FI 380 - Ch 2 Quiz Questions well
answered already passed
Gina would like to buy a house. She will pay 10 percent of the cost of the house as a down payment and
borrow the other 90 percent from a mortgage lender. The home will serve as collateral for the loan. The
lender will not make the loan to Gina unless the home is insured. Using insurance to secure the collateral
for a loan illustrates which of the following benefits of insurance to society?
- enhancement of credit
- incentives for loss prevention
- source of investment funds
- reduction of fear and worry - correct answer ✔✔enhancement of credit
Why is a large number of exposure units generally required before a pure risk is insurable?
- It eliminates intentional losses
- It minimizes moral hazard
- It prevents the insurer from losing money
- It enables the insurer to predict losses more accurately - correct answer ✔✔It enables the insurer to
predict losses more accurately
The premium that insurance companies charge does not cover the cost of expected losses only. The
premium must also cover the cost of compensating agents and other costs of doing business. The
amount added to the pure premium to cover these costs is called the
- deductible
- loss reserve
- expense loading
- dividend - correct answer ✔✔expense loading
Which of the following is implied by the pooling of losses?
- inability to predict losses with any degree of accuracy
, - substitution of actual loss for average loss
- increase of objective risk
- sharing of losses by an entire group - correct answer ✔✔sharing of losses by an entire group
All of the following are social costs associated with insurance EXCEPT
- increased cost of capital
- inflated claims
- fraudulent claims
- insurance company operating expenses - correct answer ✔✔increased cost of capital
The tendency for unhealthy people to seek life or health insurance at standard rates is an example of
- attitudinal hazard
- adverse selection
- fundamental risk
- moral hazard - correct answer ✔✔adverse selection
A group of farmers agreed that if any farmer suffered a property loss, the loss would be spread over the
entire group. In this way, each farmer is responsible for the average loss of the group rather than the
actual loss that each farmer sustained. Which characteristic of insurance is embodied in this agreement?
- risk avoidance
- pooling of losses
- indemnification
- fortuitous losses - correct answer ✔✔pooling of losses
If insurers were to provide indemnification for losses that were deliberately caused, which characteristic
of ideally insurable risks would not be met?
- The loss should not be catastrophic
- The loss must be determinable and measurable
- There must be a large number of similar exposure units
answered already passed
Gina would like to buy a house. She will pay 10 percent of the cost of the house as a down payment and
borrow the other 90 percent from a mortgage lender. The home will serve as collateral for the loan. The
lender will not make the loan to Gina unless the home is insured. Using insurance to secure the collateral
for a loan illustrates which of the following benefits of insurance to society?
- enhancement of credit
- incentives for loss prevention
- source of investment funds
- reduction of fear and worry - correct answer ✔✔enhancement of credit
Why is a large number of exposure units generally required before a pure risk is insurable?
- It eliminates intentional losses
- It minimizes moral hazard
- It prevents the insurer from losing money
- It enables the insurer to predict losses more accurately - correct answer ✔✔It enables the insurer to
predict losses more accurately
The premium that insurance companies charge does not cover the cost of expected losses only. The
premium must also cover the cost of compensating agents and other costs of doing business. The
amount added to the pure premium to cover these costs is called the
- deductible
- loss reserve
- expense loading
- dividend - correct answer ✔✔expense loading
Which of the following is implied by the pooling of losses?
- inability to predict losses with any degree of accuracy
, - substitution of actual loss for average loss
- increase of objective risk
- sharing of losses by an entire group - correct answer ✔✔sharing of losses by an entire group
All of the following are social costs associated with insurance EXCEPT
- increased cost of capital
- inflated claims
- fraudulent claims
- insurance company operating expenses - correct answer ✔✔increased cost of capital
The tendency for unhealthy people to seek life or health insurance at standard rates is an example of
- attitudinal hazard
- adverse selection
- fundamental risk
- moral hazard - correct answer ✔✔adverse selection
A group of farmers agreed that if any farmer suffered a property loss, the loss would be spread over the
entire group. In this way, each farmer is responsible for the average loss of the group rather than the
actual loss that each farmer sustained. Which characteristic of insurance is embodied in this agreement?
- risk avoidance
- pooling of losses
- indemnification
- fortuitous losses - correct answer ✔✔pooling of losses
If insurers were to provide indemnification for losses that were deliberately caused, which characteristic
of ideally insurable risks would not be met?
- The loss should not be catastrophic
- The loss must be determinable and measurable
- There must be a large number of similar exposure units
