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RISK MGMT MIDTERM QUESTIONS WITH
DETAILED VERIFIED ANSWERS
Ken owns a hardware store that fills customers' propane tanks. You are
Ken's insurance agent and are attempting to explain insurance terms to
Ken. Which of the following statements is CORRECT?
I. Fire is a peril.
II. Leaving oily rags in a hardware store's repair shop area is a hazard.
III. The handling of propane is a hazard.
IV. A pure risk is one that involves only the chance of loss or no loss; in
other words, there is no chance of gain. Ans: C. I, II, III, and IV
Which of the following is a disadvantage of a firm self-insuring?
A. Self-insurance raises the possibility that the business will have to pay
higher income taxes.
B. Self-insurance avoids state premium taxes.
C. Self-insurance reduces costs by eliminating or reducing insurance
company profit.
D. Self-insurance eliminates selling costs. Ans: A. Self-insurance raises
the possibility that the business will have to pay higher income taxes.
All of the following are characteristics of a principal-agent relationship
except
A. the agent typically has little or no independent discretion.
B. the agent acts on behalf of the principal in engaging in business
transactions.
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C. the agent may bind the principal in a contract with a third person.
D. the agent has a duty of loyalty to the principal. Ans: A. the agent
typically has little or no independent discretion.
For life insurance to be underwritten, an insurable interest must exist
I. when the policy is first issued.
II. when a loss is claimed. Ans: C. I only
Which section of an insurance contract includes information provided by
the applicant?
A. The exclusions section
B. The conditions section
C. The insuring agreement
D. The declarations section Ans: D. The declarations section
The state insurance department, headed by the state insurance
Commissioner:
I. administers compliance.
II. sets regulations implementing legislation. Ans: A. Both I and II
Which defense against liability reduces the defendant's proportion of
liability based upon the injured party's contribution to the total
negligence that causes injury?
A. Comparative negligence
B. The last clear chance rule
C. Contributory negligence
D. Assumption of risk Ans: A. Comparative negligence
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Barbara left her car parked on top of a hill while visiting at a friend's
house. Unfortunately, she forgot to apply her emergency brake, and her
car rolled down the hill, injuring two children who were playing.
Which of the following doctrines may influence Barbara's liability in this
situation?
A. Negligence
B. Attractive nuisance
C. Strict liability
D. Assumption of risk Ans: A. Negligence
Josie has had an exciting year. She passed her CPA exam, joined a small
accounting firm as a public accountant, purchased her first car, and
bought a townhome. Which of the following types of insurance should she
have at this point?
I. Automobile insurance
II. Errors and omissions insurance
III. Homeowners insurance
IV. Malpractice insurance Ans: A. I, II, and III
Which of the following definitions best defines insurable interest?
A. The increase in the cash value or investment fund of a permanent life
insurance policy
B. Any right to the economic benefits of a piece of property, such as a life
insurance policy
C. The process of determining when, how much, and where to insure
risks
RISK MGMT MIDTERM QUESTIONS WITH
DETAILED VERIFIED ANSWERS
Ken owns a hardware store that fills customers' propane tanks. You are
Ken's insurance agent and are attempting to explain insurance terms to
Ken. Which of the following statements is CORRECT?
I. Fire is a peril.
II. Leaving oily rags in a hardware store's repair shop area is a hazard.
III. The handling of propane is a hazard.
IV. A pure risk is one that involves only the chance of loss or no loss; in
other words, there is no chance of gain. Ans: C. I, II, III, and IV
Which of the following is a disadvantage of a firm self-insuring?
A. Self-insurance raises the possibility that the business will have to pay
higher income taxes.
B. Self-insurance avoids state premium taxes.
C. Self-insurance reduces costs by eliminating or reducing insurance
company profit.
D. Self-insurance eliminates selling costs. Ans: A. Self-insurance raises
the possibility that the business will have to pay higher income taxes.
All of the following are characteristics of a principal-agent relationship
except
A. the agent typically has little or no independent discretion.
B. the agent acts on behalf of the principal in engaging in business
transactions.
, Page | 2
C. the agent may bind the principal in a contract with a third person.
D. the agent has a duty of loyalty to the principal. Ans: A. the agent
typically has little or no independent discretion.
For life insurance to be underwritten, an insurable interest must exist
I. when the policy is first issued.
II. when a loss is claimed. Ans: C. I only
Which section of an insurance contract includes information provided by
the applicant?
A. The exclusions section
B. The conditions section
C. The insuring agreement
D. The declarations section Ans: D. The declarations section
The state insurance department, headed by the state insurance
Commissioner:
I. administers compliance.
II. sets regulations implementing legislation. Ans: A. Both I and II
Which defense against liability reduces the defendant's proportion of
liability based upon the injured party's contribution to the total
negligence that causes injury?
A. Comparative negligence
B. The last clear chance rule
C. Contributory negligence
D. Assumption of risk Ans: A. Comparative negligence
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Barbara left her car parked on top of a hill while visiting at a friend's
house. Unfortunately, she forgot to apply her emergency brake, and her
car rolled down the hill, injuring two children who were playing.
Which of the following doctrines may influence Barbara's liability in this
situation?
A. Negligence
B. Attractive nuisance
C. Strict liability
D. Assumption of risk Ans: A. Negligence
Josie has had an exciting year. She passed her CPA exam, joined a small
accounting firm as a public accountant, purchased her first car, and
bought a townhome. Which of the following types of insurance should she
have at this point?
I. Automobile insurance
II. Errors and omissions insurance
III. Homeowners insurance
IV. Malpractice insurance Ans: A. I, II, and III
Which of the following definitions best defines insurable interest?
A. The increase in the cash value or investment fund of a permanent life
insurance policy
B. Any right to the economic benefits of a piece of property, such as a life
insurance policy
C. The process of determining when, how much, and where to insure
risks
