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Exam 22: Bonus B: Managing Risk

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Question 31

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Harold owns several gas stations.He realizes that among the several risks associated with this type of business is the risk of minor damage to cars from dirty or contaminated fuel.He also knows that there is a small chance of a major loss if a fire occurred at one of his gas stations.Harold wants to control his insurance costs while still maintaining a reasonable risk management program.He is considering self-insurance.If he decides to use this approach,he will probably:

A) rely entirely on a strategy of risk avoidance.
B) decide to cover both types of risk himself.
C) decide to self-insure for the smaller,more routine,losses associated with the damage caused by dirty or contaminated fuel,but seek coverage from an insurance company for the potentially much larger loss from a fire.
D) decide to cover the risk of fire himself,and take out an insurance policy to cover the risk of contaminated fuel.

E) B) and D)
F) All of the above

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Question 32

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An insurance company can use the law of large numbers to predict the number of people in your community that will have a car accident in a given month.

A) True
B) False

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Question 33

True/False

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It's good advice for doctors and lawyers to carry malpractice insurance.

Bill 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.

Disability insurance replaces part of your income if you become disabled and can no longer work,but you usually must be disabled for a specified period of time before benefits are provided.

Federal Housing Administration (FHA)insurance provides insurance to property owners in high-crime areas.

__________ insurance provides benefits to the survivors of workers who die as a result of work-related injuries.

Explain what makes the acceptance of risk possible for insurance companies.

A type of event that makes risk management more important is:

Workers' compensation insurance is required in all states except Louisiana.

Professional liability insurance is also sometimes known as malpractice insurance.

The risk of environmental harm is __________ in proportions in issues such as global warming.

"Insurable interest" means that the policyholder is the one at risk to suffer a loss.

A characteristic of a health savings account that distinguishes it from other types of health care coverage is that it:

A managed care HMO system is more expensive than comprehensive health insurance providers.

________ is a term that refers to the chance of loss,the degree of probability of loss,and the amount of possible loss.

All-Star Manufacturing has decided to stop producing football helmets due to the potential size of losses involved in product liability cases.This is an example of avoiding risk as a risk management strategy.

A person is most likely to be pleased with an HMO for health coverage if he or she:

Self-insurance is the practice of setting aside money to cover routine claims and buying only "catastrophe" policies to cover big losses.

Home-based business owners add a ________ to their homeowner's insurance policy to ensure that they have adequate coverage.