Curt borrowed money from a bank to purchase a fishing boat. He purchased property insurance on the boat. Curt had difficulty making loan payments because he did not catch many fish, and fish prices were low. Curt intentionally sunk the boat, collected from his insurer, and paid off the loan balance. This scenario illustrates the […]
Brad started a pest control business. To protect his personal assets against liability arising out of the business, Brad incorporated the business. Brad’s use of the corporate form of organization to shield against personal liability claims illustrates A) fundamental risk. B) noninsurance transfer. C) risk retention. D) objective risk. ANSWER Answer: B
Which of the following statements about speculative risks is true? A) They are almost always insurable by private insurers. B) They are more easily predictable than pure risks. C) They may benefit society even though a loss occurs. D) They involve only a chance of loss. ANSWER Answer: C
Jenna opened a successful restaurant. One night, after the restaurant had closed, a fire started when the electrical system malfunctioned. In addition to the physical damage to the restaurant, Jenna lost profits that could have been earned while the restaurant was closed for repairs. The lost profits are an example of A) direct loss. B) […]
An automobile that is a total loss as a result of a collision is an example of which of the following types of risk? I. Speculative risk II. Diversifiable risk A) I only B) II only C) both I and II D) neither I nor II ANSWER Answer: B
All of the following statements about risk retention are true EXCEPT A) It may be used intentionally if commercial insurance is unavailable. B) It may be used passively because of ignorance. C) Its use is most appropriate for low-frequency, high-severity types of risks. D) Its use results in cost savings if losses are less than […]
Which of the following is a reason why premature death may result in economic insecurity? I. Additional expenses associated with death may be incurred. II. The income of the deceased person’s family may be inadequate to meet its basic needs. A) I only B) II only C) both I and II D) neither I nor […]
Which of the following is an example of a noninsurance risk transfer? A) not engaging in dangerous activities B) entering into a hold-harmless agreement C) installing smoke detectors in your home D) using nonflammable building material when constructing a house ANSWER Answer: B
Which of the following is an example of consequential (indirect) loss? A) the theft of a person’s jewelry B) the destruction of a firm’s manufacturing plant by an earthquake C) the cost of renting a substitute vehicle while a collision-damaged car is being repaired D) the vandalism of a person’s automobile ANSWER Answer: […]
ABC Insurance Company plans to sell homeowners insurance in five Western states. ABC expects that 8 homeowners out of every 100, on average, will report claims each year. The variation between the rate of loss that ABC expects to occur and the rate of loss that actually occurs is called A) objective probability. B) subjective […]
