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City College

Lesson 1
Purpose of Insurance

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1: The key difference between pure risk and speculative risk is that:
pure risk involves the possibility of both profit and loss
speculative risk involves the possibility of loss only
pure risk involves the possibility of loss only
speculative risk risk involves the possibility of profit only
 
2: According to the Law of Large Numbers, which insurance company would be able to predict most accurately the number of insureds who will die each year?
Company A that insures 10,000 people of various ages
Company B that insures 50,000 people of various ages
Company C that insures 500,000 males age 40
Company D that insures 50,000 males age 40
 
3: Only pure risk can:
lead to loss
be insured
be predicted
result in gain
 
4: All of the following are elements of an insurable risk EXCEPT the loss must be:
measurable
predictable
due to chance
catastrophic
 
5: An attitude of indifference to the possibility of harm or loss is a(n):
physical hazard
moral hazard
morale hazard
uninsurable peril
 
6: Which of the following statements are correct?
insurance is a means of exchanging the uncertainty of a loss with a cost with a small, certain cost
insurance spreads the cost of financial loss among many persons
both a and b are correct
neither a and b are correct
 
7: Which of the following is a hazard?
fire
accident
death
blindness
 
8: Which of the following is a peril?
cigarette smoking
recklessness
death
pre-existing medical conditions
 
9: "Substituting a small certain cost for a large uncertain loss" refers to the principle of:
risk avoidance
indemnity
insurance
risk reduction
 
10: Which of the following is a method of transferring risk?
self-insurance of workers' compensation claims
installation of fire alarms and sprinkler system
purchase of health insurance policy
avoiding hazards such as skydiving
 



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