Risk Management & Insurance Final Exam With Correct Answers!!

Objective risk - Objective Risks are measurable and can be improved by Loss Prevention & Loss Control Subjective risk - Subjective Risk - A state of mind/worry. Improvement by discussion and understanding What are the principles of when you must show insurable interest for property and life insurance? - Property - At the time of Loss Life - At the time of Purchase Define pure and speculative risk - Pure - Only Negative Results Speculative - Positive or Negative Results What are the reasons for internal policy Sub Limits? - To provide limited coverage, and require scheduling of higher limits or insuring elsewhere What impact does an increased amount of exposure units have on the Expected Loss Value? - The larger the number of units, the closer the expected value will be to actual results, and a Lower Variance and Standard deviation Define a Peril, A Hazard, and an Exposure - A Peril is what causes damage - Wind, Fire, collision, hail A Hazard is a physical condition that increases the chance of an accident/event - Icy roads, poor maintenance, dying tree near your house Exposure - The item subject to possible damage - House, car, people What are the key elements to make risk insurable? - Must be identifiable Must be measurableHave a calculable chance of loss Must be a large number of similar exposures Losses must be Fortuitous - Unexpected and accidental Not Catastrophic in nature Have economically feasible premiums Understand the difference between Maximum Possible and Maximum Probable Loss - Max Possible - Worst case possible - total of all assets destroyed - Not reduced by Loss Cont. Max Probable - Most likely max loss considering loss control measures Why are there Deductibles in policies - Provide incentive for insured to manage exposures/claims Reduce insurance premiums To eliminate small and expensive losses to adjust/settle Understand Objective, Subjective, Systemic Risks - Objective Measurable & manageable Subjective - State of mind - Talk it out