CHAPTER 2 NATURE OF INSURANCE, RISK, PERILS AND HAZARDS EXAM QUESTIONS AND ANSWERS 100% CORRECT.  CHAPTER 2 NATURE OF INSURANCE, RISK, PERILS AND HAZARDS EXAM QUESTIONS AND ANSWERS 100% CORRECT.  

Risk pooling - ANSWERloss sharing, spreads risk by sharing the possibility of loss over a large number of people Speculative risk - ANSWERpresents the chance for both loss and gain, EX gambling these risks are not covered by insurance companies Retention - ANSWERSelf insure, Used when losses are highly predictable and the worst possible loss is not serious --individuals have financial ability to fund losses by themselves when they occur Law of Large numbers - ANSWERStates that larger groups provide an increased degree of accuracy in loss predictions based on past experience. --higher exposure more likely event can be predicted --insurance companies use this to calculate rates. --form the foundation upon which insurance is based and allow for its successful operation Risk - ANSWERPotential for loss Peril - ANSWERSomething that can cause financial loss, EX earthquake, tornado. The accident itself