Nature of Insurance

Question 1

The cause of a loss is referred to as a(n)

Answer 1

peril

Question 2

All of the following are examples of pure risks EXCEPT
A) losing money at a casino
B) injured while playing football
C) falling at a casino and breaking a hip
D) jewelry stolen during a home robbery

Answer 2

A) losing money at a casino

Question 3

Insurance companies determine risk exposure by which of the following?
A) insurable interest
B) insurable exchanges
C) law of large numbers and risk pooling
D) population table data

Answer 3

C) law of large numbers and risk pooling

Question 4

An example of risk sharing would be?
A) adding more security to a high-risk building
B) choosing not to invest in the stock market
C) doctors pooling their money to cover malpractice exposures
D) buy an insurance policy to cover potential liabilities

Answer 4

C) doctors pooling their money to cover malpractice exposures

Question 5

People with higher loss exposure have the tendency to purchase insurance more often than those at average risk. This is called?

Answer 5

adverse selection