurance deductible and/or an policy, and carry adequate insurance are all

suggested tips for buying a homeowners policy

insuring agreement

summarizes the promises of the insurer

Neil needs insurance that is unavailable in the state where he lives. To obtain insurance from a non-admitted insurer, Neil should contact a

surplus line broker

post loss most important objective:

survival of the firm

alternative dispute resolution

techniques for resolving a legal dispute without litigation

risk financing

techniques that provide for the funding of losses

risk control

techniques that reduce the frequency of or severity of losses

binder

temporary insurance until the policy is actually written in property and casualty insurance

renewable

term insurance can be extended for additional periods without evidence of insurability

convertible

term insurance policies can be exchanged for a cash-value policy without evidence of insurability

exclusive agency system

the agent represents only one insurer or a group of insurers under common ownership

replacement cost

the amount necessary to repair or replace the dwelling with material of like kind and quality at current prices

cash-surrender values

the amount paid to a policyholder who surrenders the policyholder

split limits

the amounts of insurance for bodily injury liability and property damage liability are stated separately

factors a risk manager must consider in selecting an insurer include which of the following

the availability of risk management services and the financial strength of the insurer (I and II)

a peril is

the cause of a loss

peril

the cause of the loss

personal contract

the contract is between the insured and the insurer

all of the following are examples of direct property losses EXCEPT

the cost of renting a substitute vehicle while a collision damaged car is being repaired

broad evidence rule

the determination of actual cash value should include all relevant factors an expert would use to determine the value of the property

risk management is concerned with

the identification and treatment of loss exposures

all of the followign statements abotu captive insurers are true EXCEPT

the increase the volatility of the parent companys earning

subjective probability

the individual's personal estimate of the chance of loss

indemnification

the insured is restored to his or her approximate financial position prior to the occurrence of the loss

straight deductible

the insured must pay a certain number of dollars of loss before the insurer is required to make a payment applied to each loss

principle of indemnity

the insurer agrees to pay no more than the actual amount of the loss

incontestable clause

the insurer cannot contest the policy after it has been in force two years during the insured's lifetime

which of the following statements about an excess incsurance plan is true

the insurer does not participate in a loss unitl it exceeds the amount the firm has decided to retain

conditional contract

the insurer's obligation to pay a claim depends on whether the insured or the beneficiary has complied with all the policy conditions

objective probability

the long run relative frequency of an event based on the assumptions of an infinite number of observations and of no change in the underlying conditions

from the standpoint of the insurer all of the following are characteristics of an ideally insurable risk EXCEPT

the loss must be indeterminable

characteristics of a fortuitous loss include which of the following

the loss occurs as a result of chance (II only)

from the viewpoint of the insurere all of the follwoing characteristics of an ideally insurable risk EXCEPT

the loss should be catastrophic

AYZ insurance company writes coverage for most perils which can damage property. ZYX does not write flood insurance on property located in flood plains. which requirement of an ideally insurable risk might be violated if xzy wrote flood insurance of proeprty located in flood plains

the loss should not be catasrophic

consolidation

the number of firms in the financial services industry has declined over time due to mergers and acquisitions

family purpose doctrine

the owner of an automobile can be held liable for the negligent acts committed by immediate family members while operating the family car

blackout period

the period from the time Social Security survivor benefits terminate (when youngest child reaches 16) to the time the benefits are resumed (when the spouse reaches 60)

dependency period

the period until the youngest child reaches age 18 so the surviving spouse can care for the children

insurance

the pooling of fortuitous losses by transfer of such risks to insurers, who agree to indemnify insureds for such losses, to provide other pecuniary benefits on their occurrence, or to render services connected with the risk

chance of loss

the probability that an event that causes a loss will occur

underwriting

the process of selecting and classifying applicants for insurance

apparent authority

the public reasonably believes the agent possesses based on the actions of the principal

Objective risk is defined as

the relative variation of actual loss from expected loss

objective risk (degree of risk)

the relative variation of actual loss from the expected loss

all of the following are commercial risks EXCEPT

the risk of insufficient retirement income

which of the following conditions are appropriate for using retention

the sort possible loss is not serious (II only)

express authority

the specific powers the agent receives from the insurer

which of the following statements about a personal risk management program are true

the steps in a personal risk management process are the same steps used by businesses (II only)

adverse selection

the tendency of persons with a higher-than-average chance of loss to seek insurance at standard (average) rates, which if not controlled by underwriting, results in higher-than-expected loss levels

financial risk

the uncertainty of loss because of adverse changes in commodity prices, interest rates, foreign exchange rates, and the value of money

methods by which insurers may minimize or avoid catastophic losses include

the use of reinsurance ( I only)

when we increase the number of cars that we insure we can expect that

the variation between the actual expected loss and the variable loss would decrease

res ipsa loquitur

the very fact that the injury or damage occurred establishes a presumption of negligence on the behalf of the defendant

waiver

the voluntary relinquishment of a known legal right

which of the following statements about a priori probabilities is correct

they are objective probabilities that can be determined by deductive reasoning

which of the following statements about speculative risks is true

they may benefit society even though a loss occurs

which of the following statement about the use of deductibles is true

they represent risk retention by insurance purchasers (I only)

FAIR plans

to make property insurance available to urban property owners who are unable to obtain coverage in the standard markets

proximate cause

unbroken by any new and independent cause, which produces an event that otherwise would not have occurred

Subjective Risk

uncertainty based on a person's mental condition or state of mind

subjective risk

uncertainty based on a person's mental condition or state of mind

risk

uncertainty concerning the occurrence of a loss

Traditionally risk has been defined as

uncertainty concerning the occurrence of loss

imputed negligence

under certain conditions, the negligence of one person can be attributed to another

Angie was injured when her car was struck by a driver who ran a red light. The other driver carried the minimum liability coverage necessary to be considered financially responsible. Angie's injuries were $15,000 above the minimum bodily injury limit. There is a coverage that can be added to the PAP that apples when a negligent driver carries the minimum liability insurance required by the state, but less than the insured's actual damages for bodily injury. The coverage is called

uninsured motorist coverage

10) Blake was severely injured by an uninsured driver. Blake did not purchase uninsured motorist coverage, and the other driver, although held liable in court, could not pay the settlement the court ordered. After exhausting all other means of recovery, Blake was able to obtain some relief from a state fund designed to compensate individuals like Blake. These state funds are called

unsatisfied judgement funds

appraisal clause

used when the insured and the insurer agree that the loss is covered, but the amount of the loss is in dispute

needs approach

various family needs are analyzed and the amount of money needed to meet these needs is determined

The voluntary relinquishment of a legal right is called

waiver

adverse selection occurs

when applicants with the higher than average chance of loss seek insurance at the standard

Lloyd's of London

world's leading insurance market that provides services and physical facilities for its members to write specialized forms of insurance or unusual exposure units