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Exam 1: Risk and Its Treatment

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Question 31

Multiple Choice

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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.

E) B) and D)
F) C) and D)

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Question 32

Multiple Choice

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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 II

E) B) and D)
F) A) and D)

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Question 33

Multiple Choice

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Which of the following is (are) often consequences of long-term disability? I.Continuing medical expenses II.Loss or reduction of employee benefits

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

Williams Company installed smoke detectors,a sprinkler system,and fire extinguishers in its new manufacturing facility.These devices are all examples of

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 special form of planned retention by which part or all of a give loss exposure is retained by the firm is called

All of the following are examples of personal risks EXCEPT

One of the speculative financial risks considered in an enterprise risk management program is the risk of loss because of adverse changes in commodity prices,interest rates,foreign exchange rates,and the value of money.This risk is called

A pure risk is defined as a situation in which there is

The use of fire-resistive materials when constructing a building is an example of

Janice mistakenly thought that Medicare covers the cost of a long-term care in a nursing home.So she did not purchase long-term care insurance or save in case she needed a long stay in a nursing home.Janice's treatment of the risk of a long-term stay in a nursing home is best described as

Which of the following is an example of consequential (indirect) loss?

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 family's 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

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

All of the following statements about risk retention are true EXCEPT

The premature death of an individual is an example of a

A risk that affects only individuals or small groups and not the entire economy is called a

Which of the following are personal risks that can cause great economic insecurity? I.Alcohol and drug addiction II.Inadequate retirement income