Life and Health Insurance Exam -
Chapter 1 Introduction to Insurance
Questions and Answers
insurance - Answer-business that was developed as a means for spreading the result of
financial loss among many persons so the cost to any one person is small
risk - Answer-the possibility that loss might occur, reason people purchase insurance
speculative risk - Answer-risk that offers the opportunity to gain as well as the possibility
of loss, gambling is an example
pure risk - Answer-possibility of loss only, type of risk that insurers accept; ex: possibility
of financial loss due to an accident, sickness, premature death, insurance's purpose is
to make those who lose whole again, restore the insured to their original financial
position
peril - Answer-the cause of a potential loss. ex: fire, accident, explosion, flood
hazard - Answer-condition that increases the seriousness of a potential loss or
increases the likelihood that loss will occur. ex: slippery floors, improperly stored
gasoline
physical hazards - Answer-arise from material, structural, operational features of risk
situation (slippery floors)
moral hazards - Answer-arise from people's habits and values (false claim)
moral(e) hazards - Answer-arise out of carelessness/irresponsibilities (no seatbelt)
legal hazards - Answer-arise from court actions that increase the likelihood or size of a
loss
Four ways of managing risk - Answer-avoid, reduce, retain, transfer
avoid risk - Answer-avoiding an auto accident by never driving a car (not all risk is
avoidable)
reduce risk - Answer-control, examine perils and see which ones can be eliminated
(health problems identified in a work place lead to customized wellness program)
retain risk - Answer-happens when someone assumes financial responsibility for certain
events (insurance deductible in health plans)
Chapter 1 Introduction to Insurance
Questions and Answers
insurance - Answer-business that was developed as a means for spreading the result of
financial loss among many persons so the cost to any one person is small
risk - Answer-the possibility that loss might occur, reason people purchase insurance
speculative risk - Answer-risk that offers the opportunity to gain as well as the possibility
of loss, gambling is an example
pure risk - Answer-possibility of loss only, type of risk that insurers accept; ex: possibility
of financial loss due to an accident, sickness, premature death, insurance's purpose is
to make those who lose whole again, restore the insured to their original financial
position
peril - Answer-the cause of a potential loss. ex: fire, accident, explosion, flood
hazard - Answer-condition that increases the seriousness of a potential loss or
increases the likelihood that loss will occur. ex: slippery floors, improperly stored
gasoline
physical hazards - Answer-arise from material, structural, operational features of risk
situation (slippery floors)
moral hazards - Answer-arise from people's habits and values (false claim)
moral(e) hazards - Answer-arise out of carelessness/irresponsibilities (no seatbelt)
legal hazards - Answer-arise from court actions that increase the likelihood or size of a
loss
Four ways of managing risk - Answer-avoid, reduce, retain, transfer
avoid risk - Answer-avoiding an auto accident by never driving a car (not all risk is
avoidable)
reduce risk - Answer-control, examine perils and see which ones can be eliminated
(health problems identified in a work place lead to customized wellness program)
retain risk - Answer-happens when someone assumes financial responsibility for certain
events (insurance deductible in health plans)
