LOMA 280- MODULE 1 (CHAPTER 1) STUDY GUIDE
Speculative Risk - Answers - Involves three possible outcomes: loss, gain, or no
change. Example: Purchasing Stocks
Pure Risk - Answers - Involves no possibility of gain; either a loss occurs or no loss
occurs.
Risk Management - Answers - The process in which individuals and businesses identify
and assess the risks they face and determine how to deal with their exposure to these
risks
Four general methods used to manage risk - Answers - 1. Avoiding the risk
2. Controlling the risk
3. Transferring the risk
4. Accepting the Risk
Avoiding the Risk - Answers - The most obvious, simply try to avoid risk altogether
Controlling the Risk - Answers - Try to control risk by taking steps to prevent or reduce
potential losses
Transferring the Risk - Answers - When you transfer risk to another party, you are
shifting the liability associated with that risk to the other party, usually involves a fee for
that transfer
Accepting the Risk - Answers - To assume all financial responsibility for that risk
Insurance - Answers - A method in which an individual or entity transfers to another
party the risk of financial loss from events such as accident, illness, property damage, or
death
Insurer - Answers - A company that accepts risk and makes a promise to pay a policy
benefit if a covered loss occurs
Policy Benefit - Answers - Is a specific amount of money the insurer agrees to pay
under an insurance policy when a covered loss occurs
Insurance Policy - Answers - Is a written document that contains the terms of the
agreement between the insurer and the owner of the policy
Premium - Answers - Is the specified amount of money an insurer charges in exchange
for agreeing to pay a policy benefit when a covered loss occurs
Speculative Risk - Answers - Involves three possible outcomes: loss, gain, or no
change. Example: Purchasing Stocks
Pure Risk - Answers - Involves no possibility of gain; either a loss occurs or no loss
occurs.
Risk Management - Answers - The process in which individuals and businesses identify
and assess the risks they face and determine how to deal with their exposure to these
risks
Four general methods used to manage risk - Answers - 1. Avoiding the risk
2. Controlling the risk
3. Transferring the risk
4. Accepting the Risk
Avoiding the Risk - Answers - The most obvious, simply try to avoid risk altogether
Controlling the Risk - Answers - Try to control risk by taking steps to prevent or reduce
potential losses
Transferring the Risk - Answers - When you transfer risk to another party, you are
shifting the liability associated with that risk to the other party, usually involves a fee for
that transfer
Accepting the Risk - Answers - To assume all financial responsibility for that risk
Insurance - Answers - A method in which an individual or entity transfers to another
party the risk of financial loss from events such as accident, illness, property damage, or
death
Insurer - Answers - A company that accepts risk and makes a promise to pay a policy
benefit if a covered loss occurs
Policy Benefit - Answers - Is a specific amount of money the insurer agrees to pay
under an insurance policy when a covered loss occurs
Insurance Policy - Answers - Is a written document that contains the terms of the
agreement between the insurer and the owner of the policy
Premium - Answers - Is the specified amount of money an insurer charges in exchange
for agreeing to pay a policy benefit when a covered loss occurs
