1 - D Hazards and Risk

During a violent summer storm in Tulsa, a bolt of lightning hits Mr. Jones' house, damaging a large portion of the roof. In this case, the insurer would call the lightning bolt a: A. Peril B. Hazard C. Loss D. Risk

A. Peril

Which of the following statements best describes the Law of Large Numbers? A. The larger the number of units insured, the more accurately the insurer can predict the number of claims from that group B. The larger the number of insurance policies written, the more an insurer will pay out C. The larger the number of insurance policies written, the higher the profit for the insurer D. The larger the amount an insurance company can charge in premiums, the less likely a policyholder will file a claim

A. The larger the number of units insured, the more accurately the insurer can predict the number of claims from that group

Which of the following best describes the insurance concept of "exposure"? A. The possibility of damage or loss B. The cause of damage or loss C. The reduction in value of an insured item D. A condition that increases the possibility of a loss

A. The possibility of damage or loss

Define: Speculative risk

Any risk in which gain is possible. Not insurable

Define: Pure risk

Any risk in which no gain is possible. Insurable

Define: Hazard

Anything that increases exposure

Harold wants to buy an insurance policy for his home in Atlanta. The insurance company writes him a policy. To the insurance company, Harold's home is considered: A. A hazard B. A risk C. A loss D. An asset

B. A risk

Which of the following is NOT a qualification of an insurable risk? A. An insurable risk must have definable parameters B. An insurable risk must have guaranteed protection from damage C. An insurer must be able to charge premiums high enough to pay out claims D. An insurable risk must have a quantifiable value

B. An insurable risk must have guaranteed protection from damage

Fred has decided to store his fuel tanks inside his garage where he builds automobiles. To the insurer, the fuel tanks would be considered: A. A risk B. A peril C. A hazard D. An exposure

C. A hazard

Joe's driveway has a very steep grade with several sharp turns, and it gets very muddy during rains. To an insurance company, Joe's driveway might be considered: A. A loss B. A risk C. A hazard D. A peril

C. A hazard

From the point of view of an insurer, which of the following is a risk? A. A large tree growing next to a house B. A hurricane C. An insured automobile D. A thunderstorm

C. An insured automobile

Which of the following activities is considered a speculative risk? A. Driving a car B. Flying in an airplane C. Buying a lottery ticket D. Leaving your jewelry on a bed stand

C. Buying a lottery ticket

Sarah is driving carelessly through the streets of Tallahassee when she hits a puddle and loses control of her car. She crashed into a telephone pole and the car is completely wrecked. To her insurer, Sarah's car is now considered a: A. Hazard B. Risk C. Loss D. Peril

C. Loss

Which of the following is NOT an insurable risk? A. A collection of jewelry B. An airplane C. A forklift D. A small town

D. A small town

Which of the following statements about a speculative risk is TRUE? A. A speculative risk can only result in a loss B. A speculative risk always results in a personal gain C. Insurance companies only insure speculative risks D. A speculative risk involves a conscious choice

D. A speculative risk involves a conscious choice

Sally's home in Roswell burns to the ground after a lightning strike. Sally has a homeowners policy that covers lightning damage. The insurance company now views Sally's house as a: A. Peril B. Risk C. Hazard D. Loss

D. Loss

A risk that carries no possibility of gain is called a _____ risk. A. Slight B. Monetary C. Speculative D. Pure

D. Pure

Cliff wants to build a cabin in a heavily wooded area. He would like to buy insurance for this cabin, but the underwriter of his insurance company first wants to research the history of forest fires in the area in which Cliff wants to build. The underwriter is trying to determine: A. The perils B. The hazards C. The risks D. The exposure

D. The exposure

Stanley lives in a rough neighborhood with a high crime rate. When he inherits a very valuable original painting by Picasso, he tries to buy an insurance policy on the painting, but has trouble finding an insurance company that will sell him a policy. Why might this be? A. Since Stanley did not buy the painting, it does not have a quantifiable value B. The peril is higher than the insurer is willing to take on by issuing a policy C. The painting is not an insurable risk D. The exposure to loss is too great, based on where Stanley lives

D. The exposure to loss is too great, based on where Stanley lives

A risk is insurable IF: (6 points)

Policy premiums will cover both claims and expenses The insurer can define the exact condition under which the item is covered by the policy; if the item is definable; and if the item, person, or organization has clearly defined value The loss is unforeseeable, unexpected, and reasonably unpreventable The loss causes substantial economic hardship The insurer can exclude coverage for significant disasters and catastrophic events A large number of similar types of risk are insured

What are the 2 meanings of "Risk"?

Potential for loss The insured item

What are the 3 main points of the term "loss"?

Reduction in value Expense caused by a covered peril The amount an insurer pays to settle a claim

What are the 2 categories of risk?

Speculative Pure

Define: Peril

The cause of damage or loss

Define: Exposure

The possibility or likelihood of damage or loss