FIN 341 Final UPDATED ACTUAL
Questions and CORRECT Answers
which of the following statements about the use of a captive insurance company by a parent
firm is true - CORRECT ANSWER✔✔- captives may be used to insure loss exposures that
the parent firms are finding difficult to insure with private insurers
which of the following are potential advantages of risk retention - CORRECT ANSWER✔✔-
-lower expenses
-increased cash flows
-encouragement of loss prevention
a restaurant owner leased a meeting room at the restaurant to a second party. the lease
specified that the second party, not the owner, would be responsible for any liability arising
out of the use of the meeting room, and that the owner would be held harmless for any
damages. the owner's use of the hold-harmless agreement in the contract is an example of -
CORRECT ANSWER✔✔- noninsurance transfer
which of the following are examples of alternative risk transfer - CORRECT ANSWER✔✔-
-finite insurance
-multiline insurance
-securitization
morris company self-insures its workers compensation loss exposure. the risk manager is
concerned about the possible impact of a single catastrophic claim. she decided to set a
retention limit of $500,000 per claim and to purchase insurance that will begin to pay once
morris company has paid $500,000 on a single claim. the insurance the manager purchased is
called - CORRECT ANSWER✔✔- excess insurance
disadvantages of using insurance in a risk management program - CORRECT ANSWER✔✔-
-payment premiums is a major cost
-considerable time and effort must be spent selecting and negotiating coverages
-attitudes toward loss control may become lax when losses are insured
, company X wants to estimate the probability of 10 phone calls from customers in one hour.
Which of the following distribution can be used? - CORRECT ANSWER✔✔- poisson
distribution
laura evans is risk manager of her company. laura decided to retain certain property loss
exposures. which of the following is a method that laura can use to fund the retained property
losses? - CORRECT ANSWER✔✔- non insurance transfer
parker department stores has been hurt in recent months by a large increase in shoplifting
losses. parkers risk manager concluded that while the frequency of shoplifting losses was
high, the severity is still relatively low. what is the appropriate risk management techniques to
apply to this problem - CORRECT ANSWER✔✔- loss control and retention
barb, who is self employed, is the main breadwinner fro her family. barb does not have
disability income insurance because she has never stopped to consider the impact of a long
term disability upon her family. barbs treatment of the risk of disability is best described as -
CORRECT ANSWER✔✔- passive risk retention
ryan decided to review his personal risk management program. his car is 10 years old, and he
would receive little money from his insurer if the car was damaged or destroyed. ryan
decided to drop the physical damage insurance on the car. from a risk management
perspective, dropping the physical damage insurance on the car is best described as -
CORRECT ANSWER✔✔- increasing the use of retention in the risk management program
to better understand her company operations, a risk manager asked a production manager to
draw a diagram tracing the steps in the production and distribution of the company products.
such a diagram, which is useful in risk identification, is called a - CORRECT ANSWER✔✔-
flow chart
mr x insures the life of his wife for $1 million. after a few years they divorce. subsequent to
the divorce, his ex dies. mr x had continued to pay premiums on the policy after they were
divorced. mr x institutes a claim against the relevant life insurer. the life insurer can refuse to
pay the claim because - CORRECT ANSWER✔✔- none--the life insurer has no grounds to
refuse payment of the claim
david owns a liquor store in a high crime area. in order to obtain a reduced insurance
premium, david promised to have a burglar alarm operating at the store when the store was
Questions and CORRECT Answers
which of the following statements about the use of a captive insurance company by a parent
firm is true - CORRECT ANSWER✔✔- captives may be used to insure loss exposures that
the parent firms are finding difficult to insure with private insurers
which of the following are potential advantages of risk retention - CORRECT ANSWER✔✔-
-lower expenses
-increased cash flows
-encouragement of loss prevention
a restaurant owner leased a meeting room at the restaurant to a second party. the lease
specified that the second party, not the owner, would be responsible for any liability arising
out of the use of the meeting room, and that the owner would be held harmless for any
damages. the owner's use of the hold-harmless agreement in the contract is an example of -
CORRECT ANSWER✔✔- noninsurance transfer
which of the following are examples of alternative risk transfer - CORRECT ANSWER✔✔-
-finite insurance
-multiline insurance
-securitization
morris company self-insures its workers compensation loss exposure. the risk manager is
concerned about the possible impact of a single catastrophic claim. she decided to set a
retention limit of $500,000 per claim and to purchase insurance that will begin to pay once
morris company has paid $500,000 on a single claim. the insurance the manager purchased is
called - CORRECT ANSWER✔✔- excess insurance
disadvantages of using insurance in a risk management program - CORRECT ANSWER✔✔-
-payment premiums is a major cost
-considerable time and effort must be spent selecting and negotiating coverages
-attitudes toward loss control may become lax when losses are insured
, company X wants to estimate the probability of 10 phone calls from customers in one hour.
Which of the following distribution can be used? - CORRECT ANSWER✔✔- poisson
distribution
laura evans is risk manager of her company. laura decided to retain certain property loss
exposures. which of the following is a method that laura can use to fund the retained property
losses? - CORRECT ANSWER✔✔- non insurance transfer
parker department stores has been hurt in recent months by a large increase in shoplifting
losses. parkers risk manager concluded that while the frequency of shoplifting losses was
high, the severity is still relatively low. what is the appropriate risk management techniques to
apply to this problem - CORRECT ANSWER✔✔- loss control and retention
barb, who is self employed, is the main breadwinner fro her family. barb does not have
disability income insurance because she has never stopped to consider the impact of a long
term disability upon her family. barbs treatment of the risk of disability is best described as -
CORRECT ANSWER✔✔- passive risk retention
ryan decided to review his personal risk management program. his car is 10 years old, and he
would receive little money from his insurer if the car was damaged or destroyed. ryan
decided to drop the physical damage insurance on the car. from a risk management
perspective, dropping the physical damage insurance on the car is best described as -
CORRECT ANSWER✔✔- increasing the use of retention in the risk management program
to better understand her company operations, a risk manager asked a production manager to
draw a diagram tracing the steps in the production and distribution of the company products.
such a diagram, which is useful in risk identification, is called a - CORRECT ANSWER✔✔-
flow chart
mr x insures the life of his wife for $1 million. after a few years they divorce. subsequent to
the divorce, his ex dies. mr x had continued to pay premiums on the policy after they were
divorced. mr x institutes a claim against the relevant life insurer. the life insurer can refuse to
pay the claim because - CORRECT ANSWER✔✔- none--the life insurer has no grounds to
refuse payment of the claim
david owns a liquor store in a high crime area. in order to obtain a reduced insurance
premium, david promised to have a burglar alarm operating at the store when the store was
