Risk Mgmt, Insurance, & Empl Bene - FP512 - Module 1

Question 1

Define: Risk

Answer 1

The possibility of a loss- or a negative deviation from a desired outcome.

Question 2

Define: Peril

Answer 2

The cause of a loss

Question 2

Define: Hazard

Answer 2

Increases the potential for a loss

Question 2

T/F: Insurance allows the loss to be spread across society, so the comparatively small amounts of money spent on insurance by many reduces the impact to the individuals who experience the loss.

Answer 2

TRUE

Question 3

What is an example of a static risk?

Answer 3

• earthquakes
• floods

Question 4

What is an example of a dynamic risk?

Answer 4

• changes in the business cycle
• inflation

Question 5

Between static and dynamic risks, which are insurable?

Answer 5

Static

Question 6

Define: Fundamental Risks

Answer 6

Affect a large group of people.

Question 7

Define: Particular Risks

Answer 7

Affect individuals or small groups of people.

Question 8

Define: Pure Risk

Answer 8

Involves the chance of loss or no loss; there is no chance of gain.

Question 9

Define: Speculative Risk

Answer 9

Involves both a chance of loss and the chance for gain.

Question 10

T/F: Gambling is an example of pure risk.

Answer 10

FALSE
Gambling is an example of speculative risk.

Question 11

T/F: Both pure and speculative risks can be insured.

Answer 11

FALSE
Pure risks can be insured; speculative risks cannot.