XCEL Chapter 2

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

Hazard

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

Law of large numbers

Insurance companies determine risk exposure by which of the following?

Law of large numbers and risk pooling

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

Loss exposure

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

Loss must be catastrophic

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

Moral Hazard

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

Principle of indemnity

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

Probability that an event will occur

Which of these statements correctly describes risk?

Pure risk is the only insurable risk

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

Risk is eliminated

Which of the following is a circumstance in which there is a possibility of both a loss or a gain?

Speculative risk

Which type of risk is gambling?

Speculative risk

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

The cause of a loss

People with higher loss exposure have the tendency to purchase insurance more often than those at average risk. This is called

adverse selection

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

Which of these techniques will remove the risk of losing money in the stock market by never purchasing stocks?

risk avoidance

Insurance represents the process of risk

transference


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