Question 1

The first step in the risk management process is to insure against risk.

Accepted Answer

The first step in the risk management process is not to insure against risk, but rather to identify and assess potential risks. Insuring against risk may be a later step in the process, but it is not the first.

Question 2

Having liability coverage as part of auto and homeowner's policies helps protect your ________ in the event of an accident.

Accepted Answer

Liability coverage helps protect your assets in the event of an accident by covering costs and damages that you may be responsible for. It does not affect your insurance rates, credit rating, or house value.

Question 3

Lessening your exposure to an illness by getting periodic health checkups is an example of

Accepted Answer

By getting periodic health checkups, you are reducing your risks of getting an illness by detecting any potential health issues early on and taking preventative measures. Avoiding risks would involve completely avoiding any possibility of exposure to the illness, which may not be possible. Accepting risks would involve intentionally exposing oneself to the illness without any protective measures. Transferring risks would involve transferring the responsibility of any potential illness to another party, such as purchasing insurance.

Question 4

Having a large deductible on your auto or homeowner's insurance is a form of

Accepted Answer

Having a large deductible on your auto or homeowner's insurance is indeed a form of managing risk, as it involves making decisions on how much risk to retain versus transfer to an insurer. It is also a form of self-insuring, since by opting for a higher deductible, you are choosing to cover a larger portion of any potential losses yourself. Additionally, this choice involves financial decision-making, as it affects your insurance premiums and potential out-of-pocket expenses in the event of a claim. Therefore, all the options A, B, and C are correct.

Question 5

Insurance is not a good option for managing risk when

Accepted Answer

Insurance is not cost-effective when the probability of loss is very small and the expected loss is also small. In such cases, it would be better to bear the risk and not pay for insurance.

Question 6

In the context of insurance,the term liability is used to mean that you may be required to pay other individuals for damages that you caused to them or their property.

Accepted Answer

Liability insurance is designed to protect you from having to pay for damages or injuries that you may have caused to other people or their property. This type of insurance may cover the cost of medical bills, property damage, and other expenses incurred by the other party. Without liability insurance, you could be held personally responsible for these costs, which could be financially devastating.

Question 7

The most popular forms of insurance for individuals are property and casualty,life insurance,and health insurance.

Accepted Answer

Property and casualty, life insurance, and health insurance are the most popular forms of insurance for individuals.

Question 8

Which risk management alternative is feasible when the likelihood of an event that could cause a financial loss is very low and the potential financial loss due to the event is small?

Accepted Answer

In this scenario, accepting the risk is the most feasible alternative. Avoiding or reducing the risk may not be practical or cost-effective. Insuring against the risk would also not be cost-effective as the potential financial loss is small. Accepting the risk means acknowledging its existence and putting in place contingency plans in case the event does occur.

Question 9

In general,insurance companies generate their revenue from the payments received for policies and from the return earned from investing the payments until the funds are needed to cover claims.

Accepted Answer

Insurance companies make money from payments received for policies and from investing those funds until they are needed to pay out claims.

Question 10

Insurance can protect your existing net worth and also increase the likelihood that you will be able to increase your net worth in the future.

Accepted Answer

Insurance can protect your assets and savings, preventing a significant loss that could decrease your net worth. Additionally, insurance can provide coverage for potential liabilities, allowing you to take risks and invest in opportunities that could potentially increase your net worth in the future.

Question 11

Independent insurance agents work for one particular company.

Accepted Answer

Independent insurance agents work for themselves and can represent multiple insurance companies, giving them the ability to shop around for the best coverage and prices for their clients.

Question 12

The decision to obtain insurance should be determined by weighing its costs and benefits.

Accepted Answer

Obtaining insurance involves paying premiums, deductibles, and possibly other fees, which are costs. However, the benefits of insurance include protection against financial loss in case of unexpected events like accidents or illnesses, which can outweigh the costs in the long run. Therefore, the decision to obtain insurance should be based on a cost-benefit analysis.

Question 13

________ is not a suggested risk management method.

Accepted Answer

Ignoring risks is not a suggested risk management method as it increases the likelihood of negative consequences and can lead to significant harm to the organization. It is important to identify, evaluate, and address risks in order to minimize the impact and likelihood of negative events. Avoiding risks, accepting risks, and insuring against risks are all commonly used risk management methods.

Question 14

Since insurance companies rely mostly on their premiums to cover claims,they price their insurance policies to reflect the probability of a claim and the size of the claim.

Accepted Answer

Insurance companies base their pricing on actuarial analysis, which takes into account the probability and potential size of claims. This is done to ensure that they collect enough in premiums to cover any potential payouts.

Question 15

People are more willing to purchase or increase their insurance coverage when

Accepted Answer

Economic conditions being favorable and incomes being higher typically means that people feel more financially secure and are more willing to spend money on things like insurance coverage. Additionally, higher incomes also mean that people may have more assets to protect and therefore have a greater need for insurance coverage.

Question 16

Which of the following is not a popular form of insurance for individuals?

Accepted Answer

General liability insurance is not a popular form of insurance for individuals. It is typically used by businesses to protect against claims of injury or property damage arising from business operations. Life insurance, health insurance, and homeowners insurance are all common types of insurance that individuals may have.

Question 17

Insurance should be considered even when there is a high likelihood than an event will cause a small financial loss.

Accepted Answer

The answer of Insurance should be considered even when there...

Question 18

The primary function of insurance is to

Accepted Answer

The primary function of insurance is to maintain your existing level of wealth by protecting you against financial losses from unforeseen events or risks. Although insurance can provide peace of mind, its primary purpose is to protect your financial well-being, not to eliminate all risk or make you wealthy from claims.

Question 19

One method of managing risk is to limit your exposure to a financial loss.

Accepted Answer

Limiting exposure to potential losses is a common risk management strategy. By reducing the amount of financial exposure, the potential impact of a loss is minimized. This can be achieved through methods such as diversification, insurance, or setting stop-loss orders in investments.

Question 20

Insurance protects you against potential financial losses or liability that result from unexpected events.

Accepted Answer

Insurance is a tool designed to protect individuals, businesses, and other entities from financial losses or liability resulting from unexpected events such as accidents, theft, natural disasters, or legal action. It transfers the risk from the insured party to the insurance company, which agrees to pay for the financial losses according to the terms of the policy.

Quiz 11: Auto and Homeowners Insurance