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Exam 23: Managing Risk

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Question 51

True/False

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A stock insurance company is owned by its policyholders.

A) True
B) False

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Question 52

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A ________ insurance company is owned by stockholders, just like any other investor-owned company. A ________ insurance company is owned by its policyholders.

A) stock; mutual
B) corporate; stock
C) stock; corporate
D) mutual; limited liability

E) None of the above
F) B) and C)

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Question 53

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The management of risk is a small part of global business.

When a firm that is self-insuring against risk decides to cover losses straight out of its budget, it is said to be "going bare."

________ insurance replaces part of your income if you become unable to work for an extended period of time.

Brad has decided to increase the size of his auto repair business, although he realizes that this decision brings added risk. This is an example of ________ risk.

Mini-Case The Bookworm is a bookstore and café located on a busy downtown main street in Denver. The owner, Waata Reader, prides himself on the vast selection of books available in the store. The store has three stories, with both stairs and an elevator to each level. In the back of the first floor is the café, which serves pastries and coffee drinks. Many times customers will linger there over a cup of coffee, deciding which book to purchase. Waata has expanded several times and now has 22 people on the staff. -Bookworm sales have been down for the last year due to new competition from a national chain and Waata is understandably concerned. He recently called his insurance agent to see if this downturn in sales was covered by his business policy. The agent, Will B. Safe, told Waata

All risks are insurable.

DeMario was turned down when he attempted to buy a life insurance policy on his former Introduction to Business instructor. The most likely reason the insurance company turned down his attempt to insure the life of his former instructor was that

Soap Stars, Inc. is ready to launch a new shampoo in the marketplace. They will incur a speculative risk.

Professional liability insurance is also sometimes known as malpractice insurance.

Molly's neighbor, Steve, is quite careless and is in danger of burning his house down. Molly tried to buy a fire insurance policy on Steve's house, so she could collect the payment when Steve inevitably burned down his own house. The insurance company would not allow Molly to purchase the policy because she did not have an insurable interest in the property.

Risk management is getting much simpler thanks to the Internet.

Worldwide risks need to be prioritized so that international funds can be spent where they can do the most good.

Liability losses result from property damage or injuries suffered by others for which the policyholder is held responsible.

Donna owns a life insurance policy on her husband Mike through Securitas Mutual Life Insurance Company. As a policyholder, she also owns part of the company.

Mini-Case The Bookworm is a bookstore and café located on a busy downtown main street in Denver. The owner, Waata Reader, prides himself on the vast selection of books available in the store. The store has three stories, with both stairs and an elevator to each level. In the back of the first floor is the café, which serves pastries and coffee drinks. Many times customers will linger there over a cup of coffee, deciding which book to purchase. Waata has expanded several times and now has 22 people on the staff. -One afternoon Waata was called to the café. One of Waata's staff had inadvertently spilled hot coffee on a customer's arm and the customer was left with a burn. Waata sent the customer off to the local hospital for treatment knowing that his ________ insurance would cover the claim.

The chances of dying when young are much higher than the chances of becoming disabled when young.

New Dimensions Athletic Association was formed to administer youth soccer leagues and tournaments in a popular urban area. All board members recently resigned stating that they could no longer assume the risk of participating on a board that did not insure its volunteer members against serious player injuries and other unanticipated problems. Collectively, these members are

Risky Business Insurance Company insures business clients against unexpected disasters such as tornadoes and floods. The company operates in several regions in the U.S., and negotiates contracts following standard insurance industry guidelines. A strategic business guideline that the company would follow is