Chapter 1 - Principles Of Insurance

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  • 1/6 Questions

    Which of the following is a hazard as opposed to a peril?

    • Fire
    • Lightning
    • Wet pavement
    • Flood
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About This Quiz

This chapter reviews basic principles that provide a foundation for the insurance industry. They range from the concept of risk, to the idea that individuals and businesses can minimize losses by transferring and sharing risks, to the application of the law of large numbers. Various principles also determine why some risks of loss are insurable whereas others are not.

Chapter 1 - Principles Of Insurance - Quiz

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  • 2. 

    Benson Pharmaceutical Company decides not to manufacture a new drug after determining that it has serious potential side effects. This is an example of which risk management method?

    • Transfer

    • Retention

    • Avoidance

    • Reduction

    Correct Answer
    A. Avoidance
    Explanation
    C is correct. By not producing the drug, Benson avoids the risk of being sued by consumers who are injured by the drug.

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  • 3. 

    The tread on Alan's automobile tires is very thin. This is an example of what type of hazard?

    • Physical

    • Moral

    • Morale

    • Obvious

    Correct Answer
    A. Physical
    Explanation
    A is correct. Worn tread is a physical condition that reduces Alan's ability to control or stop his vehicle.

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  • 4. 

    Highpoint Industries has an automatic sprinkler system installed in its office building. This is an example of which risk management method?

    • Avoidance

    • Reduction

    • Retention

    • Transfer

    Correct Answer
    A. Reduction
    Explanation
    B is correct. A sprinkler system can reduce the severity of fires, but it does not prevent them altogether.

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  • 5. 

    Because she has always been in good health, Donna decides to cancel her health insurance policy. This is an example of which risk management method?

    • Retention

    • Control

    • Avoidance

    • Transfer

    Correct Answer
    A. Retention
    Explanation
    A is correct. By not carrying health insurance, Donna is retaining the risk of financial loss from unexpected medical expenses.

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  • 6. 

    LaTonya purchases a house from John. She borrows $75,000 from First City Bank that, along with her $25,000 down payment, equals the $100,000 purchase price of the home. Who has an insurable interest in this home? Choose all that apply.

    • LaTonya

    • John

    • LaTonya's son, who would like to inherit the home some day

    • First City Bank

    Correct Answer
    A. First City Bank
    Explanation
    A and D are correct. Insurable interest exists when there is an actual economic interest in the safety or preservation of the subject of the insurance from loss or destruction or financial damage or impairment. LaTonya has an insurable interest in the home because she owns it. First City Bank has an insurable interest as long as it carries a mortgage on the home.

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Quiz Review Timeline (Updated): Mar 22, 2023 +

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  • Current Version
  • Mar 22, 2023
    Quiz Edited by
    ProProfs Editorial Team
  • Feb 24, 2009
    Quiz Created by
    Fsspc
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