risk management midterm exam
All of the following statements about risk retention are true EXCEPT It may be used passively because of ignorance. Its use results in cost savings if losses are less than the cost of insurance. Its use is most appropriate for low-frequency, high-severity types of risks. It may be used intentionally if commercial insurance is unavailable.
Its use is most appropriate for low-frequency, high-severity types of risks
Which of the following statements describes how losses will be settled if a property insurance policy is written on a replacement cost basis? The policy is converted to a valued policy. Losses are settled without a deduction for depreciation. Losses are settled without the applicable deductible. The insurer must replace the damaged or destroyed property in lieu of a cash settlement.
Losses are settled without a deduction for depreciation
XYZ Insurance Company writes coverage for most perils which can damage property. XYZ, however, does not write flood insurance on property located in flood plains. Which requirement of an ideally insurable risk might be violated if XYZ wrote flood insurance on property located in flood plains? There must be a large number of similar exposure units. The loss should not be catastrophic. The losses must be determinable and measurable. The chance of loss must be calculable.
The loss should not be catastrophic
The policy provision requiring the filing of proof of loss with the insurer is an example of a(n) miscellaneous provision. insuring agreement. condition. declaration.
condition
Ted's insurance claim was denied by XYZ Insurance Company. When Ted inquired why the claim was denied, he was told to, "Read the exclusion on page 5 of the policy." Ted read the exclusion. In his opinion, the exclusion was poorly worded and vague. If a court of law agrees with Ted's assessment of the exclusion, Ted may still be able to have his claim paid by the insurer because insurance contracts are aleatory contracts. contracts of adhesion. unilateral contracts. personal contracts.
contracts of adhesion
ABC Insurance Company calculated the amount that it expected to pay in claims for each policy sold. Rather than selling the insurance for the amount it expected to pay in claims, ABC added an allowance to cover the cost of doing business, including commissions, taxes, and acquisition expenses. This allowance is called a(n) premium. rate credit. expense loading. policyowner dividend.
expense loading
All of the following will support an insurable interest for purposes of purchasing property and liability insurance EXCEPT contractual right. former ownership of property. potential legal liability. secured creditors.
former ownership of property
Which of the following is a form of casualty insurance? inland marine insurance fire insurance ocean marine insurance general liability insurance
general liability insurance
Which of the following types of loss exposures are best handled by the use of avoidance? high-frequency, low-severity loss exposures high-frequency, high-severity loss exposures low-frequency, low-severity loss exposures low-frequency, high-severity loss exposures
high-frequency, high-severity loss exposures
Cal was just hired as XYZ Company's first risk manager. Cal would like to employ the risk management process. The first step in the process Cal should follow is to evaluate potential losses faced by XYZ Company. implement and administer a risk management plan for XYZ Company. identify potential losses faced by XYZ Company. formulate a treatment plan for XYZ Company's loss exposures.
identify potential losses faced by XYZ Company
All of the following are social costs associated with insurance EXCEPT increased cost of capital. fraudulent claims. inflated claims. insurance company operating expenses.
increased cost of capital
The extra expense incurred by a business to stay in operation following a fire is an example of a(n) direct loss. speculative risk. indirect loss. fundamental risk.
indirect loss
ABC Insurance Company sells auto insurance in one state. Recently, the state legislature passed a law that limits the use of an individual's credit history by insurers when selecting applicants to insure. This change in law will increase the possibility of unprofitable results for ABC. This type of hazard is an example of physical hazard. moral hazard. legal hazard. attitudinal hazard.
legal hazard
Which of the following is an example of private insurance? federal deposit insurance Social Security unemployment insurance life insurance
life insurance
Parker Department Stores has been hurt in recent months by a large increase in shoplifting losses. Parker's risk manager concluded that while the frequency of shoplifting losses was high, the severity is still relatively low. What is (are) the appropriate risk management technique(s) to apply to this problem? transfer through insurance avoidance retention loss prevention
loss prevention
The worst loss that could ever happen to a firm is referred to as the frequency of loss. severity of loss. maximum possible loss. probable maximum loss.
