Question 1

Self-insurance is the practice of setting aside money to cover routine claims and buying only "catastrophe" policies to cover big losses.

Accepted Answer

A) True 
 B)False

Question 2

Cary owns a life insurance policy on her husband Jay through Mutual of Cincinnati Life Insurance Company. As a policyholder, she also owns part of the company.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following statements best reflects the concept behind the rule of indemnity?

Accepted Answer

A)  If a large number of people are exposed to the same risk, a predictable number of losses will occur during a given period of time. 
B)  If a written contract exists between the insured and an insurance company, the insured is entitled to receive the maximum amount stated in the contract in the event of a loss. 
C)  If an insurance company's premiums generate excess funds, these excess funds must be returned to the policyholders in the form of dividends or reductions in future premiums. 
D)  An insured person cannot collect more than the actual loss from an insurable risk. 
A)  If a large number of people are exposed to the same risk, a predictable number of losses will occur during a given period of time. 
B)  If a written contract exists between the insured and an insurance company, the insured is entitled to receive the maximum amount stated in the contract in the event of a loss. 
C)  If an insurance company's premiums generate excess funds, these excess funds must be returned to the policyholders in the form of dividends or reductions in future premiums. 
D)  An insured person cannot collect more than the actual loss from an insurable risk.

Question 4

The management of risk is a small part of global business.

Accepted Answer

A) True 
 B)False

Question 5

All risks are insurable.

Accepted Answer

A) True 
 B)False

Question 6

Enterprise risk management is:

Accepted Answer

A)  important to business. 
B)  irrelevant to business. 
C)  only used by nonprofit organizations. 
D)  only used by the Department of Homeland Security. 
A)  important to business. 
B)  irrelevant to business. 
C)  only used by nonprofit organizations. 
D)  only used by the Department of Homeland Security.

Question 7

An uninsurable risk is one that no insurance company will cover.

Accepted Answer

A) True 
 B)False

Question 8

Speculative risk involves a chance of either profit or loss.

Accepted Answer

A) True 
 B)False

Question 9

Risk management for business is critical due in part to:

Accepted Answer

A)  natural disasters. 
B)  profitability. 
C)  legal requirements. 
D)  international requirements. 
A)  natural disasters. 
B)  profitability. 
C)  legal requirements. 
D)  international requirements.

Question 10

Risk management involves minimizing the losses from unexpected events.

Accepted Answer

A) True 
 B)False

Question 11

Federal Housing Administration (FHA) insurance provides insurance to property owners in high-crime areas.

Accepted Answer

A) True 
 B)False

Question 12

An example of an uninsurable risk would be the potential losses suffered by Domino's Pizza resulting from a popular new product from Pizza Hut.

Accepted Answer

A) True 
 B)False

Question 13

Companies adopt risk management procedures to minimize the chance of business failure due to unplanned events such as security breaches, terrorist attacks, and natural disasters.

Accepted Answer

A) True 
 B)False

Question 14

The law of large numbers states that if a large number of people are exposed to the same risk, a predictable number of losses will occur during a given period of time.

Accepted Answer

A) True 
 B)False

Question 15

Disability insurance replaces part of your income if you become disabled and can no longer work, but you usually must be disabled for a specified period of time before benefits are provided.

Accepted Answer

A) True 
 B)False

Question 16

John has decided that his neighbor Sam is quite careless and is in danger of burning his own house down. John tried to buy a fire insurance policy on Sam's house so that he could collect the payment when Sam inevitably burned down his own house. The insurance company would not allow John to purchase the policy because he did not have an insurable interest in the property.

Accepted Answer

A) True 
 B)False

Question 17

Workers' compensation insurance:

Accepted Answer

A)  covers people who are found liable for professional negligence. 
B)  provides coverage against liability arising out of products sold. 
C)  is only required by 48 states. 
D)  guarantees payment of wages and medical costs for employees who are injured on the job. 
A)  covers people who are found liable for professional negligence. 
B)  provides coverage against liability arising out of products sold. 
C)  is only required by 48 states. 
D)  guarantees payment of wages and medical costs for employees who are injured on the job.

Question 18

________ is a term that refers to the chance of loss, the degree of probability of loss, and the amount of possible loss.

Accepted Answer

A)  Speculation 
B)  Hazard 
C)  Insurability 
D)  Risk 
A)  Speculation 
B)  Hazard 
C)  Insurability 
D)  Risk

Question 19

The terrorist attack against the World Trade Center in 2001 is an example of pure risk.

Accepted Answer

A) True 
 B)False

Question 20

The Best West Soccer Athletic Association was formed to administer youth soccer leagues and tournaments in a popular urban area. All board members recently resigned stating that they could no longer assume the risk of participating on a board that did not insure its volunteer members against serious player injuries and other unanticipated problems. Collectively, these members are:

Accepted Answer

A)  self-insuring against risk. 
B)  avoiding risk. 
C)  participating in risk reduction. 
D)  filing a grievance against the association. 
A)  self-insuring against risk. 
B)  avoiding risk. 
C)  participating in risk reduction. 
D)  filing a grievance against the association.

Exam 24: Extension: Managing Risk

Self-insurance is the practice of setting aside money to cover routine claims and buying only "catastrophe" policies to cover big losses.

Cary owns a life insurance policy on her husband Jay through Mutual of Cincinnati Life Insurance Company. As a policyholder, she also owns part of the company.

Which of the following statements best reflects the concept behind the rule of indemnity?

The management of risk is a small part of global business.

All risks are insurable.

Enterprise risk management is:

An uninsurable risk is one that no insurance company will cover.

Speculative risk involves a chance of either profit or loss.

Risk management for business is critical due in part to:

Risk management involves minimizing the losses from unexpected events.

Federal Housing Administration (FHA) insurance provides insurance to property owners in high-crime areas.

An example of an uninsurable risk would be the potential losses suffered by Domino's Pizza resulting from a popular new product from Pizza Hut.

Companies adopt risk management procedures to minimize the chance of business failure due to unplanned events such as security breaches, terrorist attacks, and natural disasters.

The law of large numbers states that if a large number of people are exposed to the same risk, a predictable number of losses will occur during a given period of time.

Disability insurance replaces part of your income if you become disabled and can no longer work, but you usually must be disabled for a specified period of time before benefits are provided.

Workers' compensation insurance:

________ is a term that refers to the chance of loss, the degree of probability of loss, and the amount of possible loss.

The terrorist attack against the World Trade Center in 2001 is an example of pure risk.

Taking Risks and Making Profits Within the Dynamic Business Environment

Understanding Economics and How It Affects Business

Doing Business in Global Markets

Demanding Ethical and Socially Responsible Behavior

How to Form a Business

Entrepreneurship and Starting a Small Business

Management and Leadership

Structuring Organizations for Todays Challenges

Production and Operations Management

Motivating Employees

Human Resource Management: Finding and Keeping the Best Employees

Dealing With Union and Employeemanagement Issues

Marketing: Helping Buyers Buy

Developing and Pricing Goods and Services

Distributing Products

Using Effective Promotions

Understanding Accounting and Financial Information

Financial Management

Using Securities Markets for Financing and Investing Opportunities

Money, Financial Institutions, and the Federal Reserve

Managing the Marketing Mix: Product, Price, Place and Promotion

Extension: Working Within the Legal Environment

Extension: Using Technology to Manage Information

Extension: Managing Personal Finances

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