Question 1

An insurance company would not be willing to insure a risk if it:

Accepted Answer

A)   results from political disruptions.
B)   has a measurable loss.
C)   results from an accident.
D)   has a low probability of occurring.E) All of the above
F) B) and D)

Question 2

An enterprise risk management (ERM) program has a goal of defining which risks the program will manage.

Accepted Answer

A) True 
 B)False

Question 3

Alberto is worried about the risk of potential flooding to his restaurant. He decides to buy insurance to cover this ________ risk.

Accepted Answer

A)   speculative
B)   pure
C)   uninsurable
D)   managedE) All of the above
F) None of the above

Question 4

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

Accepted Answer

A)   is not tax-deferred.
B)   allows people to save money for medical expenses in a tax-deferred account.
C)   covers only emergency procedures.
D)   provides unlimited access to routine medical services (such as office visits)  and minor medical tests and procedures (such as blood tests and X-rays)  at no cost.E) C) and D)
F) B) and C)

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

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

Accepted Answer

A)   local
B)   regional
C)   national
D)   internationalE) A) and B)
F) None of the above

Question 7

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

Accepted Answer

A)   deductible unit
B)   compensation clause
C)   rider
D)   tagE) A) and C)
F) A) and B)

Question 8

Kuhlman Appliances produces all of its products in one gigantic production facility near an earthquake fault line. Kuhlman is the classic example of a firm that should use self-insurance to manage its risks.

Accepted Answer

A) True 
 B)False

Question 9

Businesses can often reduce the risk to which they are exposed.

Accepted Answer

A) True 
 B)False

Question 10

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."

Accepted Answer

A) True 
 B)False

Question 11

According to the rule of indemnity, an insured person cannot collect more than the actual loss from an insurable risk.

Accepted Answer

A) True 
 B)False

Question 12

In an effort to minimize the cost of conventional property/casualty insurance, XYZ Electronics decided to manage their risk by self-insuring. The most likely way XYZ would try to do this would be to:

Accepted Answer

A)   cover small and medium-sized losses itself, and carry conventional insurance only for catastrophic losses.
B)   carry insurance for the small, routine losses and pay for any highly unusual major losses with its own funds.
C)   buy an insurance policy that covers all risks.
D)   establish a well-monitored loss-prevention program.E) A) and D)
F) B) and C)

Question 13

The ________ says that an insured person cannot collect more than the actual loss from an insurable risk.

Accepted Answer

A)   law of large numbers
B)   rule of indemnity
C)   law of diminishing returns
D)   rule of finite loss coverageE) C) and D)
F) B) and C)

Question 14

The best strategy for a profit-seeking insurance company would be to specialize in providing protection to people in a specific geographical area.

Accepted Answer

A) True 
 B)False

Question 15

__________ is the armor individuals, businesses, and nonprofit organizations use to protect themselves from various financial risks.

Accepted Answer

A)   A good accountant
B)   Investment in AAA bonds
C)   Insurance
D)   IndemnityE) All of the above
F) C) and D)

Question 16

Product recalls can reduce risk.

Accepted Answer

A) True 
 B)False

Question 17

Trevino is a silversmith and works with various metals. At the end of the day, he reclaims and separates each metal by using an inexpensive toxic acid though other methods are available. The risk of fire as well as health dangers to Trevino is unknown. Trevino should:

Accepted Answer

A)   dispose of the used acid by pouring it down the drain since the government will take care of any environmental issues that come from polluting the water.
B)   get a fire insurance policy and make sure to visit the doctor regularly.
C)   switch to another potentially less dangerous method of separating each metal.
D)   pour it out in back of the studio in the gutter.E) A) and B)
F) A) and C)

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

Amusement parks often have a minimum height restriction on some of their most thrilling rides. This risk management strategy is done in an effort to:

Accepted Answer

A)   minimize the speculative risk associated with an injury.
B)   reduce the risk associated with a potential accident.
C)   self-insure against a catastrophic accident.
D)   create the perception of a more exciting ride.E) B) and D)
F) A) and B)

Question 20

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

Accepted Answer

The law of large numbers states that if ...

Exam 24: Extension: Managing Risk

The best strategy for a profit-seeking insurance company would be to specialize in providing protection to people in a specific geographical area.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

An enterprise risk management (ERM) program has a goal of defining which risks the program will manage.

Correct AnswerverifiedShow Answer

According to the rule of indemnity, an insured person cannot collect more than the actual loss from an insurable risk.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedThe law of large numbers states that if ...View AnswerShow Answer

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."

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

__________ is the armor individuals, businesses, and nonprofit organizations use to protect themselves from various financial risks.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

In an effort to minimize the cost of conventional property/casualty insurance, XYZ Electronics decided to manage their risk by self-insuring. The most likely way XYZ would try to do this would be to:

Correct AnswerverifiedShow Answer

Alberto is worried about the risk of potential flooding to his restaurant. He decides to buy insurance to cover this ________ risk.

Correct AnswerverifiedShow Answer

Businesses can often reduce the risk to which they are exposed.

Correct AnswerverifiedShow Answer

The ________ says that an insured person cannot collect more than the actual loss from an insurable risk.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Kuhlman Appliances produces all of its products in one gigantic production facility near an earthquake fault line. Kuhlman is the classic example of a firm that should use self-insurance to manage its risks.

Correct AnswerverifiedShow Answer

An insurance company would not be willing to insure a risk if it:

Correct AnswerverifiedShow Answer

Product recalls can reduce risk.

Correct AnswerverifiedShow Answer

Trevino is a silversmith and works with various metals. At the end of the day, he reclaims and separates each metal by using an inexpensive toxic acid though other methods are available. The risk of fire as well as health dangers to Trevino is unknown. Trevino should:

Correct AnswerverifiedShow Answer

Amusement parks often have a minimum height restriction on some of their most thrilling rides. This risk management strategy is done in an effort to:

Correct AnswerverifiedShow Answer

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The law of large numbers states that if ...
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