Question 1

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

Accepted Answer

Major illness or injury can result in significant medical expenses and lost income due to the inability to work. Without insurance coverage for these costs, individuals and families may face financial hardship. Therefore, it is generally considered necessary to have insurance for major illness and injury.

Question 2

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

Accepted Answer

An insurance policy is a legal contract between the policyholder (the person buying insurance) and the insurance company, outlining the terms and conditions of the coverage.

Question 3

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

Accepted Answer

A risk transfer involves transferring the risk of financial loss to an insurance company in exchange for a premium payment. Under this arrangement, the insurance company agrees to reimburse you for any covered losses according to the terms of the policy. This effectively shifts the financial risk of a loss from you to the insurance company.

Question 4

The fee charged for insurance protection is called a premium.

Accepted Answer

This statement is true. The premium is the amount of money paid to an insurance company in exchange for coverage and protection against potential losses.

Question 5

Risk reduction generally includes the use of insurance.

Accepted Answer

Insurance is a commonly used strategy for reducing risks that individuals or businesses may face. By paying a premium to an insurance company, the insured party transfers the risk of a potential loss to the insurer. If the loss occurs, the insurer will compensate the insured party up to the policy limits. This helps to mitigate financial losses and protect against unexpected events.

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.

Accepted Answer

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

Question 7

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

Accepted Answer

Insurance can only be purchased for a pure risk, which is a risk that has a chance of loss but no chance of gain. Speculative risks, on the other hand, involve a chance of loss or gain, and insurance cannot cover these types of risks.

Question 8

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

Accepted Answer

This principle is commonly known as the "risk management principle" and is followed by individuals, businesses, and organizations to prevent financial ruin. It involves assessing risks and taking steps to mitigate them, such as avoiding certain high-risk activities, taking precautions to minimize damage in case of a loss, and purchasing insurance to protect against losses that would be too costly to bear. It is essential to strike a balance between taking calculated risks and protecting against catastrophic losses.

Question 9

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 provide coverage for your property and possessions in the event of damage or destruction, thus protecting you from financial losses associated with these events.

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.

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 11

Risk avoidance is always a practical way of handling risk.

Accepted Answer

While risk avoidance may seem like the safest option, it is not always practical or realistic. Avoiding all risks can lead to missed opportunities and limited growth. It is often more effective to manage and mitigate risks through careful planning and decision-making.

Question 12

Owning a motorcycle is an example of a peril.

Accepted Answer

Owning a motorcycle is not a peril, but riding a motorcycle can be considered a peril as it is associated with greater risk of accidents and injuries.

Question 13

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 14

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

Accepted Answer

Risk is defined as the possibility of financial loss or uncertainty about the outcome of an investment. It includes both the likelihood of loss and the potential size of the loss. Therefore, the statement "Risk is the uncertainty about whether a financial loss will occur and how large the loss will be" is true.

Question 15

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

Accepted Answer

This is because getting more or less coverage than you need can result in you overpaying or being underinsured in case of loss or damage. It's essential to understand your insurance needs and compare quotes from different insurers to get the right coverage at a reasonable cost.

Question 16

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 17

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 manage and cope with losses in life, including but not limited to loss of a loved one, job loss, financial loss, etc. Giving up smoking can be regarded as an instance of loss control as it involves an individual's ability to cope with the loss of the habit and addiction to nicotine.

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.

Accepted Answer

The statement is the opposite of the large-loss principle, which actually advises that you insure the losses that you cannot afford to suffer and assume the losses you can afford to suffer.

Question 19

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

Accepted Answer

Installing a smoke detector is a preventive measure that reduces the risk of loss from a fire by providing an early warning system. This 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.

Accepted Answer

The answer of In administering a risk-management program,you should use...

Quiz 10: Managing Property and Liability Risk