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
An individual’s personal estimate of the chance of loss is a(n) A) objective probability. B) objective risk. C) subjective probability. D) a priori probability. ANSWER Answer: C
A peril is A) a moral hazard. B) the cause of a loss. C) a condition that increases the chance of a loss. D) the probability that a loss will occur. ANSWER Answer: B
The long-run relative frequency of an event based on the assumption of an infinite number of observations with no change in the underlying conditions is called A) objective probability. B) objective risk. C) subjective probability. D) subjective risk. ANSWER Answer: A
Which of the following statements about a priori probabilities is correct? A) They are subjective probabilities based on ambiguity in the way probability is perceived. B) They are subjective probabilities that may vary among individuals because of factors such as age, gender, education, and the use of alcohol. C) They are objective probabilities that can […]
Carelessness or indifference to a loss is an example of A) physical hazard. B) objective probability. C) moral hazard. D) attitudinal hazard. ANSWER Answer: D
Faking an accident to collect insurance proceeds is an example of A) physical hazard. B) objective risk. C) moral hazard. D) attitudinal hazard. ANSWER Answer: C
Dense fog that increases the chance of an automobile accident is an example of a A) speculative risk. B) peril. C) physical hazard. D) moral hazard. ANSWER Answer: C
An earthquake is an example of a(n) A) moral hazard. B) peril. C) physical hazard. D) objective risk. ANSWER Answer: B
Taylor Tobacco Company is concerned that the company may be held liable in a court of law and ordered to pay a large damage award to a smoker harmed by the company’s cigarettes. The characteristics of the judicial system that increase the frequency and severity of loss are known as A) moral hazard. B) particular […]
