HW1
1:From the insured's perspective, the purchase of insurance is an example of which type of risk mitigation?
Answer
avoidance.
hazard risk.
retention.
transfer.
loss prevention.
combination.
pure risk.
2: The elements of an ideal insurable risk
Answer
require that the probability of a given loss be known.
include the requirement of loss payments.
must be advantageous to the insured.
requires multiple types of units to be pooled.
must be present or the exposure cannot be insured.
are desirable, but some insurable risks do not possess them.
more than one of the above.
3: For the insurance company, a meaningful measure of risk is
Answer
the probability that a loss will or will not occur.
the possible deviation of actual from predicted results.
the size of the population insured.
the relationship of premium to average loss.
none of the above.
4: The type of insurance that is characterized by individual equity and contractual arrangements is generally referred to as
Answer
social insurance.
private insurance.
property-liability insurance.
public guarantee insurance programs.
government insurance programs.
individual life insurance.
public welfare insurance.
none of the above.
5: Insurance which is required by law
Answer
is classified as a social insurance coverage.
is classified as a compulsory-private insurance coverage.
may be social or private, depending on other characteristics.
is usually classified as a public guarantee program.
none of the above.
6: Purposely driving your car into a tree in order to collect your insurance money is a ______, while accidentally driving into a tree while you were setting up a playlist on your mobile phone is a ______.
Answer
moral hazard, morale hazard.
morale hazard, moral hazard.
moral hazard, societal hazard.
societal hazard, moral hazard.
morale hazard, morale hazard.
7: The principle of indemnity requires that
Answer
insurance rates must be neither too high nor too low.
the insured should be paid for the loss he suffers and no more.
people who have accidents must pay for the losses that result.
the insured must be paid the benefits that his or her premium has purchased.
none of the above.
8: When there is a difference of opinion about the meaning of the terms in an insurance contract because they are capable of more than one interpretation, the courts
Answer
usually use the preferred meaning in Webster's Dictionary.
utilize the preferred meaning in Black's Law Dictionary.
usually favor the insurance company.
usually favor the insured.
declare the contract void
9: Because of the fact that the terms of an insurance contract are fixed by the insurer instead of being determined by a bargaining process, the insurance policy is said to be
Answer
a contract of utmost good faith.
analeatory contract.
a contract of indemnity.
a contract of adhesion.
a voided contract.
an insurance policy contract.
10: By definition, estoppel:
Answer
is the failure to disclose known facts.
prevents one from denying a fact if the fact was admitted to be true by previous actions.
allows the insurer to deny liability on the basis of the insured's previous actions.
is the intentional abandonment of a known right.
none of the above.
11: In an insurance contract, subrogation provides that:
Answer
three parties may collect from the insurer as a result of one negligent act.
the insured's right to collect from a negligent third party is transferred to the insurer to the extent he or she receives payment from the insurer.
The insured must give up the right to receive damages from the insurance company if the insured is negligent.
The insured may collect from his insurer and the negligent party's insurer.
none of the above.
12: Which of the following represents an exception to the principle of indemnity?
Answer
actual cash value payment of insurance losses.
the doctrine of insurable interest.
replacement cost coverage.
subrogation.
"other insurance" provisions.
13: If an agent tells an insured that a breach of a policy condition will not affect the coverage, and a loss occurs, the insurer may
Answer
deny coverage if the breach contributed to the loss.
be liable for the loss because the agent's acts are considered acts of the insurer.
deny liability if the agent was not authorized to make such statements.
deny liability because a waiver must be in writing before it is valid.
none of the above
14: One evening after a football win, you drink way too much beer. In an after-midnight deal you sign a contract. The next day you realize you need to get out of the contract. Which requirement of a contract would allow this?
Answer
Offer and acceptance.
Consideration.
Competent parties.
Legal purpose.
None of the above
15: You sell your car to a woman who responds to an ad you placed online, but you mistakenly pay the insurance renewal premium on the car after you sell it. During the policy term you find out that the woman you sold the car to was in an accident that caused extensive damage to the car. Which of the following is true:
Answer
You can collect for damages done to the car since you had an insurable interest at the inception of the policy.
You cannot collect on the losses to the car, because you were not in the accident.
You can collect under your policy, but you must turn the payment over to the women who bought the car.
You cannot collect for the loss to the car since you did not have an insurable interest in the car at the time of loss.
It is your option to decide if you want to collect for the loss to the car and make payment to the woman to whom you sold the car.
16: To be technically correct, we should define "fire" as
Answer
a peril.
a hazard.
a risk.
a loss.
any of the above is equally correct
17: A business firm with an inventory of obsolete stock and high debt payments might represent
Answer
a moral hazard.
a morale hazard.
a physical hazard.
a legal hazard.
none of the above.
18: Enterprise Risk Management is
Answer
risk management of a commercial enterprise by their insurance company.
viewing all the enterprise's risks through a common lens and using wholeistic risk management.
a method of increasing return on assets for a commercial enterprise.
a theory of risk management discredited by empirical evidence.