Question 1

Since the small business owner needs to rely heavily on an insurance agent for advice,risk management and insurance management are synonymous.

Accepted Answer

Risk management and insurance management are not synonymous. Risk management encompasses a broader range of strategies and techniques for identifying, assessing, and mitigating risks, while insurance management specifically focuses on the selection and management of insurance policies. While insurance can be an important component of risk management, it is not the only one, and small business owners should work with their insurance agents as well as other professionals, such as attorneys and financial advisors, to develop a comprehensive risk management plan.

Question 2

Specific and aggregate stop loss limits would be the best insurance plans of small businesses which have at least 80 employees.

Accepted Answer

Specific and aggregate stop loss limits provide protection against catastrophic claims for small businesses with at least 80 employees. Specific stop loss limits protect the business from individual high-cost claims, while aggregate stop loss limits protect against the total cost of all claims exceeding a certain amount. This type of insurance plan balances the need for coverage with the cost of premiums, making it an ideal solution for small businesses looking for comprehensive protection.

Question 3

Market risk is uncertainty associated with a situation where only loss or no loss can occur.

Accepted Answer

Market risk is uncertainty associated with a situation where both gain and loss can occur. It is also known as systematic risk and cannot be diversified away.

Question 4

Wrongful acts or omissions for which an injured party can take legal action against the wrongdoer to seek monetary damages are called statutory liability.

Accepted Answer

Statutory liability refers to legal responsibility imposed by a statute or law, not just any wrongful act or omission that results in injury or damages.

Question 5

An insurance agent should provide information in designing an insurance plan;the small business owner will only need to determine the price the company can afford.

Accepted Answer

While an insurance agent can provide information on designing an insurance plan, it is ultimately up to the small business owner to determine the level of coverage they need and the price they can afford. The insurance plan should be tailored to the specific needs of the business, taking into account factors such as industry, number of employees, and potential risks.

Question 6

Real property risks include damage to buildings.

Accepted Answer

Real property risks commonly include damage to buildings from natural disasters, fires, vandalism, or other causes.

Question 7

A consulting firm that typically does not have clients visit its business location would have minimal premises liability exposure.

Accepted Answer

Since clients do not visit the consulting firm's business location, there is minimal risk of premises liability exposure, such as slip-and-fall accidents or injuries due to hazardous conditions on the premises.

Question 8

Risk is the possibility of suffering harm or pain.

Accepted Answer

The answer of Risk is the possibility of suffering harm...

Question 9

ACV refers to the depreciated value of a property.

Accepted Answer

The answer of ACV refers to the depreciated value of...

Question 10

Market risk is the possibility of losses associated with the assets and earnings potential of a company,including the firm's reputation.

Accepted Answer

Market risk refers to the potential for financial losses due to changes in market conditions, such as interest rates, currency exchange rates, and stock prices, but it does not include risks to a firm's reputation.

Question 11

Monitoring social media is a form of risk transfer.

Accepted Answer

Monitoring social media is a form of risk identification and management, not risk transfer. Risk transfer involves shifting the risk to another party, such as through insurance.

Question 12

Loss reduction is defined as preventing losses from ever happening.

Accepted Answer

Loss reduction refers to minimizing the impact or severity of losses when they occur, not preventing them entirely.

Question 13

Securing insurance coverage for all major potential losses would involve making certain that insurance covers the full replacement value of the firm's real and personal property.

Accepted Answer

Securing insurance coverage for all major potential losses would involve making certain that insurance covers the full replacement value of the firm's real and personal property.

Question 14

Self-insurance requires designating part of a firm's insurance proceeds to provide life insurance on key employees.

Accepted Answer

Self-insurance involves setting aside a company's own funds to cover potential losses, rather than purchasing insurance policies for those risks. It does not involve designating insurance proceeds for life insurance on key employees.

Question 15

Pure risk refers to a situation where only loss or no loss can occur-there is no potential gain.

Accepted Answer

Pure risk refers to a situation where only the possibility of loss exists, there is no potential for gain.

Question 16

Indemnification clauses should be reviewed by an insurance agent or broker to limit liabilities to a small business.

Accepted Answer

Indemnification clauses can potentially expose a small business to significant liabilities, and an insurance agent or broker can help review and negotiate such clauses to limit the business's exposure.

Question 17

Business risks can be classified into two broad categories-asset risk and pure risk.

Accepted Answer

Business risks are generally classified into speculative risks and pure risks, not asset risk and pure risk. Speculative risks involve the chance of loss or gain, while pure risks involve only the chance of loss.

Question 18

A lease on a real property structure will relieve the lessee of any damage or loss to the leased premises.

Accepted Answer

A lease generally holds the lessee responsible for any damage or loss to the leased premises, unless it is specifically stated otherwise in the lease agreement.

Question 19

Risk financing is the action of making funds available to cover losses that could not be eliminated by risk control.

Accepted Answer

Risk financing involves allocating resources to cover potential losses that could not be prevented entirely through risk control measures. This may involve purchasing insurance, creating a self-insurance fund, or other financial mechanisms to cover the costs of unexpected events.

Question 20

Partially self-funded insurance programs that limit the self-insured portion of an employee's medical coverage to a specific amount is commonly referred to as an aggregate stop loss limit.

Accepted Answer

An aggregate stop loss limit refers to the total amount a self-funded insurance plan will pay in claims over a specified period, not the limit on the self-insured portion of an individual's coverage.

Quiz 23: Managing Risk

Since the small business owner needs to rely heavily on an insurance agent for advice,risk management and insurance management are synonymous.

Specific and aggregate stop loss limits would be the best insurance plans of small businesses which have at least 80 employees.

Market risk is uncertainty associated with a situation where only loss or no loss can occur.

Wrongful acts or omissions for which an injured party can take legal action against the wrongdoer to seek monetary damages are called statutory liability.

An insurance agent should provide information in designing an insurance plan;the small business owner will only need to determine the price the company can afford.

Real property risks include damage to buildings.

A consulting firm that typically does not have clients visit its business location would have minimal premises liability exposure.

Risk is the possibility of suffering harm or pain.

ACV refers to the depreciated value of a property.

Market risk is the possibility of losses associated with the assets and earnings potential of a company,including the firm's reputation.

Monitoring social media is a form of risk transfer.

Loss reduction is defined as preventing losses from ever happening.

Securing insurance coverage for all major potential losses would involve making certain that insurance covers the full replacement value of the firm's real and personal property.

Self-insurance requires designating part of a firm's insurance proceeds to provide life insurance on key employees.

Pure risk refers to a situation where only loss or no loss can occur-there is no potential gain.

Indemnification clauses should be reviewed by an insurance agent or broker to limit liabilities to a small business.

Business risks can be classified into two broad categories-asset risk and pure risk.

A lease on a real property structure will relieve the lessee of any damage or loss to the leased premises.

Risk financing is the action of making funds available to cover losses that could not be eliminated by risk control.

Partially self-funded insurance programs that limit the self-insured portion of an employee's medical coverage to a specific amount is commonly referred to as an aggregate stop loss limit.