chapter 2

which of the following is any situation that presents the possibility of a loss? adverse selection risk pooling loss exposure insured loss

loss exposure

which of the following is considered to be any situation that has the potential for loss? -law of large numbers -adverse selection -loss exposure - risk transfer

loss exposures are situations which have the potential for loss.

a hazard can be best described as - the potential for loss - the tendency for poorer than average risk to seek out insurance - a condition that may increase the likelihood of a loss occurring - a risk that has the potential for both loss and gain

' a condition that may increase the likelihood of a loss occurring' a condition or situation that creates or increases a chance of loss is called a hazard. examples include ice roads, driving while intoxicated, and improperly stored toxic waste.

moral hazard is described as the - increased chance of loss bevause of an insureds recklessness -increases ability to predict los because of a higher exposure to loss - increased risk of adverse selection -increased chance of a loss b/c of an insured dishonest tendencies

'increased chance of a loss b/c of an insured dishonest tendencies' moral hazard can defined as the increased chance of a loss occurring due to insureds dishonest tendencies

An insurer having a large number of similar exposure units is considered important because - insurer can decrease its reserves -the greater the number insured, the more accurately the insurer can predict losses and set appropriate premiums - its financial rating will improve -the greater the number insured, the more premiums it collects

-'the greater the number insured, the more accurately the insurer can predict losses and set appropriate premiums.' the greater the number insured, the more accurately the insurer can predict losses and set appropriate premiums

which of the following is not considered to be a defnition of the term "loss"? -probability that an event will occur -an insurable event that takes place which results in a payment made by the insurance company - unintentional decrease in the value of an asset due to a peril the amount an insurance company must pay because of an insurable event

-probability that an event will occur the term loss ca be defined as all of these except 'probability that an event will occur'

which type of risk is gambling -pure risk - risk transfer -risk pooling -speculative risk

-speculative risk

which of the following refers to a condition that may increase the chance of a loss - adverse selection - hazard - risk - peril

a hazard is a condition or a 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 -hazard - pure risk -speculative risk -peril

a situation in which there is a possibility of a loss or a gain is a speculative risk

a situation in which there is only a chance of loss or no loss is a pure risk particular risk speculative risk fundamental risk

a situation in which there is only a chance of loss or no loss is a pure risk

Which of the following describes the increase in the probability of a loss due to an insured dishonest tendencies - morale hazard - physical hazard -moral hazard -speculative hazard

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

restoring an insured too the same condition as before a loss is known as law of large number fiduciary retention adverse selection principle of indemnity

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

all of the following circumstances must be met for loss retention to be an effective risk management technique, except. -loss cannot be catastrophic -probability of loss is unknown -highly predictable losses -loss must be measurable

probability of loss is unknown loss retention is an effective risk management technique with all these conditions exist EXCEPT when the probability of loss is unknown. the loss MUST be predictable

which of these statements correctly describes risk? -pure risk is the only insurance risk -speculative risk is the only insurable risk -an example of pure risk would be legal wager -pure and speculative risk are both insurable

pure risk is the only insurance risk

which of the following would not be accomplished with the purchase of an insurance policy greater peace of mind risk is eliminated payments made for covered losses uncertainty is reduced

risk is eliminated