maximum possible loss
When Ben applied for life insurance, he was asked on the application if he smoked or used tobacco products. Ben answered "No." In reality, Ben smokes two packs of cigarettes 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? warranty estoppel misrepresentation waiver
misrepresentation
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. This scenario illustrates the problem of nondiversifiable risk. attitudinal hazard. adverse selection. moral hazard.
moral hazard
Faking an accident to collect insurance proceeds is an example of physical hazard. moral hazard. attitudinal hazard. objective risk.
moral hazard
Brad started a pest control business. To protect his personal assets against liability arising out of the business, Brad incorporated the business. Brad's use of the corporate form of organization to shield against personal liability claims illustrates noninsurance transfer. fundamental risk. objective risk risk retention.
noninsurance transfer
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 objective risk. objective probability. subjective risk. subjective probability.
objective probability
When must an insurable interest legally exist in life insurance? both at the time of the insured's death and at the inception of the policy only at the time of the insured's death only at the inception of the policy only at the time the beneficiary is paid
only at the inception of the policy
When must an insurable interest legally exist in property insurance for an insured to receive payment for a loss from the insurer? both at the time of the loss and at the inception of the policy only at the time the loss settlement takes place only at the time of the loss only at the inception of the policy
only at the time of the loss
Homeowners insurance policies usually cover resident relatives of the named insured who are under age 24 and who are full-time students away from home. Under the homeowners policy, these full-time students are considered second named insureds. additional insureds. first named insureds. other insureds.
other insureds
David never stopped to consider the possible consequences of a long-term, permanent, disability. So David did not include disability income insurance in his personal risk management program. David is dealing with the risk of disability through risk control. active retention. risk avoidance. passive retention.
passive retention
A pharmaceutical company employs a young chemist who is responsible for three new patents last year and for the development of the company's two best-selling drugs. The company purchased a large life insurance policy on the chemist. In this case, the insurable interest requirement was met because of a(n) pecuniary interest. close family relationship. economic family relationship. ownership interest.
pecuniary interest
An earthquake is an example of a(n) objective risk. moral hazard. physical hazard. peril.
peril
Dense fog that increases the chance of an automobile accident is an example of a physical hazard. peril. speculative risk. moral hazard.
physical hazard
Lisa has three fire insurance policies on her office building. The policy from company A is for $400,000, and the policies from companies B and C are for $100,000 each. If Lisa has a $360,000 loss, how much of the loss will be covered by each policy if the loss is settled on a pro rata basis by the insurers? policy A: $160,000; policies B and C: $100,000 each policy A: $240,000; policies B and C: $60,000 each each policy: $120,000 policy A: $360,000; policies B and C: nothing
policy A: $240,000; policies B and C: $60,000 each
When Derrick became risk manager of Boller Company, he noticed that the company did not have a clear set of risk management objectives and a clearly-stated risk management philosophy. Derrick developed a written document stating the company's risk management objectives and risk management philosophy. This document is called a risk management policy statement. manuscript policy. manual. binder.
policy statement
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 each farmer sustained. Which characteristic of insurance is embodied in this agreement? pooling of losses risk avoidance indemnification fortuitous losses
pooling of losses
The purpose of other-insurance provisions is to preserve the principle of indemnity. penalize those insureds who carry inadequate amounts of insurance. eliminate the need for deductibles. specify who will pay losses if the insurer is bankrupt
preserve the principle of indemnity
The worst loss that is likely to happen is referred to as the severity of loss. probable maximum loss. frequency of loss. maximum possible loss.
probable maximum loss
Loss severity is defined as the probable number of losses which may occur during some period. probability that a liability judgment may exceed a firm's net worth. probable size of the losses which may occur during some period. probability that any particular piece of property may be totally destroyed.
probable size of the losses which may occur during some period
Which of the following types of risks best meets the requirements for being insurable by private insurers? most market risks property risks political risks financial risks
property risks
Insurance companies collect premiums in advance. Since the premiums collected are not needed to pay losses and expenses immediately, the funds can be loaned to business firms. Because of this fact, insurance benefits society by providing a source of investment funds. enhancing credit. indemnifying losses. providing an incentive for loss prevention.
