FFL Life Course Nature of Insurance, Risk, Perils, and Hazards

Question 1

Which of the following is considered to be an event or condition that increases the probability of an insured’s loss?

Accepted Answer

Hazard~ Hazards are events or conditions that increase the likelihood of an insured’s loss

Question 2

People with higher loss exposure have the tendency to purchase insurance more often than those at average risk. This is called

Accepted Answer

Adverse selection~ Is the tendency of persons with higher loss exposure to purchase insurance more often that those at average risk

Question 3

Insurance companies determine risk exposure by which of the following?

Accepted Answer

Law of large numbers and risk pooling~ All forms of insurance determine exposure through risk pooling and the law of large numbers

Question 4

What is known as the immediate specific even causing loss and giving rise to risk?

Accepted Answer

Peril~ A peril is defined as the immediate specific event causing loss and giving rise to risk. A peril is the cause of a risk.For example, when a building burns, fire is the peril. When a person dies, death is the peril. When an individual is injured in a accident, the accident is the peril. When a person becomes ill from a disease, the disease is the peril.

Question 5

Insurance represents the process of risk

Accepted Answer

Transference~ Insurance involves the transfer of risk

Question 6

All of the following are examples of pure risk EXCEPT<> Injured while playing football<> Falling at a casino and breaking a hip<> Losing money at a casino<> Jewelry stolen during a home remedy

Accepted Answer

<><> Losing money at a casino~ Pure risk is a category of risk in which loss is the only possible outcome, which is the opposite of speculative risk. Gambling is considered a speculative risk where there is a chance of either gain or loss.

Question 7

How do insurers predict the increase of individuals risks?

Accepted Answer

Law of large numbers~ TLoLN helps insurance companies predict the increase of individual risks.

Question 8

An individual who removes the risk of losing money in the stock market by never purchasing stocks is said to be engaging in

Accepted Answer

Risk avoidance~ Risk avoidance is a risk management technique that seeks to eliminate any possibility of risk through hazard prevention, or the discontinuation of activities determined to entail any level of risk

Question 9

An example of risk sharing would be<> Choosing not to invest in the stock market<> Adding more security to a high-risk building<> Buying an insurance policy to over potential liabilities<> doctors pooling their money to cover malpractice exposures

Accepted Answer

Doctors pooling their money to cover malpractice exposures

Question 10

The cause of a loss is referred to as a(n)

Accepted Answer

Peril~ A peril is an event or circumstance that causes or may potentially cause a loss. Examples of perils include fire, flooding, hailstorms, tornado, hurricane, auto accident or home accident such as falling

Term	Definition
Which of the following is considered to be an event or condition that increases the probability of an insured’s loss?	Hazard ~ Hazards are events or conditions that increase the likelihood of an insured’s loss
People with higher loss exposure have the tendency to purchase insurance more often than those at average risk. This is called	Adverse selection ~ Is the tendency of persons with higher loss exposure to purchase insurance more often that those at average risk
Insurance companies determine risk exposure by which of the following?	Law of large numbers and risk pooling ~ All forms of insurance determine exposure through risk pooling and the law of large numbers
What is known as the immediate specific even causing loss and giving rise to risk?	Peril ~ A peril is defined as the immediate specific event causing loss and giving rise to risk. A peril is the cause of a risk. For example, when a building burns, fire is the peril. When a person dies, death is the peril. When an individual is injured in a accident, the accident is the peril. When a person becomes ill from a disease, the disease is the peril.
Insurance represents the process of risk	Transference ~ Insurance involves the transfer of risk
All of the following are examples of pure risk EXCEPT <> Injured while playing football <> Falling at a casino and breaking a hip <> Losing money at a casino <> Jewelry stolen during a home remedy	<><> Losing money at a casino ~ Pure risk is a category of risk in which loss is the only possible outcome, which is the opposite of speculative risk. Gambling is considered a speculative risk where there is a chance of either gain or loss.
How do insurers predict the increase of individuals risks?	Law of large numbers ~ TLoLN helps insurance companies predict the increase of individual risks.
An individual who removes the risk of losing money in the stock market by never purchasing stocks is said to be engaging in	Risk avoidance ~ Risk avoidance is a risk management technique that seeks to eliminate any possibility of risk through hazard prevention, or the discontinuation of activities determined to entail any level of risk
An example of risk sharing would be <> Choosing not to invest in the stock market <> Adding more security to a high-risk building <> Buying an insurance policy to over potential liabilities <> doctors pooling their money to cover malpractice exposures	Doctors pooling their money to cover malpractice exposures
The cause of a loss is referred to as a(n)	Peril ~ A peril is an event or circumstance that causes or may potentially cause a loss. Examples of perils include fire, flooding, hailstorms, tornado, hurricane, auto accident or home accident such as falling

FFL Life Course Nature of Insurance, Risk, Perils, and Hazards

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Which of the following is considered to be an event or condition that increases the probability of an insured’s loss?

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