Lesson 5 Flashcards
End of Chapter Questions
Which of the following would not be considered a personal risk?
A. Becoming disabled due to a car accident.
B. Injuring a passenger in your vehicle during an auto accident that was your fault.
C. Dying at age 42 given a normal life expectancy of age 80.
D. Being diagnosed with a curable form of cancer
B. Injuring a passenger in your vehicle during an auto accident that was your fault.
Injury to another is considered a liability risk. The other three examples are personal risks
End of Chapter Questions
You recently met with your client, Leonardo, age 40. Leonardo is widowed and has one dependent child. During your meeting with him you discussed the concept of risk management. Which of the following statements regarding the ways to manage risk is not correct?
A. The selling of Leonardo’s Jet Ski is an example of risk reduction.
B. Not purchasing life insurance is an example of risk retention.
C. Purchasing a warranty is an example of risk transfer.
D. Insurance is not necessary for every risk of financial loss
A. The selling of Leonardo’s Jet Ski is an example of risk reduction.
The selling of the JetSki is an example of risk avoidance (risk avoidance is the avoidance of an activity so that a final loss financial loss cannot be incurred)
Risk reduction is the implementation of activities that will result in the reduction of the frequency and or severity of the loss
Not purchasing life insurance is an example of risk reduction (the state of being exposed to a risk and personally retaining the potential for the risk)
Risk transfer is a transferring or shifting of the rift of lost through insurance or warranty
End of Chapter Questions
If a risk has a high frequency of occurrence and a high severity, you should:
A. Transfer the risk.
B. Retain the risk.
C. Reduce the risk.
D. Avoid the risk.
D. Avoid the risk.
If the occurrence is frequent and high, you should avoid the risk
End of Chapter Questions
Camila had a very bad year. She wrecked her car in January when she ran a red light (because she could not see properly having left her contacts at home) and crashed into another car completely destroying both cars. The insurance company was very nice to her and she purchased a new car with the insurance proceeds. Camila decided that since she had insurance, it really did not matter if she took proper care of her new car because she could always get a new one. Camila got in the habit of leaving her new car unlocked and it was stolen. After Camila bought another car she decided that she really liked the insurance adjuster and wanted to see him again, so one day she purposefully set her car on fire. In her carelessness, she also caught her hand on fire. Camila was depressed over her circumstances and decided she didn’t want to go back to work. She filed a falsified disability claim for the loss of use of her hand (even though she could still use her hand).
Which of the following statements is true?
A. Driving with poor eyesight is not a hazard.
B. Leaving the car unlocked is a morale hazard.
C. Burning the car on purpose is a morale hazard.
D. Filing a false disability claim is a morale hazard
B. Leaving the car unlocked is a morale hazard.
Driving with poor eyesight is a physical hazard. Leaving the car unlocked is a morale hazard. Burning the car on purpose and filing a false disability claim with both be moral hazards
End of Chapter Questions
Kayne wants to purchase a life insurance policy on his own life. He is interested in learning about the various approaches to determine the amount needed. Which of the following is not true regarding the three most common approaches?
A. The human life value method estimates the present value of income generated over a person’s
work life expectancy, after adjusting for the expected consumption of the survivors.
B. The financial needs method evaluates the income replacement and lump-sum needs of the
survivors after the insured dies.
C. The capitalization of earnings method determines need by dividing the client’s gross income by the
riskless rate of return.
D. In practice a financial planner would utilize all three methods and then determine the client’s needs
based on a combination of factors including affordability
A. The human life value method estimates the present value of income generated over a person’s
work life expectancy, after adjusting for the expected consumption of the survivors.