providing a source of investment funds
The premature death of an individual is an example of a pure risk. nondiversifiable risk. speculative risk. physical hazard.
pure risk
An insurance company that sells earthquake insurance in an area where earthquakes are possible has subjected itself to the risk of insolvency if a severe earthquake occurs. An insurer can safely sell earthquake insurance in this area if it shifts the risk of catastrophic loss to another insurer. The shifting of insured risk from one insurer to another insurer is called reinsurance casualty insurance. underwriting. coinsurance.
reinsurance
Low-frequency, low-severity loss exposures are best handled by noninsurance transfer. retention. insurance. avoidance.
retention
Maggie purchased a life insurance policy. She was concerned that if she became disabled, she would no longer be able to pay the premiums. Her agent added an amendment of the policy stating that if she became disabled, future premium payments would be waived. Such an amendment to a life insurance policy is called a(n) binder. rider. warranty. schedule.
rider
From the insured's perspective, the use of deductibles in insurance contracts is an example of risk retention. risk control. risk avoidance. risk transfer.
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. This group captive is called a(n) Lloyd's association. reinsurance pool. alien insurer. risk retention group.
risk retention group
Purchasing health insurance illustrates the use of which personal risk management technique? risk transfer avoidance risk control risk retention
risk transfer
Which of the following is implied by the pooling of losses? sharing of losses by an entire group substitution of actual loss for average loss inability to predict losses with any degree of accuracy increase of objective risk
sharing of losses by an entire group
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 weighted in favor of low-income groups. These government insurance programs are called casualty insurance programs. private insurance programs. social insurance programs. welfare programs.
social insurance programs
Sue's office building was damaged by a fire caused by a careless tenant. After paying Sue for the loss, the insurance company sued the tenant to recover its loss. This suit is based on the principle of insurable interest. subrogation. warranty. utmost good faith.
subrogation
The principle of utmost good faith is supported by all of the following legal doctrines EXCEPT subrogation. warranty. concealment. representations.
subrogation
Some members of Congress are concerned that if one or two large U.S. banks fail, it could lead to the collapse of the entire U.S. financial sector. This risk is called objective risk. enterprise risk. systemic risk. subjective risk.
systemic risk
Under which of the following rules is actual cash value determined by taking into consideration all relevant factors an expert would use to determine the value of the property? the broad evidence rule the objective value rule the circumstantial evidence rule the property indemnity rule
the broad evidence rule
Maria's home was damaged by an earthquake. As Maria has open-perils coverage on her home, she was surprised to learn that her loss was not covered. Which section of a property insurance policy specifies which perils, property, and types of losses are not covered? the exclusions the conditions the declarations the insuring agreement
the exclusions
Risk management is concerned with the management of speculative risks only. the management of pure risks that are uninsurable. the identification and treatment of loss exposures. the purchase of insurance only.
the identification and treatment of loss exposures
Objective risk is defined as uncertainty based on a person's mental condition or state of mind. the cause of loss. the relative variation of actual loss from expected loss. the probability of loss.
the relative variation of actual loss from expected loss
Exclusions are used in insurance policies for all of the following reasons EXCEPT to eliminate coverage not needed by typical insureds. to eliminate coverage for uninsurable perils. to waive policy conditions. to reduce moral hazard.
to waive policy conditions
Traditionally, risk has been defined as uncertainty concerning the occurrence of loss. any situation in which the probability of loss is one. any situation in which the probability of loss is zero. the probability of a loss occurring.
uncertainty concerning the occurrence of loss
Janice mistakenly thought that Medicare covers the cost of a long-term care in a nursing home. So she did not purchase long-term care insurance or save in case she needed a long stay in a nursing home. Janice's treatment of the risk of a long-term stay in a nursing home is best described as risk control. unplanned retention. risk transfer. planned retention.
unplanned retention
David owns a liquor store in a high-crime area. In order to obtain a reduced insurance premium, David promised to have a burglar alarm operating at the store when the store was closed. This agreement, which was incorporated into the insurance contract, is an example of a representation. warranty. rider. binder.
