Which of the following is a result of adverse selection? A) The insurer’s financial results will be substantially improved. B) Persons most likely to have losses are also most likely to seek insurance at standard rates. C) It is unnecessary for the insurance company to use underwriting. D) Insurance can be written only by the […]
All of the following are characteristics of the liability risk that most people face EXCEPT A) a lien may be placed on your income and assets to satisfy a legal judgment. B) substantial legal expenses may be incurred defending the claim. C) there is no upper limit on the amount of the loss. D) owning […]
Which of the following is a basic characteristic of insurance? A) pooling of losses B) avoidance of risk C) payment of intentional losses D) certainty about specific losses that will occur ANSWER Answer: A
Jim and Paula Franklin started a dry cleaning business. The business may be successful or it may fail. The type of risk that is present when either a profit or loss could occur is called A) pure risk. B) subjective risk. C) nondiversifiable risk. D) speculative risk. ANSWER Answer: D
Ben is concerned that if he injures someone or damages someone’s property he could be held legally responsible and required to pay damages. This type of risk is called a A) speculative risk. B) liability risk. C) nondiversifiable risk. D) property risk. ANSWER Answer: B
MLX Drug Company would like to market a new hypertension drug. While the Food and Drug Administration (FDA) was testing the drug, it discovered that the drug produced a harmful side effect. When MLX learned of the FDA’s test result, MLX abandoned its plan to produce and distribute the drug. MLX’s reaction illustrates A) risk […]
ABC Insurance Company sells auto insurance in one state. Recently, the state legislature passed a law that limits the use of an individual’s credit history by insurers when selecting applicants to insure. This change in law will increase the possibility of unprofitable results for ABC. This type of hazard is an example of A) physical […]
A risk that affects only individuals or small groups and not the entire economy is called a A) diversifiable risk. B) pure risk. C) speculative risk. D) nondiversifiable risk. ANSWER Answer: A
Which of the following is an example of a commercial risk? A) the risk of insufficient retirement income B) the loss of business income C) the risk of premature death D) the risk of being unemployed ANSWER Answer: B
Which of the following statements about chance of loss and risk is (are) true? I. If the chance of loss is identical for two groups, the objective risk must be the same. II. Two individuals may perceive differently the risk inherent in a given activity. A) I only B) II only C) both I and […]
