LOMA 280 - INTRODUCTION TO RISK AND INSURANCE
UPDATED ACTUAL QUESTIONS AND CORRECT
ANSWERS
Question:
After studying this chapter, you should be able to
- Distinguish between speculative risk and pure risk
- Describe four methods used to manage financial risk
- Identify the five characteristics of insurable risks
- Define antiselection and give examples of two factors that can increase or
decrease the likelihood that an individual will suffer a loss
- Identify four risk classes for proposed insureds
- Define insurable interest and determine in a given situation whether the
insurable interest requirement is met
Answer:
Objectives
Question:
Speculative risk involves three possible outcomes: loss, gain, or no change. For
example, when you purchase shares of stock, you are speculating that the value
of the stock will rise and that you will earn a profit on your investment. At the
same time, you know that the value of the stock could fall and you could lose
some or all of the money you invested. Finally, you know that the value of the
stock could remain the same—you might not lose money, but you might not make
a profit.
Answer:
Speculative risk
Question:
Pure risk
Answer:
Pure risk involves no possibility of gain; either a loss occurs or no loss occurs. An
example of pure risk is the possibility that you may become disabled. If you do
become disabled, you are likely to experience a financial loss due to lost income
and the costs incurred for your medical care. If, on the other hand, you never
become disabled, then you will incur no loss from that risk. This possibility of
financial loss without the possibility of gain—pure risk—is the only kind of risk that
can be insured. The purpose of insurance is to compensate for financial loss, not
to provide an opportunity for financial gain.
Question:
Risk management is the process in which individuals and businesses identify and
assess the risks they face and determine how to deal with their exposure to these
risks. Four general methods can be used to manage risk: (1) avoiding the risk, (2)
controlling the risk, (3) transferring the risk, and (4) accepting the risk.
Answer:
, Risk management
Question:
Any risk you face that is not managed by other methods is always accepted,
whether you are aware of it or not. For example, for a number of years, many
people and businesses were unaware that hackers could gain access to the data
on their computers. Because they were unaware of this risk and therefore took no
steps to manage it, they often suffered significant financial losses if their
information systems were hacked. People and businesses can prevent the
inadvertent acceptance of poten- tially disastrous risks through risk management,
which requires identifying all sig- nificant potential risks and then determining the
methods to use to manage them.
Answer:
accepting a risk can be an unconscious decision
Question:
In simple terms, insurance is a method in which an individual or entity transfers to
another party the risk of financial loss from events such as accident, illness, prop-
erty damage, or death. A company that accepts risk and makes a promise to pay a
policy benefit if a covered loss occurs is an insurer or an insurance company.
Answer:
Insurance
Question:
A policy benefit is a specific amount of money the insurer agrees to pay under an
insurance policy when a covered loss occurs.
Answer:
A policy benefit
Question:
An insurance policy
Answer:
An insurance policy, also known as a policy or insurance contract, is a written
document that contains the terms of the agreement between the insurer and the
owner of the policy
Question:
The premium is the specified amount of money an insurer charges in exchange for
agreeing to pay a policy benefit when a covered loss occurs.
Answer:
The premium is
Question:
Life and health insurance companies
Answer:
Life and health insurance companies issue and sell products that insure against the
financial losses that result from personal risks.
UPDATED ACTUAL QUESTIONS AND CORRECT
ANSWERS
Question:
After studying this chapter, you should be able to
- Distinguish between speculative risk and pure risk
- Describe four methods used to manage financial risk
- Identify the five characteristics of insurable risks
- Define antiselection and give examples of two factors that can increase or
decrease the likelihood that an individual will suffer a loss
- Identify four risk classes for proposed insureds
- Define insurable interest and determine in a given situation whether the
insurable interest requirement is met
Answer:
Objectives
Question:
Speculative risk involves three possible outcomes: loss, gain, or no change. For
example, when you purchase shares of stock, you are speculating that the value
of the stock will rise and that you will earn a profit on your investment. At the
same time, you know that the value of the stock could fall and you could lose
some or all of the money you invested. Finally, you know that the value of the
stock could remain the same—you might not lose money, but you might not make
a profit.
Answer:
Speculative risk
Question:
Pure risk
Answer:
Pure risk involves no possibility of gain; either a loss occurs or no loss occurs. An
example of pure risk is the possibility that you may become disabled. If you do
become disabled, you are likely to experience a financial loss due to lost income
and the costs incurred for your medical care. If, on the other hand, you never
become disabled, then you will incur no loss from that risk. This possibility of
financial loss without the possibility of gain—pure risk—is the only kind of risk that
can be insured. The purpose of insurance is to compensate for financial loss, not
to provide an opportunity for financial gain.
Question:
Risk management is the process in which individuals and businesses identify and
assess the risks they face and determine how to deal with their exposure to these
risks. Four general methods can be used to manage risk: (1) avoiding the risk, (2)
controlling the risk, (3) transferring the risk, and (4) accepting the risk.
Answer:
, Risk management
Question:
Any risk you face that is not managed by other methods is always accepted,
whether you are aware of it or not. For example, for a number of years, many
people and businesses were unaware that hackers could gain access to the data
on their computers. Because they were unaware of this risk and therefore took no
steps to manage it, they often suffered significant financial losses if their
information systems were hacked. People and businesses can prevent the
inadvertent acceptance of poten- tially disastrous risks through risk management,
which requires identifying all sig- nificant potential risks and then determining the
methods to use to manage them.
Answer:
accepting a risk can be an unconscious decision
Question:
In simple terms, insurance is a method in which an individual or entity transfers to
another party the risk of financial loss from events such as accident, illness, prop-
erty damage, or death. A company that accepts risk and makes a promise to pay a
policy benefit if a covered loss occurs is an insurer or an insurance company.
Answer:
Insurance
Question:
A policy benefit is a specific amount of money the insurer agrees to pay under an
insurance policy when a covered loss occurs.
Answer:
A policy benefit
Question:
An insurance policy
Answer:
An insurance policy, also known as a policy or insurance contract, is a written
document that contains the terms of the agreement between the insurer and the
owner of the policy
Question:
The premium is the specified amount of money an insurer charges in exchange for
agreeing to pay a policy benefit when a covered loss occurs.
Answer:
The premium is
Question:
Life and health insurance companies
Answer:
Life and health insurance companies issue and sell products that insure against the
financial losses that result from personal risks.
