RMIN 4000 BROWN EXAM 2 STUDY GUIDE
TESTED QUESTIONS AND ANSWERS
GRADED A+
●● Perils
Answer: things that cause injury or loss
●● risk
Answer: a calculated possibility of a negative outcome
●● Frequency
Answer: the number of losses (such as fire or theft) that occur within a
specified time period. aka the probability of a loss
●● Severity
Answer: the dollar amount of a loss for a specific peril (fire, theft,
collision) aka How much does it cost when the loss does occur?
●● Hazard
Answer: a condition that creates or increases the frequency or severity of
loss but does NOT cause the loss.
,●● Physical Hazard
Answer: a physical condition that increases the frequency or severity of
loss
●● Moral Hazard
Answer: the presence of insurance changes the behavior of the insured.
ex: making hail damage to get a check
●● Morale hazard (attitudinal hazard)
Answer: A condition of carelessness or indifference that increases the
frequency or severity of loss.
●● Legal Hazard
Answer: characteristics of the legal system or regulatory environment
that increase the frequency or severity of losses
●● Georgia's Diminution in value is an example of a
Answer: legal hazard because it increases the severity on property losses
●● Pure Risk
Answer: A chance of loss or no loss, but no chance of gain. Insurance
can be bought for this
, ●● Speculative Risk
Answer: A chance of loss, no loss, or gain.
●● Diversifiable risk
Answer: a risk that affects only individuals or small groups and not the
entire economy. It can be eliminated/ reduced through diversification.
the risks are not correlated
●● Developing cancer or your house being caught on fire are two
examples of what kind of risk?
Answer: Pure Risk
●● diversifiable risk
Answer: A risk that affects only some individuals, businesses, or small
groups. they can be reduced/eliminated through diversification. the risks
are not correlated
●● Non-Diversifiable Risk
Answer: affects the entire economy or large numbers of persons or
groups within the economy (hurricane, flood), risks are correlated
(inflation, unemployment) cannot be eliminated through diversification
●● Enterprise Risk
TESTED QUESTIONS AND ANSWERS
GRADED A+
●● Perils
Answer: things that cause injury or loss
●● risk
Answer: a calculated possibility of a negative outcome
●● Frequency
Answer: the number of losses (such as fire or theft) that occur within a
specified time period. aka the probability of a loss
●● Severity
Answer: the dollar amount of a loss for a specific peril (fire, theft,
collision) aka How much does it cost when the loss does occur?
●● Hazard
Answer: a condition that creates or increases the frequency or severity of
loss but does NOT cause the loss.
,●● Physical Hazard
Answer: a physical condition that increases the frequency or severity of
loss
●● Moral Hazard
Answer: the presence of insurance changes the behavior of the insured.
ex: making hail damage to get a check
●● Morale hazard (attitudinal hazard)
Answer: A condition of carelessness or indifference that increases the
frequency or severity of loss.
●● Legal Hazard
Answer: characteristics of the legal system or regulatory environment
that increase the frequency or severity of losses
●● Georgia's Diminution in value is an example of a
Answer: legal hazard because it increases the severity on property losses
●● Pure Risk
Answer: A chance of loss or no loss, but no chance of gain. Insurance
can be bought for this
, ●● Speculative Risk
Answer: A chance of loss, no loss, or gain.
●● Diversifiable risk
Answer: a risk that affects only individuals or small groups and not the
entire economy. It can be eliminated/ reduced through diversification.
the risks are not correlated
●● Developing cancer or your house being caught on fire are two
examples of what kind of risk?
Answer: Pure Risk
●● diversifiable risk
Answer: A risk that affects only some individuals, businesses, or small
groups. they can be reduced/eliminated through diversification. the risks
are not correlated
●● Non-Diversifiable Risk
Answer: affects the entire economy or large numbers of persons or
groups within the economy (hurricane, flood), risks are correlated
(inflation, unemployment) cannot be eliminated through diversification
●● Enterprise Risk
