Chapter 1

Question 1

Indemnification/Indemnity is

Answer 1

Making whole

Question 2

Insurance

Answer 2

Transfers risk

Question 3

A stock company is referred to as

Answer 3

Non-participating company

Question 4

A company that has purchased a fire policy on its building has decreased its

Answer 4

risk with respect to a loss

Question 5

A risk management technique which transfers risk is

Answer 5

insurance

Question 6

Which of the following is considered to be a “participating” Insurer
a.
a government insurer

b.
a mutual insurer

c.
a fraternal insurer

d.
a stock insurer

Answer 6

a mutual insurer because the policyholders participate in the profits

Question 7

Which best demonstrates indemnification?
a.
An Insured demands a new car when the old car is destroyed

b.
After a fire, a homeowner is paid retail prices for personal property as well as the cost of rebuilding the structure

c.
After a car wreck, an injured person is paid for medical expenses and vehicle damages

d.
After a loss, an Insured collects from both her insurance and another person’s insurance

Answer 7

After a car wreck, an injured person is paid for medical expenses and vehicle damages

Question 8

Each of the following involves pure risk EXCEPT:

a.
loss in the stock market

b.
drought

c.
bodily injury

d.
flood

Answer 8

loss in the stock market

Question 9

The Law of large Numbers allows insurers to:

Answer 9

predict losses accurately

Question 10

Uncertainty of loss is:

Answer 10

Risk

Question 11

The National Association of Insurance Commissioners (NAIC):

Answer 11

Advises the state insurance commissioners

Question 12

Insurance covers:

Answer 12

Pure risk

Question 13

To avoid the concentration of insurance risks, an insurer should:

Answer 13

Spread the risk

Question 14

The primary concept behind insurance is

Answer 14

Transfer of risk

Question 15

The Lutheran-run insurance companies are examples of:

Answer 15

fraternal benefit insurers

Question 16

The Law of Large Numbers:

Answer 16

Is used to determine premiums based on historical loss figures

Question 17

A unique point about this type of insurance company is that it is run by someone known as an “attorney in fact” (not an attorney at law which is a lawyer

Answer 17

reciprocal insurer

Question 18

Uncertainty of future outcomes is:

Answer 18

Risk

Question 18

The chance of a windstorm causing a loss to one’s property is:

Answer 18

risk

Note: A windstorm is a peril. The chance of a windstorm occurring is a risk.

Question 19

Each of the following is generally considered to be an insurable risk EXCEPT:
a.
accidental

b.
measurable

c.
economic

d.
catastrophic

Answer 19

catastrophic

Question 20

Risk is the:

Answer 20

uncertainty or chance of loss

Question 21

Which is true regarding insurance companies?
a.
Stock companies and mutuals both pay dividends to the policy holders.

b.
Mutuals are owned by the policy holders, have the management members chosen by the policy holders, and pay dividends to the policy holders.

c.
Stock companies are owned by the policy holders but mutuals are owned by the stock holders.

d.
Stock companies are managed by the policy owners.

Answer 21

Mutuals are owned by the policy holders, have the management members chosen by the policy holders, and pay dividends to the policy holders.

Question 22

The transfer of pure risk is:

Answer 22

Insurance

Question 23

Restoring the Insured to the financial condition prior to a loss is:

Answer 23

Indemnification