Question 1

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

Accepted Answer

Insurance can be purchased for both speculative and pure risks. Pure risks are losses that result only in a negative outcome, while speculative risks could result in either a positive or negative outcome. Insurance companies offer coverage for both types of risks.

Question 2

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

Accepted Answer

This statement is a basic principle of risk management. It means that one should take calculated risks that they can afford to lose, while also purchasing insurance to protect against losses that would be financially devastating.

Question 3

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

Accepted Answer

As a consumer, your main objective should be to purchase an insurance plan that covers your needs and fits your budget, rather than being persuaded or coerced into buying extra or insufficient coverage by the insurance agent. It is crucial to conduct thorough research, compare quotes, review policy details, and seek professional advice to make an informed decision.

Question 4

The fee charged for insurance protection is called a premium.

Accepted Answer

This is correct, the fee charged for insurance protection is known as a premium.

Question 5

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

Accepted Answer

This is the definition of risk. It is the uncertainty or possibility of financial loss and its magnitude.

Question 6

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

Accepted Answer

This type of insurance would typically be considered a supplemental or ancillary benefit, not "important" in the context of critical financial protection like health, life, or disability insurance.

Question 7

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

Accepted Answer

Loss severity, which refers to the magnitude of financial impact of a loss, is often considered more critical than loss frequency because a single severe loss can be financially devastating, outweighing the effect of frequent but smaller losses.

Question 8

Risk avoidance is always a practical way of handling risk.

Accepted Answer

Risk avoidance may not always be practical and may not always be the best solution for handling risks. In some cases, it may be more beneficial to mitigate, transfer, or accept risks instead of avoiding them completely. Risk avoidance could also lead to missed opportunities and potentially negative impacts on the organization's goals and objectives.

Question 9

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

Accepted Answer

A risk transfer is the process of shifting the risk of financial loss from one party to another, typically through the purchase of insurance. If an insured event occurs, the insurance company agrees to reimburse the policyholder for the financial loss, effectively transferring the risk from the policyholder to the insurer.

Question 10

Risk reduction generally includes the use of insurance.

Accepted Answer

Insurance is a popular tool to reduce risks. Insurance transfers the risk from an individual or organization to an insurance company. By paying premiums, individuals or organizations protect themselves from financial losses in case of unexpected events such as accidents, natural disasters, or unexpected interruptions in business operations.

Question 11

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

Accepted Answer

Loss control refers to an individual's ability to control and manage losses, such as giving up smoking, rather than experiencing them. Therefore, an individual's success in giving up smoking is an example of them exercising loss control.

Question 12

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

Accepted Answer

Property insurance is designed to cover financial losses resulting from damage or destruction of your property or possessions.

Question 13

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

Accepted Answer

The maximum possible loss is the worst-case scenario for a loss event. By using this as a guide, you can ensure that you have enough coverage to protect your organization from financial ruin.

Question 14

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

Accepted Answer

While insurance is a common method for transferring risk for many types of potential losses, it is not always the preferable way to handle risk. Other risk management strategies, such as risk avoidance, risk reduction, and risk retention, may be more appropriate depending on the specific circumstances and the nature of the risk involved.

Question 15

Owning a motorcycle is an example of a peril.

Accepted Answer

Owning a motorcycle is not a peril, it is the potential cause of a peril such as an accident or theft. A peril is defined as a specific cause of loss, such as a fire, windstorm, or theft.

Question 16

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

Accepted Answer

An insurance policy is a legal agreement or contract between an insurance company and an individual or entity who purchases insurance. The policy outlines the terms and conditions of the coverage provided by the insurer and the premium payments required by the policyholder.

Question 17

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

Accepted Answer

Major illness and injury can result in significant medical expenses that could be financially devastating without insurance coverage. Therefore, it is typically considered necessary to have insurance coverage for these events.

Question 18

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

Accepted Answer

The answer of Risk management is the process of identifying...

Question 19

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

Accepted Answer

Installing a smoke detector is a proactive measure taken to reduce or prevent potential losses in the event of a fire. This is a classic example of loss control.

Question 20

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.

Accepted Answer

The large-loss principle recommends that you insure the losses you cannot afford to suffer and assume the losses you can afford to suffer. This is because insurance is meant to protect against large, catastrophic losses that would be financially devastating, while smaller losses can be handled out of pocket.

Quiz 10: Managing Property and Liability Risk