chapter 2 review questions Flashcards
The spreading of losses incurred by a few individuals over a larger group, so that average loss is substituted for actual loss, is known as
pooling of losses
All of the following are ideal characteristics for a risk to be privately insurable EXCEPT
the loss should be within the insured’s control
Which of the following statements is (are) true with respect to insurance and gambling?
I. Insurance is simply a wager that if a loss occurs, you’ll be paid for the loss.
II. Both gambling and insurance are socially productive.
neither
Claire does not own health insurance. For the past two weeks, she has been experiencing sharp abdominal pain. Given her condition, she would like to purchase health insurance. When higher-than-average risks (like Claire) are insured at average premiums, losses are higher than anticipated. What is this problem called?
adverse selection
Insurers use a process of selecting and classifying insurance applicants to prevent individuals who have a higher-than-average probability of loss from obtaining insurance at average rates. This process is called
underwriting
Franklin is concerned that if he damages someone else’s property or injures someone, he will have to pay a large damage award. What kind of insurance can Franklin purchase to protect himself against such claims?
liability insurance
Which of the following statements is (are) true with regard to insurance fraud?
I. Insurance fraud hurts insurers but does not affect policyholders.
II. Fraudulent claims are a cost of insurance to society.
2 only
All of the following are benefits of insurance to society EXCEPT
reduces insurance company operating expenses.
Government insurance programs include insurance designed to deal with complex economic problems that are difficult to insure privately. These programs are compulsory, and the right to benefits is based upon past contributions or coverage under the program. These programs, which include workers compensation and social security, are called
social insurance programs
All of the following risks are privately insurable EXCEPT
adverse commodity price movements.
