PF chapter 21-23

In the business cycle, the trough is followed by recovery.

true

Insurers cannot predict which specific individuals will suffer losses.

true

Some risks are not serious enough to insure

true

You cannot buy insurance on a house you do not own

true

Risk transfer is the process of accepting the consequences of risk.

false

Risk Avoidance

lowers the chance for loss by not doing the activity that could result in the loss.

pure risk

chance of loss with no chance of gain

Specified losses an insurance policy does not cover are called

Exclusion

Making an investment to help offset against loss is called

Hedging

means putting the policyholder back in the same financial condition he or she was in before the loss occurred.

Indemnification

Which of the following would not be an insurable risk?

a speculative risk

Essentially, insurance is a way to enrich policyholders.

false

It is not possible to protect yourself from the consequences of pure risks

false

Life insurance typically becomes a higher priority for people as they enter their retirement years and their children marry and start lives of their own.

false

Having more than one type of policy, such as auto insurance and homeowners insurance, with the same insurer can result in a

multi-line discount

buying insurance is an example of

risk shifting

liability risk

the chance of loss that may occur when your errors or actions result in injuries to others or damages to their property.

In which period of the business cycle has the economy hit the bottom?

trough

Economic risk may result in gain or loss because of changing economic conditions.

true

Factories begin laying off workers during the decline period of the business cycle.

true

Generally, the higher the deductible, the lower the insurance premium.

true

The financial strength of an insurer can be a major factor in keeping down insurance costs.

true

All of the following types of insurance protect against personal risk except

property insurance.

Risk Management

an organized strategy for controlling financial loss from pure risks.

Which of the following techniques is not recommended for a serious risk?

assume the risk

Which of the following will likely result in lower insurance costs?

buy more than one type of insurance from the same company

The amount of money payable to a policyholder upon discontinuation of a life insurance policy is called the face amount.

false

The premiums for group plans are usually considerably higher than for individual plans.

false

The three major insurable risks are pure, economic, and speculative.

false

A condition that creates or increases the likelihood of some loss is called a

hazard

is a method for spreading individual risk among a large group of people.

insurance

Which of the following is an example of a speculative risk?

placing a bet on a horse race

Under an insurance policy, the insurer agrees to assume an identified risk when the policyholder pays a fee called the

premium

Understanding the types of risk you will face and their potential consequences is called

risk assessment

Using seat belts or installing smoke alarms in your home are examples

risk reduction