True/False
Indicate whether the
statement is true or false.
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Ch 21: Introduction to Risk
Management
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1.
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It is not possible to protect yourself from the consequences of pure
risks.
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2.
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You cannot buy insurance on a house you do not own.
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3.
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Economic risk may result in gain or loss because of changing economic
conditions
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4.
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Factories begin laying off workers during the decline period of the business
cycle.
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5.
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In the business cycle, the trough is followed by recovery.
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6.
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The three major insurable risks are pure, economic, and speculative.
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7.
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The amount of money payable to a policyholder upon discontinuation of a life
insurance policy is called the face amount.
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8.
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Essentially, insurance is a way to enrich policyholders.
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9.
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Insurers cannot predict which specific individuals will suffer losses.
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10.
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Some risks are not serious enough to insure.
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11.
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Risk transfer is the process of accepting the consequences of risk/
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12.
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Life insurance typically becomes a higher priority for people as they enter
their retirement years and their children marry and start lives of their own.
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13.
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Generally, the higher the deductible, the lower the insurance premium.
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14.
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The premiums for group plans are usually considerably higher than for individual
plans.
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15.
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The financial strength of an insurer can be a major factor in keeping down
insurance costs.
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Multiple Choice
Identify the
choice that best completes the statement or answers the question.
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Ch 21: Introduction to Risk
Management
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16.
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Which of the following is an example of a speculative risk?
a. | the chance that your house could catch on fire | b. | the possibility that
you will have an accident while driving to school | c. | the possibility of becoming sick with the
flu | d. | placing a bet on a horse race |
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17.
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In which period of the business cycle has the economy hit the bottom?
a. | recovery | c. | trough | b. | peak | d. | recession |
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18.
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Which of the following would not be an insurable risk?
a. | a pure risk | b. | a speculative risk | c. | a risk faced by a
large number of people | d. | a risk for which the amount of loss can be
predicted |
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19.
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All of the following types of insurance protect against personal risk
except
a. | life insurance | c. | disability insurance | b. | property insurance | d. | health
insurance |
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20.
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Under an insurance policy, the insurer agrees to assume an identified risk when
the policyholder pays a fee called the
a. | premium | c. | exclusion | b. | benefit | d. | claim |
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21.
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A condition that creates or increases the likelihood of some loss is called
a
a. | peril | c. | hazard | b. | probability | d. | proof of loss |
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22.
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Understanding the types of risk you will face and their potential consequences
is called
a. | risk management | c. | risk analysis | b. | risk assessment | d. | risk
administration |
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23.
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Which of the following techniques is not recommended for a serious
risk?
a. | shift the risk | c. | reduce the risk | b. | avoid the risk | d. | assume the risk |
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24.
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Buying insurance is an example of
a. | risk assumption | c. | risk shifting | b. | risk reduction | d. | risk avoidance |
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25.
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Which of the following will likely result in lower insurance costs?
a. | pay your premiums monthly rather than yearly | b. | buy more than one
type of insurance from the same company | c. | purchase an individual plan rather than a group
plan | d. | choose a lower deductible |
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Matching
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Ch 21: Introduction to Risk
Management a. | exclusions | f. | liability | b. | hedging | g. | Insurance | c. | avoidance | h. | multi-line | d. | Indemnification | i. | management | e. | reduction | j. | Pure |
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26.
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__________ risk is a chance of loss with no chance for gain.
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27.
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Making an investment to help offset against loss is called __________.
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28.
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__________ is a method for spreading individual risk among a large group of
people.
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29.
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A(n) __________ risk is the chance of loss that may occur when your errors or
actions result in injuries to others or damages to their property.
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30.
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Specified losses an insurance policy does not cover are called
__________.
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31.
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__________ means putting the policyholder back in the same financial condition
he or she was in before the loss
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32.
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Risk __________ is an organized strategy for controlling financial loss from
pure risks.
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33.
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Risk __________ lowers the chance for loss by not doing the activity that could
result in the loss.
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34.
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Using seat belts or installing smoke alarms in your home are examples of risk
__________.
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35.
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Having more than one type of policy, such as auto insurance and homeowners
insurance, with the same insurer can result in a(n) ________ discount.
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