Chapter 2

Restoring an insured to the same condition as before a loss is known as?

The principle of indemnity involves making an insured whole by restoring them to the same condition as before a loss.

Which of the following is considered to be any situation that has the potential for loss?

Loss exposures are situations which have the potential for loss.

A hazard can be best described as?

A condition or situation that creates or increases a chance of loss is called a hazard. Examples include icy roads, driving while intoxicated and improperly stored toxic waste.

Which of the following refers to a condition that may increase the chance of a loss?

A hazard is a condition out situation that creates or increases a chance of loss.

Which of the following is a situation where there is a possibility of either a loss or a gain?

A situation in which the is a possibility of a loss or a gain is a speculative risk.

Which of the following is NOT an element of an insurable risk?

All of these are elements of an insurable risk EXCEPT "Loss must be catastrophic".

Which of the following would NOT be accomplished with the purchase of an insurance policy?

All of these would be accomplished with the purchase of an insurance policy EXCEPT "risk is eliminated".

Moral hazard is described as the?

Moral hazard can be defined as the increased chance of a loss occurring due to the insured's disinterest tendencies.

Which of the following is NOT considered a definition of risk?

Something that can cause a loss, such as an earthquake or tornado, is referred to as a peril, not a risk.

Which type of risk is gambling?

Speculative 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.

Which of the following describes the increase in the probability of a loss due to an insured's dishonest tendencies?

The increase in the probability of a loss resulting from an insured's dishonest tendencies is known as moral hazard.

Which of the following best describes the statement "The more times an event happens, the more predictable the outcome becomes"?

The more times an event repeats, the more predictable the outcome becomes"is an example of the law of large numbers.

Which of the following is NOT considered to be a definition of the term "loss"?

The term "loss" cannot be defined as "Probability that an event will occur".