Principles of Insurance Final Exam
Questions With Correct Answers
Direct losses - CORRECT ANSWER✔✔-financial loss that immediately results from
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the damage or theft to such property. EX: Damage to Lord of the Wings
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Indirect losses - CORRECT ANSWER✔✔-financial loss that often results as a
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consequence of the direct loss. EX: $$ lost while under reconstruction
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Physical hazard - CORRECT ANSWER✔✔-conditions related to the physical
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environment in which a loss event may occur. EX: storing gasoline in a garage
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Moral hazard - CORRECT ANSWER✔✔-behavioral activities that increase the
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frequency or severity of losses.
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Morale hazard - CORRECT ANSWER✔✔-Refers to attitude of carelessness or
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indifference to laws created by purchase of insurance contract.
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Pure vs. speculative risk - CORRECT ANSWER✔✔-Pure risks are loss exposures
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that can result in two possible financial outcomes. The person or firm exposed to
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the risk suffers a financial loss, or the financial position will remain unchanged.
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(hurricane, tornados, flood, terrorism) Speculative risks are loss exposures that
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can result in 3 financial outcomes: a person exposed to risk will suffer financial
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loss, receive financial gain, or find her/her financial status unchanged. (stock
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market, entrepreneur, corporate new idea)
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, risk management process - CORRECT ANSWER✔✔-(Look @ chart-pg. 8) a
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systematic approach by which an organization can identify and manage its
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exposures to risk in ways that best fit its strategic goals. (sign up for risk programs
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that only benefit your company)
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law of large numbers - CORRECT ANSWER✔✔-AKA risk pooling. Most common
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types of insurance, such as auto/life ins., offer protection from risks well suited to
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|diversification via risk pooling bc the loss usually affects only 1 person, not a | | | | | | | | | | | | | |
large # of clients in the same risk pool. Can reduce risk by applying this
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mathematical principle. |
risk management matrix - CORRECT ANSWER✔✔-Frequency Severity Appropriate
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RM Technique
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1 L L Retention (Assumption)
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2 L H Insurance
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3 H L Prevention (Loss control)
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4 H H Avoidance
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intangible vs. tangible property - CORRECT ANSWER✔✔-tangible prop- physical
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assets of value to the firm. (can touch building). intangible prop- assets that are
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not physical in nature, but hose value to the firm is associated w/such essential
| | | | | | | | | | | | | |
needs as the legal rights to intellectual property ( copyrights or patents),
| | | | | | | | | | | |
capabilities & skill sets (research & development or human capital), & measures
| | | | | | | | | | | |
of competitive economic value (reputation or brand awareness).
| | | | | | |
auto insurance - CORRECT ANSWER✔✔-Look @ pg. 130
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Questions With Correct Answers
Direct losses - CORRECT ANSWER✔✔-financial loss that immediately results from
| | | | | | | | | |
the damage or theft to such property. EX: Damage to Lord of the Wings
| | | | | | | | | | | | |
Indirect losses - CORRECT ANSWER✔✔-financial loss that often results as a
| | | | | | | | | | |
consequence of the direct loss. EX: $$ lost while under reconstruction
| | | | | | | | | |
Physical hazard - CORRECT ANSWER✔✔-conditions related to the physical
| | | | | | | | |
environment in which a loss event may occur. EX: storing gasoline in a garage
| | | | | | | | | | | | |
Moral hazard - CORRECT ANSWER✔✔-behavioral activities that increase the
| | | | | | | | |
frequency or severity of losses.
| | | |
Morale hazard - CORRECT ANSWER✔✔-Refers to attitude of carelessness or
| | | | | | | | | |
indifference to laws created by purchase of insurance contract.
| | | | | | | |
Pure vs. speculative risk - CORRECT ANSWER✔✔-Pure risks are loss exposures
| | | | | | | | | | |
that can result in two possible financial outcomes. The person or firm exposed to
| | | | | | | | | | | | | |
the risk suffers a financial loss, or the financial position will remain unchanged.
| | | | | | | | | | | |
(hurricane, tornados, flood, terrorism) Speculative risks are loss exposures that
| | | | | | | | | |
can result in 3 financial outcomes: a person exposed to risk will suffer financial
| | | | | | | | | | | | | |
loss, receive financial gain, or find her/her financial status unchanged. (stock
| | | | | | | | | | |
market, entrepreneur, corporate new idea)
| | | |
, risk management process - CORRECT ANSWER✔✔-(Look @ chart-pg. 8) a
| | | | | | | | | |
systematic approach by which an organization can identify and manage its
| | | | | | | | | | |
exposures to risk in ways that best fit its strategic goals. (sign up for risk programs
| | | | | | | | | | | | | | |
that only benefit your company)
| | | | |
law of large numbers - CORRECT ANSWER✔✔-AKA risk pooling. Most common
| | | | | | | | | | |
types of insurance, such as auto/life ins., offer protection from risks well suited to
| | | | | | | | | | | | |
|diversification via risk pooling bc the loss usually affects only 1 person, not a | | | | | | | | | | | | | |
large # of clients in the same risk pool. Can reduce risk by applying this
| | | | | | | | | | | | | | |
mathematical principle. |
risk management matrix - CORRECT ANSWER✔✔-Frequency Severity Appropriate
| | | | | | |
RM Technique
| |
1 L L Retention (Assumption)
| | | |
2 L H Insurance
| | |
3 H L Prevention (Loss control)
| | | | |
4 H H Avoidance
| | |
intangible vs. tangible property - CORRECT ANSWER✔✔-tangible prop- physical
| | | | | | | | |
assets of value to the firm. (can touch building). intangible prop- assets that are
| | | | | | | | | | | | | |
not physical in nature, but hose value to the firm is associated w/such essential
| | | | | | | | | | | | | |
needs as the legal rights to intellectual property ( copyrights or patents),
| | | | | | | | | | | |
capabilities & skill sets (research & development or human capital), & measures
| | | | | | | | | | | |
of competitive economic value (reputation or brand awareness).
| | | | | | |
auto insurance - CORRECT ANSWER✔✔-Look @ pg. 130
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