warranty
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 $200 million. Acme's risk manager is concerned about the damage which could be caused by a single hurricane. The risk manager believes there is an extremely low probability that a single hurricane 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? $200 million $600 million $0 million $400 million
$200 million
ABC Company insured its building on a replacement cost basis for $700,000 under a property insurance policy that included an 80 percent coinsurance clause. The building had a replacement cost of $1 million when it sustained a $40,000 loss. How much will ABC Company receive from its insurer, assuming no deductible applies? $35,000 $33,333 $36,000 $40,000
$35,000
Laura's medical insurance policy includes a $500 deductible. Laura is required to pay 20 percent of covered expenses in excess of the deductible, and her insurer will pay 80 percent of covered expenses in excess of the deductible. Laura was hospitalized and her covered medical expenses were $10,500. How much of the $10,500 will be paid by the insurer? $8,000 $10,000 $7,500 $7,900
$8,000
Janice purchased a living room set for $1,000 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 loss, the property had depreciated in value by 25 percent. The replacement cost of the furniture at the time of loss was $1,200. Assuming no deductible, how much will Janice receive from her insurer? $1,200 $1,000 $900 $750
$900
Dave is an agent for Easy Pay Insurance. Easy Pay insures only high-quality applicants. Dave wanted to earn more commissions, so he sold some policies to applicants he knew were higher-than-average risks. When these policyowners started filing claims, Easy Pay tried to deny the claims stating that Dave had not acted appropriately. Which general rule of agency makes Easy Pay responsible for the claims of the higher-than-average risk policyowners? An agent must have authority to represent the principal. A principal is responsible for the acts of its agents who are acting within the scope of their authority. There is no presumption of an agency relationship. Agents should be compensated based on the quality of the business they generate.
A principal is responsible for the acts of its agents who are acting within the scope of their authority
Helen and John both own automobiles on which they carry liability insurance. If Helen is negligent and has an accident while driving John's car with his permission, how will each insurer respond to any liability judgment against Helen? The policies will pay the judgment on the basis of contribution by equal shares. John's insurer will pay on an excess basis if Helen's insurance is insufficient to cover the judgment. Helen's insurance will pay on an excess basis if John's insurance is insufficient to cover the judgment. The insurers will pay the judgment on a pro rata basis.
Helen's insurance will pay on an excess basis if John's insurance is insufficient to cover the judgment
Methods by which insurers may minimize or avoid catastrophic losses include which of the following? I.The use of reinsurance II.Concentrating coverage written in one geographic region I only II only both I and II neither I nor II
I only
Which of the following statements about "open-perils" coverage is (are) true? I.All losses are covered except those losses specifically excluded. II.The burden of proof is on the insured to prove that a loss is covered. I only II only both I and II neither I nor II
I only
Which of the following statements about the definition of the insured is (are) 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 an insured. I only II only both I and II neither I nor II
I only
Which of the following statements about the use of deductibles is (are) true? I. They represent risk retention by insurance purchasers. II. They tend to increase the cost of adjusting small claims. I only II only both I and II neither I nor II
I only
Which of the following statements concerning the selection of risk management techniques and insurance market conditions is (are) true? I.It's easier to purchase affordable insurance during a "soft" market than during a "hard" market. II.Retention is used more during a "soft" market than during a "hard" market. I only II only both I and II neither I nor II
I only
Fundamental purposes of the principle of indemnity include which of the following?I.To reduce physical hazardsII.To prevent the insured from profiting from insurance I only II only both I and II neither I nor II
II only
Which of the following statements about an insurable interest in life insurance is (are) true? I.It is required of any person named as beneficiary. II.It may result from a pecuniary (financial) interest. I only II only both I and II neither I nor II
II only
Which of the following statements about the principle of insurable interest is (are) true? I.It makes it difficult to measure the amount of an insured's loss. II.It reduces moral hazard. I only II only both I and II neither I nor II
II only
Which of the following statements regarding the use of retention is (are) 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. I only II only both I and II neither I nor II
II only
Which of the following types of loss exposures may be appropriately handled through the purchase of insurance? I.High-frequency, low-severity loss exposures II.Low-frequency, high-severity loss exposures I only II only both I and II neither I nor II
II only
Jane purchased a $50,000 liability insurance policy from Insurer A. Fearing that she did not have enough liability insurance, she purchased an additional $100,000 of liability coverage from Insurer B. As a result of a negligent act, Jane was ordered to pay $75,000 in damages. Assuming the coverage from Insurer A is primary and the coverage from Insurer B is excess, how will this claim be settled? Insurer A will pay $25,000 and Insurer B will pay $50,000. Insurer A will pay $50,000 and Insurer B will pay $25,000. Insurer A will pay nothing and Insurer B will pay $75,000. Insurer A will pay $37,500 and Insurer B will pay $37,500.
