Ch. 5

Question 1

The personal risk management process involves…3

Answer 1

1 identifying

2 evaluating

3 managing pure risk exposures faced by client

Question 2

First 3 steps of the 7 step risk management process

Answer 2

1 determine objectives of risk management program

2 identify clients risk exposure

3 evaluate risk for probability of occurrence and severity of loss

Question 3

Last 4 steps of 7 step risk management process

Answer 3

4 determine alternatives for managing risk
5 select alternatives for each risk
6 implement risk management selected recommendations
7 periodically review risk management program

Question 4

4 responses for managing risk

Answer 4

1 risk avoidance
2 risk reduction
3 risk retention
4 risk transfer

Question 5

Risk avoidance

Answer 5

Avoiding an activity

Question 6

Risk reduction

Answer 6

Implementing activities that result in reduction of frequency and severity of losses

Question 7

Risk retention

Answer 7

Personally retaining the potential for a loss exposure

Question 8

Risk transfer

Answer 8

Shifting risk of loss through means such as insurance or warranty

Question 9

Peril

Answer 9

Proximate or actual cause of loss

Question 10

Common perils include….3

Answer 10

1 accidental death
2 disability caused by sickness or accident
3 property losses caused by fire, windstorm, tornado, earthquake, burglary or collision

Question 11

3 main types of hazard

Answer 11

1 physical hazard

2 moral hazard

3 morale hazard

Question 12

Physical hazard

Answer 12

Tangible condition or circumstance that increases the probability of peril occuring

Question 13

Moral hazard

Answer 13

Character flaw or level of dishonesty person possesses that increases chance of loss

Question 14

Morale hazard

Answer 14

Indifference to losses based on existence of insurance

Question 15

Some unique characteristics of insurance contract include:

Unilateral

Answer 15

Only insurer is making promise

Question 16

Some unique characteristics of insurance contract include:

Aleatory

Answer 16

What is paid in by insured and paid out by insurer may not be equal amounts

Question 17

Some unique characteristics of insurance contract include:

Adhesive

Answer 17

Insured had no opportunity to negotiate terms, thus ambiguities are charged to insurer

Question 18

Some unique characteristics of insurance contract include:

Utmost good faith

Answer 18

The insurance applicant is truthful in disclosure of pertinent material facts and insurer discloses critical contract information

Question 19

Some unique characteristics of insurance contract include:

It is a contract based on the principal of indemnity

Answer 19

Insured cannot make profit from a claim on insurance

Question 20

3 methods of determiNing life insurance needs are…

Answer 20

1 human life value method

2 financial needs method

3 capitalization of earnings method

Question 21

Human life value method

Answer 21

Method uses projected future earnings as the basis for measuring life insurance needs

Question 22

Financial needs method

Answer 22

Method evaluates income replacement and lump sum needs of the survivors in the event of the insureds untimely death

Question 23

Capitalization of earnings method

Answer 23

Method measures the client’s gross income divided by the risk less rate of return to arrive at life insurance needed

Question 24

Term life insurance characteristics….3

Answer 24

1 can be renewed annually

2 cheaper than permanent life insurance

3 premiums increase as person ages

Question 25

Own occupation disability coverage is determined by whether or not the…

Answer 25

Insured can carry out the duties of employment

Question 26

If the insured cannot carry out each and every of his usual duties the he may…

Answer 26

Qualify for disability benefits

Question 27

The any occupation disability coverage is triggered if the insured…

Answer 27

Cannot work in any occupation for which he is qualified by education, training or experience

Question 28

Homeowners insurance policy is a package that covers…5

Answer 28

1 dwelling
2 dwelling extensions
3 personal property
4 loss of use
5 medical payments for others

Question 29

Personal automobile policy (PAP)

Answer 29

Protects against loss for liability and for property losses including comprehensive and collision

Question 30

5 parts of PAP

Answer 30

1 liability coverage
2 medical coverage pmts
3 uninsured motorist coverage
4 collision property damage coverage
5 list of duties of insured

Question 31

Personal liability insurance PLUP

Answer 31

Provide excess liability for catastrophic loss in the millions

Question 32

Noncancelable insurance ensures that the insurance will…

Answer 32

Not be canceled and premiums will remain fixed for the term of the policy

Question 33

Guaranteed renewable insurance obligates the insurer to…

Answer 33

Continue coverage as long as premiums are paid on the policy

Question 34

Injury to another is considered a…

Answer 34

Liability risk

Question 35

Selling a jet ski is an example of…

Answer 35

Risk avoidance

Question 36

Which of the following measures is appropriate for a risk that has a low frequency of occurrence and a high severity?

Answer 36

Transfer/share risk

Question 37

Risks can be insured even if they are not measurable or determinable…this statement is

Answer 37

False

Question 38

The dependency method is…

Answer 38

Not a valid method for determining life insurance needs

Question 39

In a disability policy the time between the disability event and the point at which benefits under the contract begin is known as…

Answer 39

Elimination period

Question 40

Insurance as a contract is adhesive meaning

Answer 40

The insured had no opportunities to negotiate terms

Question 41

Slippery roads after a rainstorm are an example of…

Answer 41

Physical hazard

Question 42

Term life insurance is considered…

Answer 42

Pure insurance

Question 43

Which part of personal automobile policy PAP addresses uninsured or under insured motorists?

Answer 43

Part C