Chapter 1 - Principles Of Insurance

6 Questions | Total Attempts: 8618

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Chapter 1 - Principles Of Insurance

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.


Questions and Answers
  • 1. 
    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.
    • A. 

      LaTonya

    • B. 

      John

    • C. 

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

    • D. 

      First City Bank

  • 2. 
    Highpoint Industries has an automatic sprinkler system installed in its office building. This is an example of which risk management method?
    • A. 

      Avoidance

    • B. 

      Reduction

    • C. 

      Retention

    • D. 

      Transfer

  • 3. 
    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?
    • A. 

      Transfer

    • B. 

      Retention

    • C. 

      Avoidance

    • D. 

      Reduction

  • 4. 
    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?
    • A. 

      Retention

    • B. 

      Control

    • C. 

      Avoidance

    • D. 

      Transfer

  • 5. 
    The tread on Alan's automobile tires is very thin. This is an example of what type of hazard?
    • A. 

      Physical

    • B. 

      Moral

    • C. 

      Morale

    • D. 

      Obvious

  • 6. 
    Which of the following is a hazard as opposed to a peril?
    • A. 

      Fire

    • B. 

      Lightning

    • C. 

      Wet pavement

    • D. 

      Flood