Insurer A will pay $50,000 and Insurer B will pay $25,000
Why is a large number of exposure units generally required before a pure risk is insurable? It eliminates intentional losses. It enables the insurer to predict losses more accurately. It minimizes moral hazard. It prevents the insurer from losing money.
It enables the insurer to predict losses more accurately
An insurance company estimates its objective risk for 10,000 exposures to be 10 percent. 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 remain the same. It would decrease to 5 percent. It would decrease to 1 percent. It would increase to 20 percent.
It would decrease to 1 percent
Kevin has three liability policies which provide for contribution by equal shares if other insurance applies to a loss. How much will each policy pay for a $3,000,000 liability judgment if policy A provides $500,000 of coverage, policy B provides $1,000,000 of coverage, and policy C provides $3,000,000 of coverage? Policy A will pay $500,000, policy B will pay $1,000,000, and policy C will pay $1,500,000. Policy A will pay $500,000, policies B and C will each pay $1,000,000, and Kevin must pay the remaining $500,000. Each policy will pay $500,000, and Kevin must pay the remaining $1,500,000. Policy A will pay nothing, policy B will pay $1,000,000, and policy C will pay $2,000,000
Policy A will pay $500,000, policy B will pay $1,000,000, and policy C will pay $1,500,000
Which of the following statements about subrogation is true? Subrogation results in violation of the principle of indemnity. Subrogation helps to hold down the cost of insurance. Subrogation eliminates adverse selection. Subrogation permits a party who caused a loss to avoid responsibility for the loss.
Subrogation helps to hold down the cost of 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 2,000 homeowners this year? The total dollar value of claims will decrease. The actual results will more closely approach the expected results. The average size of loss will decline in value. The total number of claims filed by JKL policyowners should decrease.
The actual results will more closely approach the expected results
What is the legal significance of a material misrepresentation in an insurance application? The contract is voidable at the insurer's option. The contract is automatically voided from its inception. The insurer is immediately entitled to a higher premium. Loss payments are reduced by the degree of the misrepresentation.
The contract is voidable at the insurer's option
What information is contained in the insuring agreement of an insurance policy? a summary of the major promises of the insurer a list of the property, losses, and perils that are not covered a description of the property or life to be insured a summary of the obligations of the insured
a summary of the major promises of the insurer
The primary purpose of coinsurance in property insurance is to achieve equity in rating. reduce moral hazard. minimize problems in settling claims. eliminate small losses.
achieve equity in rating
The production facility for ABC Manufacturing is located in a flood plain. Although the risk of flood is low, ABC's risk manager is concerned that a flood could damage the plant and equipment. He received bids on flood insurance from two insurance agents, but decided the cost of coverage was too high relative to the risk. So he did not purchase flood insurance. Which risk management technique is ABC using with respect to the risk of flood? active retention passive retention avoidance noninsurance transfer
active retention
The loss settlement under which of the following supports the principle of indemnity? replacement cost property insurance life insurance valued policies actual cash value property insurance
actual cash value property insurance
ABC Appliance offers a warranty requiring an annual fee. The warranty may be purchased at the time of sale or at any time within the first year after the appliance was purchased. The warranty fee after the date of purchase is twice the time-of-purchase fee. When asked why the fee was higher after the date of purchase, ABC's president said, "Buying a warranty is voluntary. We've noted that those who buy the warranty after the purchase date have a greater need for service." Charging the same rate or a lower rate after the date of purchase would expose ABC to what problem that also impacts private insurers? bad investments excessive premiums adverse selection reduced claims
adverse selection
BBB Auto Club provides emergency road service and other services to its members. BBB Auto Club charges a higher membership fee to new members than it charges to members who are renewing their membership. When asked to explain this pricing policy, the auto club president noted, "New members often sign-up prior to taking a long road trip, so we have to charge more as first-year members have higher service utilization rates." A similar phenomenon observed in insurance markets is called risk aversion. adverse selection. attitudinal hazard. moral hazard.
