Chapter One Quiz

Question 1

Which law is the foundation of the statistical prediction of loss upon which rates for insurance are calculated?

Answer 1

Law of large numbers

Question 2

The protection of the insurer from adverse selection is provided in part by:

Answer 2

A profitable distribution of exposures

Question 3

Which of the following is the most common way to transfer risk?

Answer 3

Purchase insurance

Question 4

The growing tendency of individuals to file lawsuits and to claim tremendous amounts for alleged damages is known as:

Answer 4

Legal hazard

Question 5

When must insurable interest exist in a life insurance policy?

Answer 5

At the time of application

Question 6

When an individual purchases insurance, what risk management technique is he or she practicing?

Answer 6

Transfer

Question 7

Insurance is a contract by which one seeks to protect another from:

Answer 7

Loss

Question 8

For the reported losses of an insured group to become more likely to equal the statistical probability of loss for that particular class, the insured group must become:

Answer 8

Larger

Question 9

Adverse selection is a concept best described as:

Answer 9

Risks with higher probabiliyu of loss seeking insurance more often than other risks

Question 10

What are examples of risk retention?

Answer 10

• Self insurance
• Deductibles
• Copayments

Question 11

All of the following are examples of risk retention except:

Answer 11

Premiums

Question 12

Which of the following statements is not true concerning insurable interest as it applies to life insurance?

Answer 12

A debtor has an insurable interest in the life of a leader

Question 13

Which of the following is considered to be a morale hazard?

Answer 13

Driving recklessly