Principles of Risk Management and Insurance 13th edition by George Rejda test bank

A) I only
B) II only
C) both I and II
D) neither I nor II
Answer:  A
Question Status:  Previous Edition
 
30) All of the following are burdens to society because of the presence of risk EXCEPT
A) The size of an emergency fund must be increased.
B) Risk provides an incentive for people to engage in loss control. 
C) Society is deprived of certain goods and services.
D) Mental fear and worry are present.
Answer:  B
Question Status:  Previous Edition
 

31) Loss control includes which of the following?
I.    Loss reduction
II.   Loss prevention
A) I only
B) II only
C) both I and II
D) neither I nor II
Answer:  C
Question Status:  Previous Edition
32) Following good health habits can be categorized as
A) loss prevention.
B) risk retention.
C) noninsurance transfer.
D) personal insurance.
Answer:  A
Question Status:  Previous Edition
 
33) From the insured's perspective, the use of deductibles in insurance contracts is an example of
A) risk transfer.
B) risk control.
C) risk avoidance.
D) risk retention.
Answer:  D
Question Status:  Previous Edition
 
34) The use of fire-resistive materials when constructing a building is an example of
A) risk transfer.
B) risk control.
C) risk avoidance.
D) risk retention.
Answer:  B
Question Status:  Previous Edition
 
35) All of the following statements about risk retention are true EXCEPT
A) It may be used intentionally if commercial insurance is unavailable.
B) It may be used passively because of ignorance.
C) Its use is most appropriate for low-frequency, high-severity types of risks.
D) Its use results in cost savings if losses are less than the cost of insurance.
Answer:  C
Question Status:  Previous Edition
 

36) Which of the following is an example of a noninsurance risk transfer?
A) not engaging in dangerous activities
B) entering into a hold-harmless agreement
C) installing smoke detectors in your home
D) using nonflammable building material when constructing a house
Answer:  B
Question Status:  Previous Edition
 
37) Curt borrowed money from a bank to purchase a fishing boat. He purchased property insurance on the boat. Curt had difficulty making loan payments because he did not catch many fish, and fish prices were low. Curt intentionally sunk the boat, collected from his insurer, and paid off the loan balance. This scenario illustrates the problem of
A) adverse selection.
B) moral hazard.
C) nondiversifiable risk.
D) attitudinal hazard.
Answer:  B
Question Status:  Previous Edition
38) Jenna opened a successful restaurant. One night, after the restaurant had closed, a fire started when the electrical system malfunctioned. In addition to the physical damage to the restaurant, Jenna lost profits that could have been earned while the restaurant was closed for repairs. The lost profits are an example of
A) direct loss.
B) nondiversifiable risk.
C) speculative risk.
D) indirect loss.
Answer:  D
Question Status:  Previous Edition
 
39) Brad started a pest control business. To protect his personal assets against liability arising out of the business, Brad incorporated the business. Brad's use of the corporate form of organization to shield against personal liability claims illustrates
A) fundamental risk.
B) noninsurance transfer.
C) risk retention.
D) objective risk.
Answer:  B
Question Status:  Previous Edition
 

40) ABC Insurance Company plans to sell homeowners insurance in five Western states. ABC expects that 8 homeowners out of every 100, on average, will report claims each year. The variation between the rate of loss that ABC expects to occur and the rate of loss that actually occurs is called
A) objective probability.
B) subjective probability.
C) objective risk.
D) subjective risk.
Answer:  C
Question Status:  Previous Edition
 
41) Williams Company installed smoke detectors, a sprinkler system, and fire extinguishers in its new manufacturing facility. These devices are all examples of
A) risk control.
B) noninsurance transfer.
C) risk avoidance.
D) risk retention.
Answer:  A
Question Status:  Previous Edition
 
42) Which of the following statements about hedging is (are) true?
I.    Hedging is a form of risk transfer.
II.   Hedging is used to address the risk of unfavorable price fluctuations.