Insurance #1: Principles of Risk and Insurance

Question 1

Which of the following is an example of a hazard?

A. Wagering $100 on the outcome of Saturday’s game

B. Bringing a new product to market

C. Purchasing a house

D. The cause of a loss

E. Building a house near a river

Answer 1

E. Owning a home near a river carries a physical hazard. Answers A and B are speculative risks. Answer C is a property risk.

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Textbook Insurance 1-4

Question 2

Match the method with applicable situation:

___Coinsurance

___Taking an Uber rather than buying a car

___High limits of insurance

___Wearing seat belts

___Storing @ separate locations

Answer 2

Risk Retention-Coinsurance

Risk Avoidance- Taking an Uber

Risk Transfer - High limits of insurance

Risk Reduction- Wearing Seatbelts

Risk Diversification- Storing inventory @ separate locations

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Question 3

Health saving accounts (HSAs) entail which of the following risk management techniques?

I. Risk avoidance
II. Risk retention
III. Risk reduction
IV. Risk diversification
V. Risk transfer

Answer 3

II. and V.

HSAs require high deductibles. The high deductible is the risk retention; the insurance is the risk transfer.

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Question 4

The Purple roof