Question 1

Collision, fire, hurricane, and theft are examples of:&#10;A) Hazard.&#10;B) Law of large numbers.&#10;C) Peril.&#10;D) Risk.

Accepted Answer

Peril refers to the cause of loss or damage to property, such as collision, fire, hurricane, and theft. Hazard refers to a condition or situation that increases the likelihood or severity of a loss, while the law of large numbers is a statistical principle used in insurance to predict the frequency of events. Risk refers to the chance of loss or damage occurring.

Question 2

A formal program of risk retention for an individual that takes on the insurance company's role in order to cover the individual's risk is:&#10;A) Adverse selection.&#10;B) Formal fund.&#10;C) Risk transfer.&#10;D) Self-insurance.

Accepted Answer

Self-insurance is a formal program of risk retention for an individual that takes on the insurance company's role in order to cover the individual's risk. This involves setting aside funds to cover potential losses instead of paying premiums to an insurance company. This allows individuals to have more control over their insurance coverage and can be a viable option for those who have high levels of risk and can handle the financial burden of potential losses. Adverse selection refers to the tendency for higher-risk individuals to buy insurance more often than lower-risk individuals, leading to an imbalance in the insurance pool. A formal fund and risk transfer are not specific to individual risk retention.

Question 3

The selection of an insurance company includes all of the following except:&#10;A) Cost-benefit analysis.&#10;B) Economic cycle.&#10;C) Industry ratings.&#10;D) Purpose of coverage.

Accepted Answer

While economic cycles can affect the insurance industry, they are not a factor to consider when selecting an insurance company. The other three options are all important considerations when choosing an insurer.

Question 4

All of the following are Methods of Settling a Loss except:&#10;A) Actual Cash Value.&#10;B) Fair Market Value.&#10;C) Guaranteed Replacement Cost.&#10;D) Replacement Cost.

Accepted Answer

Fair Market Value is not a method of settling a loss; it is a valuation method to determine the price of a property in the market. Methods like Actual Cash Value, Guaranteed Replacement Cost, and Replacement Cost are used in insurance to settle claims.

Question 5

Which of the following is not an example of a Static risk?&#10;A) Earthquake.&#10;B) Flood.&#10;C) Recession.&#10;D) Sinkhole.

Accepted Answer

Static risks are risks that arise from natural disasters or other physical events that are outside of human control. Earthquake (A), Flood (B), and Sinkhole (D) all fall into this category. Recession (C) is an example of a dynamic risk, which emerges from changing economic or political conditions.

Question 6

Intramural sports are an example of which of the following:&#10;A) Economic risk.&#10;B) Investment risk.&#10;C) Pure risk.&#10;D) Speculative risk.

Accepted Answer

Intramural sports involve a small amount of risk, but it is considered a pure risk because the outcome is uncertain, and there is no possibility of a gain or profit. The main purpose of participating in intramural sports is for enjoyment and fitness, and there is no potential for financial gain or loss. Therefore, it is not an example of economic, investment or speculative risk.

Question 7

Elements of the Risk Management Process are:
I. Analyze and evaluate potential economic loss exposures.
II. Develop and present recommendations.
III. Implement risk management plan.
IV. Monitor the risk management plan.

A) I, II, IV.
B) II, III, IV.
C) I, II, III.
D) I, II, III, IV.

Accepted Answer

All four elements listed are part of the risk management process. Analyzing and evaluating potential economic loss exposures helps identify potential risks. Developing and presenting recommendations helps create a plan to manage those risks. Implementing the risk management plan puts those recommendations into action. Monitoring the risk management plan ensures that the plan is working effectively and that any necessary adjustments are made.

Question 8

An insurance company's appointment of an agent to act on its behalf is an example of:&#10;A) Apparent Authority.&#10;B) Express Authority.&#10;C) Implied Authority.&#10;D) Legal Authority.

Accepted Answer

Express Authority is when an agent is specifically authorized by the principal, in this case, the insurance company, to act on their behalf. In this scenario, the insurance company has appointed an agent, implying that they have given the agent express authority to represent them. Therefore, B) Express Authority is the best choice.

Deck 7: Principles of Risk and Insurance