P&C Exam Ch 1 General Insurance
Terms and Basics fully solved
pure risk - correct answer ✔✔is one that will result in either a loss or no change in status—
there is no possibility for gain.
speculative risk - correct answer ✔✔on the other hand, may result in a loss, a gain, or no
change in status.
Exposure - correct answer ✔✔is the condition of being at risk for a loss, whether or not an
actual loss occurs. People and property are at risk of loss purely by existing.
direct loss - correct answer ✔✔is the immediate loss, such as fire damage to a home or the
medical bills incurred by the other driver after the insured causes a car accident.
indirect loss - correct answer ✔✔often refer to financial losses, such as the loss of income
sustained after a workplace injury or additional expenses for hotel stays after the loss of use of a
fire-damaged home
How many types of hazards are there? - correct answer ✔✔3; physical, moral, and morale.
Physical Hazard - correct answer ✔✔condition that increases the probability of loss, including
the use, condition, or occupancy of property. may often be seen, heard, felt, tasted, or smelled.
Moral Hazard - correct answer ✔✔Dishonest tendencies that increase the probability of a loss,
including certain characteristics and behaviors of people
Morale Hazard - correct answer ✔✔An attitude of indifference toward the risk of loss that
increases the probability of a loss occurring
, Are perils active or passive? - correct answer ✔✔active because they actually cause the loss
Are hazards active or passive? - correct answer ✔✔passive because they only increase the
chance of loss, without actually causing it
What are the most common methods of risk management? (I am a STARR at handling risk) -
correct answer ✔✔sharing, transfer, avoidance, reduction, and retention
Risk sharing - correct answer ✔✔means distributing or pooling a risk among several risk-takers
with similar loss exposures who agree to privately cover each other for their losses
Risk transfer - correct answer ✔✔involves shifting a risk to another party
Risk avoidance - correct answer ✔✔is the elimination of risk by not participating in activities
that involve a chance of loss
Risk reduction - correct answer ✔✔involves minimizing the risks we cannot completely avoid
Risk retention - correct answer ✔✔means maintaining responsibility for a loss, like with self-
insurance, whereby an organization sets aside funds to pay all or a portion of potential losses
What makes an insurable risk? - correct answer ✔✔homogeneous (like) units, must be
statistically calculable, must be uncertain, accidental, and due to chance, must cause a financial
hardship, the cost of purchasing insurance coverage, must be affordable for the consumer.
What are uninsurable risks? - correct answer ✔✔War, calamity, and nuclear hazard are
considered uninsurable because of the potential enormity of the loss and an insurer's inability
to pay losses. Illegal activity would also be excluded
Terms and Basics fully solved
pure risk - correct answer ✔✔is one that will result in either a loss or no change in status—
there is no possibility for gain.
speculative risk - correct answer ✔✔on the other hand, may result in a loss, a gain, or no
change in status.
Exposure - correct answer ✔✔is the condition of being at risk for a loss, whether or not an
actual loss occurs. People and property are at risk of loss purely by existing.
direct loss - correct answer ✔✔is the immediate loss, such as fire damage to a home or the
medical bills incurred by the other driver after the insured causes a car accident.
indirect loss - correct answer ✔✔often refer to financial losses, such as the loss of income
sustained after a workplace injury or additional expenses for hotel stays after the loss of use of a
fire-damaged home
How many types of hazards are there? - correct answer ✔✔3; physical, moral, and morale.
Physical Hazard - correct answer ✔✔condition that increases the probability of loss, including
the use, condition, or occupancy of property. may often be seen, heard, felt, tasted, or smelled.
Moral Hazard - correct answer ✔✔Dishonest tendencies that increase the probability of a loss,
including certain characteristics and behaviors of people
Morale Hazard - correct answer ✔✔An attitude of indifference toward the risk of loss that
increases the probability of a loss occurring
, Are perils active or passive? - correct answer ✔✔active because they actually cause the loss
Are hazards active or passive? - correct answer ✔✔passive because they only increase the
chance of loss, without actually causing it
What are the most common methods of risk management? (I am a STARR at handling risk) -
correct answer ✔✔sharing, transfer, avoidance, reduction, and retention
Risk sharing - correct answer ✔✔means distributing or pooling a risk among several risk-takers
with similar loss exposures who agree to privately cover each other for their losses
Risk transfer - correct answer ✔✔involves shifting a risk to another party
Risk avoidance - correct answer ✔✔is the elimination of risk by not participating in activities
that involve a chance of loss
Risk reduction - correct answer ✔✔involves minimizing the risks we cannot completely avoid
Risk retention - correct answer ✔✔means maintaining responsibility for a loss, like with self-
insurance, whereby an organization sets aside funds to pay all or a portion of potential losses
What makes an insurable risk? - correct answer ✔✔homogeneous (like) units, must be
statistically calculable, must be uncertain, accidental, and due to chance, must cause a financial
hardship, the cost of purchasing insurance coverage, must be affordable for the consumer.
What are uninsurable risks? - correct answer ✔✔War, calamity, and nuclear hazard are
considered uninsurable because of the potential enormity of the loss and an insurer's inability
to pay losses. Illegal activity would also be excluded
