Deck 10: Managing Property and Liability Risk

Question 1

Insurance covering the costs of major illness and injury would typically be considered necessary insurance.

Answer 1

True

Question 2

An insurance policy is a contract between the person buying insurance and the insurance company.

Answer 2

True

Question 3

A risk transfer is any arrangement where an insurance company agrees to reimburse you for a financial loss.

Answer 3

True

Question 4

The fee charged for insurance protection is called a premium.

Question 5

Risk reduction generally includes the use of insurance.

Question 6

Risk management is the process of identifying and evaluating situations involving speculative risk to determine and implement the appropriate means for its management.

Question 7

Insurance can be purchased for a speculative risk but not for a pure risk.

Question 8

One should assume risks that are affordable and insure against losses that would be unaffordable.

Question 9

Property insurance protects you from financial losses resulting from the damage to or destruction of your property or possessions.

Question 10

Insurance that covers the cost of one's annual vision checkup and one pair of glasses annually would typically be considered important insurance.

Question 11

Risk avoidance is always a practical way of handling risk.

Question 12

Owning a motorcycle is an example of a peril.

Question 13

Buying insurance is the preferable way to handle risk for nearly all potential losses faced.

Question 14

Risk is the uncertainty about whether a financial loss will occur and how large the loss will be.

Question 15

When shopping for insurance,your goal should be to "buy" what you need and not be "sold" more or less coverage.

Question 16

When considering insurance,loss frequency is more important than loss severity.

Question 17

An individual's success in giving up smoking is an example of loss control.

Question 18

The large-loss principle recommends that you insure the losses you can afford to suffer and assume the losses that you cannot afford to suffer.

Question 19

Installing a smoke detector in your home is an example of loss control.

Question 20

In administering a risk-management program,you should use the maximum possible loss as a guide for the dollar amount of coverage to buy.

Question 21

Policy limits are the maximum dollar amounts that will be paid under the policy.

Question 22

All insurance is sold and serviced through insurance agents.

Question 23

The person buying the insurance contract is called the insurer.

Question 24

Insurance coverage may be denied if policy conditions are not met.

Question 25

Coverage that appears to be provided in one part of an insurance policy may be denied elsewhere in the same policy.

Question 26

Driving under the influence of alcohol is an example of a hazard.

Question 27

If you have an insurance policy with a $300 deductible and 30 percent coinsurance,you would pay 30 percent of your insured loss plus $300.

Question 28

Insurance is one of the least-understood purchases we make.

Question 29

Many people do not examine their insurance policies until they suffer a loss.

Question 30

An insurance application must be approved by the insurance company before any legally binding insurance contract is formed.

Question 31

The law of large numbers increases risk for the insurance company.

Question 32

Fortuitous means unexpected both in terms of timing and magnitude.

Question 33

Deductibles are requirements that the insured pay an initial portion of any loss.

Question 34

Insurance companies often limit or deny coverage if a loss occurs as a result of a moral hazard.

Question 35

Independent agents typically represent more than one insurance company.

Question 36

Insurance agents have the power to enter into,change,and cancel insurance policies on behalf of the companies they represent.

Question 37

Buying an insurance policy with a deductible is one way to assume risks that are affordable.

Question 38

Insurance is designed to help people be better off after a loss than before the loss.

Question 39

Individual insurance buyers benefit whether or not they suffer a loss because risk reduction is a benefit.

Question 40

An insurance policy will pay the actual loss suffered not to exceed the policy limits.

Question 41

Insurance companies use statistical information to establish rates for various classes of insureds.

Question 42

Historically,homeowner's insurance paid only the actual cash value of property damaged or destroyed.

Question 43

The amount of reimbursement for any loss under homeowner's insurance will be calculated using the actual-cash-value formula.

Question 44

The only type of loss that is related to homeowner's property insurance is damage to or destruction of the property itself.

Question 45

Both property and liability insurance protect you from financial losses resulting from damage to or destruction of your property.

Question 46

Most insurance underwriting is done by the insurance company rather than the insurance agent.

Question 47

Members of your family are covered for small bodily injury losses under your homeowner's policy.

Question 48

Property insurance does not take effect until after the application has been accepted by the insurance company even if payment has been made to an agent.

Question 49

Risk-avoidance homeowners might want to insure their homes for 100 percent of replacement cost.

Question 50

Actual cash value of an asset represents the purchase price of the property less depreciation.

Question 51

Most homeowner's policies will cover contents and personal property for up to 50 percent of the insured value of the house.

Question 52

Homeowner's insurance can pay for additional expenses such as temporary lodging and food as well as for repairing or replacing property.

Question 53

All insurance policies list the perils that will be covered by the policy.

Question 54

For most personal property,replacement cost will be higher than actual cash value.

Question 55

Most of the HO forms of homeowner's insurance policies provide all-risk protection on the house and named-peril protection on the personal property.

Question 56

To meet the replacement-cost requirement,a homeowner must insure his or her home for at least 80 percent of its replacement value.

Question 57

Homeowner's policies may include a clause that automatically raises the policy coverage amount each year to keep pace with inflationary increases in the cost of replacing the dwelling.

Question 58

Homeowner's insurance will pay for bodily injuries to visitors regardless of who is at fault for the loss.

Question 59

Meeting an 80 percent replacement-cost requirement in your homeowner's insurance enables you to avoid incomplete coverage on small losses to your dwelling.

Question 60

The HO-6 form is especially written to meet the needs of condominium owners.

Question 61

One is more likely to need to raise the standard 50 percent limit on personal property coverage when he or she selects contents replacement-cost protection rather than actual-cash-value protection.

Question 62

Theft damage is the most common peril for physical damage to automobiles.

Question 63

Uninsured motorist coverage is not recommended because it is expensive and state laws require all drivers to carry liability insurance.

Question 64

When the other driver is at fault,damages to your car must be paid by the other driver's property damage liability coverage.

Question 65

Personal injury protection pays the driver and passengers in the covered automobile without regard to fault.

Question 66

Automobile medical payments insurance will pay for the driver's injuries in an auto accident up to the policy limits.

Question 67

All states require automobile owners to purchase automobile insurance and to take financial responsibility for an accident that might occur.

Question 68

Automobile insurance combines property and liability coverage into a single policy.

Question 69

Both collision and comprehensive coverage are usually written with deductibles.

Question 70

Automobile physical damage insurance provides protection from losses due to damage to your car from collision,theft,and other perils.

Question 71

Subrogation rights allow an insurer to take action against a negligent third party (and that party's insurance company)to obtain reimbursement for payments made to an insured.

Question 72

In no-fault states,the insurance company's rights to subrogate may be limited.

Question 73

Contents replacement-cost protection is an option available on some homeowner's insurance policies (including the renter's form)that pays the full replacement cost of any personal property.

Question 74

Automobile liability insurance covers the insured when he or she is held responsible for losses suffered by others.

Question 75

Comprehensive automobile insurance protects against property damage losses caused by perils other than collision and rollover.

Question 76

The additional cost of increasing the liability coverage on homeowner's policies is substantial.

Question 77

You can add coverage under your auto insurance policy to protect the driver and passengers in your car that is hit by an uninsured driver.

Question 78

Property damage liability claims tend to be considerably larger than bodily injury liability claims in auto insurance.

Question 79

Automobile medical payments insurance would pay for your daughter's injuries if she were hit by an automobile while riding her bicycle.

Question 80

Your auto liability coverage will usually protect you for liability claims when you drive a rental car.