Chapter 2: Final
Which of the following best describes the statement "The more times an event is repeated, the more predictable the outcome becomes"?
Law of large numbers
Which of the following is NOT an element of an insurable risk?
Loss must be catastrophic
Which of the following is considered to be any situation that has the potential for loss?
Loss exposure
Which of the following is considered to be an event or condition that increases the probability of an insured's loss?
Hazard
Which of the following refers to a condition that may increase the chance of a loss?
Hazard
Which of the following describes the increase in the probability of a loss due to an insured's dishonest tendencies?
Moral hazard
What is known as the immediate specific event causing loss and giving rise to risk?
Peril
All of the following circumstances must be met for loss retention to be an effective risk management technique, EXCEPT
Probability of loss is unknown
Which of these statements correctly describes risk?
Pure risk is the only insurable risk
Which of these techniques will remove the risk of losing money in the stock market by never purchasing stocks?
Risk avoidance
Which of the following would NOT be accomplished with the purchase of an insurance policy?
Risk is eliminated
Moral hazard is described as the
increased chance of a loss because of an insured's dishonest tendencies
The cause of a loss is referred to as a(n)
peril
A situation in which there is ONLY a chance of loss or no loss is a
pure risk
An insurer having a large number of similar exposure units is considered important because
the greater the number insured, the more accurately the insurer can predict losses and set appropriate premiums
Insurance represents the process of risk
transference
Insurance companies determine risk exposure by which of the following?
Law of large numbers and risk pooling
How do insurers predict the increase of individual risks?
Law of large number
Which of the following is a situation where there is a possibility of either a loss or a gain?
Speculative risk
Which of the following is NOT considered a definition of risk?
The cause of a loss
A hazard can be best described as
a condition that may increase the likelihood of a loss occuring
People with higher loss exposure have the tendency to purchase insurance more often than those at average risk. This is called
adverse selection