Basic insurance concept and principles
What do individuals use to transfer their risk of loss to a large group
Insurance
The legal definition of "person" would NOT include which of the following
a family
a tornado that destroys property would be an example of which of which of the following.
a peril
The protection of the insurer from adverse selection is provided in part by
a profitable distribution of exposures
Which of the following s consider to be a morale hazard
driving recklessly
A contract which one party undertakes to indemnify another against loss is called
insurance
All of the following actions by a person could be described as risk avoidance EXCEPT
investing in the stock market
The insurer may suspect that a moral hazard exists if the policyholder
is not honest about his health on an application for insurance.
The growing tendency of individuals to file lawsuits and to claim tremendous amounts for alleged damages is know as
legal hazard
A situation in which a person can only lose or have no change represents
pure risk
For the purpose of insurance risk is defined as
the uncertainty or chance of loss
Events or conditions that increase the chances of an insurance loss occurring are referred to as
hazards
The risk management technique that is used to prevent a specific loss by not exposing oneself to that activity is called
avoidance
Units with the same or similar exposure to loss are referred to as
homogeneous
Which statement regarding insurable risks is NOT correct
insureds cannot be randomly selected
Profitable distribution of exposures serves the purpose of
protecting the insurer against adverse selection
Which of the following is NOT a goal of risk retention
to minimize the insureds level of liability in the event of loss
All of the following are examples of risk retention EXCEPT
premiums
What describes a situation when poor risks are balanced with preferred risks, and average risks are in the middle
profitable distribution of exposures
According to California Insurance Code, which of the following can be classified as an insurable event
pure risks
Following a career change an insurance is not longer required to perform many physical activities so he has implemented a program where he walks and jogs for 45 minutes each morning. The insured has also eliminated most fatty foods from his diet. Which method of dealing with risk does this scenario describe
reduction
Insurance is a contract by which one seeks to protect another form
loss
An individuals tendency to be dishonest would be indicative of a
moral hazard
A person who does not lock the doors or does not repair leaks shows an different attitude. This person presents what type of hazard
morale
The causes of loss insured against in n insurance policy are known as
perils
Which of the following individuals must have insurable interest in the insured
policyowner
Adverse selection is a concept best described as
risks with higher probability of loss seeking insurance more often than other
Events in which a person has both the chance of winning or losing are classified as
speculative risk
Peril is most easily defined as
the cause of loss insured against
