Florida 2-15 Insurance Final Review Test

In the insurance business, risk can best be defined as: A. sharing the possibility of a loss B. uncertainty regarding the future C. uncertainty regarding financial loss D. uncertainty regarding when death will occur - ANSWER C. The concept of insurance developed from the need to minimize the adverse effects of risk associated with the probability of financial loss. Which of the following risks is insurable? A. pure risks B. gambling C. speculative risks D. investing - ANSWER A. Only pure risks are insurable because they involve only the chance of loss. They are pure in the sense that they do not mix both profits and losses. Insurance is concerned with the economic problems created by pure risks. Buying insurance is one of the most effective ways of A. avoiding risk B. transferring risk C. reducing risk D. retaining risk - ANSWER B. Buying insurance is one of the most effective ways of transferring risk. Through the insurance contract, the burden of carrying the risk and indemnifying the financial loss is transferred from the individual to the insurance company. Which of the following best describes the function of insurance? A. it is a form of legalized gambling.B. it spreads financial risk over a large group to minimize the loss to any one individual C. it protects against living too long D. it creates and protects risks - ANSWER B. The function of insurance is to safeguard against financial loss by having the losses of few paid by the contributions of many who are exposed to the same risk. All of the following are elements of an insurable risk EXCEPT A. the loss must be due to chance B. the loss must be predictable C. the loss must be catastrophic D. the loss must have a determinable value - ANSWER C. One of the criteria for an insurable risk is that it NOT be catastrophic. A principle of insurance holds that only a small portion of a given group will experience loss at any one time. Risks that would adversely affect large numbers of people or large amounts of property - wars or floods, for example - are typically not insurable. The amount of money an insurer sets aside to pay future claims is called A. a premium B. a reserve