Section Two Nature of Insurance

Question 1

Which of the following is considered to be an event or condition that increases the probability of an insured’s loss?
A. Risk
B. Hazard
C. Indemnity
D. Peril

Answer 1

Hazard

Question 2

Insurance companies determine risk exposure by which of the following?
A. Insurable interest
B. Insurance exchanges
C. Law of large numbers and risk pooling
D. Population table data

Answer 2

Law of large numbers of risk pooling

Question 3

How do insurers predict the increase of individual risks?
A. Law of large numbers
B. U.S. Census
C. Average mortality incidents
D. Experience of morbidity

Answer 3

Law of large numbers

Question 4

An individual who removes the risk of losing money in the stock market by never purchasing stocks is said to be engaging in
A. Risk reduction
B. Risk transference
C. Risk avoidance
D. Risk retention

Answer 4

Risk Avoidance

Question 5

The cause of a loss is referred to as a(n)
A. Hazard
B. Adversity
C. Peril
D. Risk

Answer 5

peril

Question 6

An example of risk sharing would be

Answer 6

Doctors pooling their money to cover malpractice exposures

Question 7

All of the following are examples of pure risk EXCEPT?

Answer 7

Losing money at the casino

Question 8

What is known as the immediate specific event causing loss and giving rise to risk?

Answer 8

Peril

Question 9

Insurance represents the process of risk

Answer 9

transference

Question 10

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

Answer 10

Adverse Selection