Chapter 1 - Principles Of Insurance - Quiz, Flashcards & Trivia

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

Fire

Lightning

Wet pavement

Flood

C is correct. Wet pavement is not by itself a cause of loss (or peril), but it increases the chances of automobile collisions, which are a cause of loss.

Explanation

C is correct. Wet pavement is not by itself a cause of loss (or peril), but it increases the chances of automobile collisions, which are a cause of loss.

About This Quiz

Chapter 1 - Principles Of Insurance - 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... see moreminimize 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. see less

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

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

Explanation

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

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

Physical

Moral

Morale

Obvious

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

Explanation

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

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

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

Explanation

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

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

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

Explanation

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

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

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.

Explanation

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

Our quizzes are rigorously reviewed, monitored and continuously updated by our expert board to maintain accuracy, relevance, and timeliness.

Current Version
Mar 22, 2023

Quiz Edited by
ProProfs Editorial Team
Feb 24, 2009

Quiz Created by
Fsspc