adverse selection
The tendency for unhealthy people to seek life or health insurance at standard rates is an example of adverse selection. fundamental risk. moral hazard. attitudinal hazard.
adverse selection
A total loss under a valued policy is settled on the basis of the market value of the loss. actual cash value of the loss. amount of insurance covering the loss replacement value of the loss.
amount of insurance covering the loss
The requirement that losses should be accidental and unintentional in order to be insurable results in which of the following? I.Decrease in moral hazard II.More accurate prediction of future losses I only II only both I and II neither I nor II
both I and II
Which of the following statements regarding insurance and hedging is (are) true? I.Insurance involves the transfer of an insurable risk while hedging handles risk that is typically uninsurable. II.Insurance transactions can reduce objective risk, while hedging typically involves only risk transfer and not risk reduction. I only II only both I and II neither I nor II
both I and II
Which statement about a company's cost of risk is (are) true? I.Cost of risk includes insurance premiums and retained losses. II.Reducing the cost of risk increases profitability. I only II only both I and II neither I nor II
both I and II
That part of a property and liability insurance contract that contains information about the property or activity to be insured is called the insuring agreement. exclusions. declarations. conditions.
declarations
A risk that affects only individuals or small groups and not the entire economy is called a pure risk. diversifiable risk. speculative risk. nondiversifiable risk.
diversifiable risk
Five years ago, Shannon decided to start investing monthly in the common stock of ABC Telecom Company. Her financial well-being will be harmed if the price of ABC Telecom stock drops significantly. The risk of investment loss can be reduced if she invests in other companies and other types of financial assets. The risk Shannon faces with regard to her investments is a(n) enterprise risk. diversifiable risk. nondiversifiable risk. pure risk.
diversifiable risk
Melanie was just hired as the risk manager of JKL Company. The company president asked her to make a thorough review of all of the company's loss exposures. Melanie noted that many employees were too heavily invested in stock issued by the company in their 401-k plan. Melanie suggested that the employees change some of their investment holdings to mutual funds that invest in stock issued by different companies. The risk control method that Melanie suggested is separation. duplication. diversification. risk avoidance.
diversification
One of the reasons that deductible are used in insurance policies is to exclude perils that are not insurable. place restrictions or limits on the insurer's promise to perform. provide broader coverage by increasing the number of perils covered. eliminate coverage for small claims.
eliminate coverage for small claims
All of the following are benefits to society that result from insurance EXCEPT elimination of moral hazard. less worry and fear. loss prevention. indemnification for loss.
elimination of 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 a(n) calendar year deductible. grace period. elimination period. probationary period.
elimination period
Mark reviewed his homeowners policy. He learned that his personal property was insured on an actual cash value basis. He would like replacement cost coverage on his personal property. He contacted his agent who said, "I'll simply add an amendment to your contract that changes the basis of recovery to replacement cost." The written provision the agent was referring to is called a(n) endorsement. binder. deductible. coinsurance clause.
endorsement
A name that encompasses all of the major risks faced by a business firm is pure risk. financial risk. enterprise risk. speculative risk.
enterprise risk
Morris Company self-insures its workers compensation loss exposure. The risk manager of Morris Company is concerned about the possible impact of a single catastrophic claim. She decided to set a retention limit of $500,000 per-claim, and to purchase insurance that will be begin to pay once Morris Company has paid $500,000 on a single claim. The insurance the risk manager purchased is called excess insurance. captive insurance. umbrella insurance. primary insurance.
excess insurance