Chapter 3

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Author:
xailor
ID:
22319
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Chapter 3
Updated:
2010-06-06 16:45:34
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Practice
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Practice Exam
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  1. Which of the following is NOT an example of what an insurance policy can provide an insured:

    a. Help protect from the possibility of a loss.
    b. Reduce the uncertainty of financial loss.
    c. Eliminate the risk of sickness.
    d. Replace a large possible loss with that of a small certain loss (premium).
    • C.
    • Eliminate the risk of sickness because insurance does not eliminate risk. It manages it.
  2. Select from the choices below the best description of a speculative risk.

    a. Insuring someone over the age of 90.
    b. Involving the possibility of a gain in addition to the uncertainty of loss.
    c. Insuring against a situation that offers no possibility of gain.
    d. The purchase of an insurance policy to protect from gambling losses.
    B.

    Involving the possibility of a gain in addition to the uncertainty of loss. This is the definition of speculative risk.
  3. The best description of a hazard is a/an:

    a. Condition that may increase the chance that a loss may occur
    b. Cause of a loss.
    c. Pure risk
    d. Uncertainty of a financial loss.
    • A.
    • Condition that may increase the chance that a loss may occur.
  4. Intentionally submitting false information on a life application is an example of a moral hazard.

    a. True
    b. False
    A.

    Moral hazards deal with the concept of right and wrong. Lying is wrong in most value systems.
  5. The owner of an officer building recognize the hazards of the building because of its age. He decides to finally get insurance to protect him from a possible legal suit. This would be an example of avoidance of risk.

    a. True
    b. False
    B

    This would be an example of transferring of risk.
  6. Choose from the following selections the best description of a premium.

    a. Funds received by an insured from an insurer to realize the benefits of the policy.
    b. Funds received by an insurer from an insured to realize the benefits of the policy.
    c. A bonus paid to an agent for high insurance sales production.
    d. The amount an insured pays for each until coverage. $7 for every $1000 of coverage is an example.
    D

    Insurance is sold as units that have a price assigned to the unit.

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