Insurance And Risk

This question bank verified by Studydeets
All Questions
Filter by:
Question 1
Free
Multiple Choice

Which of the following is a basic characteristic of insurance?

Choose correct answer/s
A

pooling of losses

B

avoidance of risk

C

payment of intentional losses

D

certainty about specific losses that will occur

Check answer
Question 2
Free
Multiple Choice

Which of the following is implied by the pooling of losses?

Choose correct answer/s
A

sharing of losses by an entire group

B

inability to predict losses with any degree of accuracy

C

substitution of actual loss for average loss

D

increase of objective risk

Check answer
Question 3
Free
Multiple Choice

According to the law of large numbers, what happens as the number of exposure units increases?

Choose correct answer/s
A

Actual results will increasingly differ from probable results.

B

Actual results will more closely approach probable results.

C

Nondiversifiable risk will decrease.

D

Objective risk will increase.

Check answer
Question 4
Free
Multiple Choice

According to the law of large numbers, what should happen as an insurer increases the number of units insured?

Choose correct answer/s
A

The amount the insurer expects to pay in claims should decrease.

B

Underwriting expenses should decrease.

C

Actual results will more closely approach expected results.

D

The insurer's profitability should become more variable.

Check answer
Question 5
Free
Multiple Choice

Characteristics of a fortuitous loss include which of the following?
I)The loss is certain to occur.
II)The loss occurs as a result of chance.

Choose correct answer/s
A

I only

B

II only

C

both I and II

D

neither I nor II

Check answer
Question 6
Multiple Choice

From the viewpoint of the insurer, all of the following are characteristics of an ideally insurable risk EXCEPT

Choose correct answer/s
A
The loss must be accidental.
B
The loss should be catastrophic.
C
The premium must be economically feasible.
D
There must be a large number of exposure units.
To unlock the question
Question 7
Multiple Choice

From the standpoint of the insurer, which of the following is a characteristic of an ideally insurable risk?

Choose correct answer/s
A
The loss must be intentional.
B
There must be a small number of unique loss exposures.
C
The chance of loss must be calculable.
D
The loss must be indeterminable.
To unlock the question
Question 8
Multiple Choice

Why is a large number of exposure units generally required before a pure risk is insurable?

Choose correct answer/s
A
It prevents the insurer from losing money.
B
It eliminates intentional losses.
C
It minimizes moral hazard.
D
It enables the insurer to predict losses more accurately.
To unlock the question
Question 9
Multiple Choice

The requirement that losses should be accidental and unintentional in order to be insurable results in which of the following?
I)Decrease in moral hazard
II)More accurate prediction of future losses

Choose correct answer/s
A
I only
B
II only
C
both I and II
D
neither I nor II
To unlock the question
Question 10
Multiple Choice

Which of the following is implied by the requirement that a loss should be determinable and measurable to be insurable?
I)The loss must be definite as to place.
II)The loss must be definite as to amount.

Choose correct answer/s
A
I only
B
II only
C
both I and II
D
neither I nor II
To unlock the question
Question 11
Multiple Choice

Methods by which insurers may minimize or avoid catastrophic losses include which of the following?
I)The use of reinsurance
II)Concentrating coverage written in one geographic region

Choose correct answer/s
A
I only
B
II only
C
both I and II
D
neither I nor II
To unlock the question
Question 12
Multiple Choice

Which of the following types of risks best meets the requirements for being insurable by private insurers?

Choose correct answer/s
A
most market risks
B
property risks
C
financial risks
D
political risks
To unlock the question
Question 13
Multiple Choice

Reasons why market, financial, and production risks are often uninsurable include which of the following?
I)The potential to produce a catastrophic loss is great.
II)The chance of loss cannot be accurately estimated.

Choose correct answer/s
A
I only
B
II only
C
both I and II
D
neither I nor II
To unlock the question
Question 14
Multiple Choice

Which of the following types of risks is normally uninsurable by private insurers?

Choose correct answer/s
A
personal risks
B
property risks
C
liability risks
D
political risks
To unlock the question
Question 15
Multiple Choice

Which of the following is a result of adverse selection?

Choose correct answer/s
A
The insurer's financial results will be substantially improved.
B
Persons most likely to have losses are also most likely to seek insurance at standard rates.
C
It is unnecessary for the insurance company to use underwriting.
D
Insurance can be written only by the federal government.
To unlock the question
Question 16
Multiple Choice

The tendency for unhealthy people to seek life or health insurance at standard rates is an example of

Choose correct answer/s
A
moral hazard.
B
fundamental risk.
C
attitudinal hazard.
D
adverse selection.
To unlock the question
Question 17
Multiple Choice

Which of the following statements regarding insurance and gambling is (are) true?
I)Insurance is used to handle existing pure risks, while gambling creates a new speculative risk.
II)Insurance usually involves risk avoidance, while gambling typically involves only risk reduction.

Choose correct answer/s
A
I only
B
II only
C
both I and II
D
neither I nor II
To unlock the question
Question 18
Multiple Choice

In addition to marketing life insurance, life insurers typically sell which of the following products?
I)Retirement annuities
II)Disability income insurance

Choose correct answer/s
A
I only
B
II only
C
both I and II
D
neither I nor II
To unlock the question
Question 19
Multiple Choice

Inland marine insurance provides coverage for

Choose correct answer/s
A
goods being shipped on land.
B
premature death of members of the armed forces.
C
goods being shipped on ocean-going vessels.
D
liability exposures of nonprofit organizations.
To unlock the question
Question 20
Multiple Choice

Which of the following is classified as casualty insurance?

Choose correct answer/s
A
workers compensation insurance
B
fire insurance
C
marine insurance
D
life insurance
To unlock the question