INTRO TO ACTUARIAL SCIENCE CHP 9
QUESTIONS AND VERIFIED
ANSWERS|100% CORRECT|GRADE A+
What are the effects of insurance on wealth? - ANSWER Insurance reduces wealth if a loss does not
occur
Insurance increases wealth if a loss occurs
loading - ANSWER premium - expected claim costs
What is the concept of risk aversion? - ANSWER Motivates most individuals to purchase insurance even
though insurance premiums exceed expected claim costs
A risk averse person prefers a certain amount of wealth to a risky situation with the same expected
wealth
A risk averse person would require compensation before accepting a gamble (called a risk premium)
A risk averse person would be willing to pay more than the expected loss to reduce risk
most people are risk averse- pay positive loadings for insurance and require additional expected return
to invest in riskier securities
A loss of $X hurts more than a gain of $X because money means more to you when you have less of it
(the loss hurts more than the gain benefits you)
What other factors affect demand for insurance? - ANSWER the premium loading, a person's income and
wealth, an individual's information about expected losses relative to the insurer's information, the
availability of other sources of indemnity, such as government assistance, and the nature of losses
(monetary vs. non-monetary)
QUESTIONS AND VERIFIED
ANSWERS|100% CORRECT|GRADE A+
What are the effects of insurance on wealth? - ANSWER Insurance reduces wealth if a loss does not
occur
Insurance increases wealth if a loss occurs
loading - ANSWER premium - expected claim costs
What is the concept of risk aversion? - ANSWER Motivates most individuals to purchase insurance even
though insurance premiums exceed expected claim costs
A risk averse person prefers a certain amount of wealth to a risky situation with the same expected
wealth
A risk averse person would require compensation before accepting a gamble (called a risk premium)
A risk averse person would be willing to pay more than the expected loss to reduce risk
most people are risk averse- pay positive loadings for insurance and require additional expected return
to invest in riskier securities
A loss of $X hurts more than a gain of $X because money means more to you when you have less of it
(the loss hurts more than the gain benefits you)
What other factors affect demand for insurance? - ANSWER the premium loading, a person's income and
wealth, an individual's information about expected losses relative to the insurer's information, the
availability of other sources of indemnity, such as government assistance, and the nature of losses
(monetary vs. non-monetary)
