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Exam 24: Extension: Managing Risk

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Question 31

Multiple Choice

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Workers' compensation insurance:

A) covers people who are found liable for professional negligence.
B) provides coverage against liability arising out of products sold.
C) is only required by 48 states.
D) guarantees payment of wages and medical costs for employees who are injured on the job.

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

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Question 32

True/False

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

A) True
B) False

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Question 33

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All risks are insurable.

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

Companies adopt risk management procedures to minimize the chance of business failure due to unplanned events such as security breaches, terrorist attacks, and natural disasters.

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.

The Best West Soccer 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:

Risk management involves minimizing the losses from unexpected events.

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

Enterprise risk management is:

The terrorist attack against the World Trade Center in 2001 is an example of pure risk.

Which of the following statements best reflects the concept behind the rule of indemnity?

An example of an uninsurable risk would be the potential losses suffered by Domino's Pizza resulting from a popular new product from Pizza Hut.

The law of large numbers states that if a large number of people are exposed to the same risk, a predictable number of losses will occur during a given period of time.

Speculative risk involves a chance of either profit or loss.

Cary owns a life insurance policy on her husband Jay through Mutual of Cincinnati Life Insurance Company. As a policyholder, she also owns part of the company.

Risk management for business is critical due in part to:

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

An uninsurable risk is one that no insurance company will cover.

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