An exposure A peril A hazard A risk

1. Fred has decided to store his fuel tanks inside his garage where he builds automobiles. To the insurer, the fuel tanks would be considered: An exposure A peril A hazard A risk

2. Fred has decided to store his fuel tanks inside his garage where he builds automobiles. To the insurer, the fuel tanks would be considered: An exposure - example, a house built on the Gulf coast has high exposure to hurricane damage. A peril - Peril is the actual cause of a loss. A hazard - storing explosives in a basement creates a hazard by increasing the chance of an explosion. A risk - the house is known as the risk an insurer is protecting.

3. Fred has decided to store his fuel tanks inside his garage where he builds automobiles. To the insurer, the fuel tanks would be considered: An exposure A peril A hazard A risk

4. During a violent winter storm in Atlanta, a bolt of lightning hits Sally’s house, damaging a large portion of the roof. In this case, the insurer would call the lightning bolt a: • Loss • Risk • Hazard • Peril

5. During a violent winter storm in Atlanta, a bolt of lightning hits Sally’s house, damaging a large portion of the roof. In this case, the insurer would call the lightning bolt a: • Loss - Loss occurs when the value of an insured item is reduced by a covered peril, or when expenses have to be paid because of the incident. • Risk - meaning as "the potential for financial loss." The second use of "risk" defines it as "the insured item • Hazard - A hazard is any circumstance that increases the chance of loss. • Peril - Examples of perils include lightning, fire, theft and flood: events you have no control over.

6. During a violent winter storm in Atlanta, a bolt of lightning hits Sally’s house, damaging a large portion of the roof. In this case, the insurer would call the lightning bolt a: • Loss • Risk • Hazard • Peril

7. Which of the following statements about a speculative risk is TRUE? • A speculative risk involves a conscious choice • A speculative risk can only result in a loss • Insurance companies only insure speculative risks • A speculative risk always results in a personal gain

8. Which of the following statements about a speculative risk is TRUE? • A speculative risk can only result in a loss • Insurance companies only insure speculative risks • A speculative risk involves a conscious choice • A speculative risk always results in a personal gain A speculative risk is one undertaken without any certainty of gain or certainty of loss-it could go either way. A person who takes a speculative risk makes a conscious choice to exchange money in return for a chance of gain, while knowing there could be loss instead. Ex. Buying a lottery ticket and investing in the stock market are speculative risks because there is no way to determine whether your financial outlay will pay off. Important! >> Insurers will not cover speculative risks

9. Which of the following statements about a speculative risk is TRUE? • A speculative risk involves a conscious choice • A speculative risk can only result in a loss • Insurance companies only insure speculative risks • A speculative risk always results in a personal gain

10. Nelson’s Driveway has a very steep grade with several sharp turns, and it gets very muddy when it rains. To an insurance company, Nelson’s driveway might be considered: • A peril • A loss • A risk • A hazard

11. Nelson’s Driveway has a very steep grade with several sharp turns, and it gets very muddy when it rains. To an insurance company, Nelson’s driveway might be considered: • A peril - Perils are what people buy insurance to protect against. • A loss - To an insurer, loss is also the amount paid out after a claim has been settled. • A risk - be the probability of loss, damage, injury, or liability • A hazard -Having a hot tub in your house could be a hazard that increases the exposure to damage or liability.

12. Nelson’s Driveway has a very steep grade with several sharp turns, and it gets very muddy when it rains. To an insurance company, Nelson’s driveway might be considered: • A peril • A risk • A hazard • A loss

13. Ronald wants to buy an insurance policy for his cabin in Stone Mountain. His insurance company writes him a policy. To the insurance company, Ronald’s home is considered: • A loss • A hazard • A risk • An asset

14. Ronald wants to buy an insurance policy for his cabin in Stone Mountain. His insurance company writes him a policy. To the insurance company, Ronald’s home is considered: • A loss - Loss occurs when the value of an insured item is reduced by a covered peril, or when expenses have to be paid because of the incident. • A hazard - whatever might increase the exposure. • A risk - A risk can also be the insured item, itself as in, "The insured risk is the house of a property owner." • An asset - an insured asset is one for which an insurance company must compensate the owner if the asset is damaged or destroyed.

15. Ronald wants to buy an insurance policy for his cabin in Stone Mountain. His insurance company writes him a policy. To the insurance company, Ronald’s home is considered: • A loss • A hazard • A risk • An asset

16. Which of the following activities is considered a speculative risk? • Driving a car • Buying a lottery ticket • Leaving your jewelry on a bed stand • Flying in an airplane

17. Which of the following activities is considered a speculative risk? A speculative risk is one undertaken without any certainty of gain or certainty of loss-it could go either way. A person who takes a speculative risk makes a conscious choice to exchange money in return for a chance of gain, while knowing there could be loss instead. Buying a lottery ticket and investing in the stock market are speculative risks because there is no way to determine whether your financial outlay will pay off. Insurers will not cover speculative risks

18. Which of the following activities is considered a speculative risk? • Driving a car • Buying a lottery ticket • Leaving your jewelry on a bed stand • Flying in an airplane

19. Which of the following activities is considered a speculative risk? • Driving a car • Buying a lottery ticket • Leaving your jewelry on a bed stand • Flying in an airplane

20. From the point of view of an insurer, which of the following is a risk? • A thunderstorm • A large tree growing next to a house • A hurricane • An insured automobile

21. From the point of view of an insurer, which of the following is a risk? A risk can also be the insured item, itself as in, "The insured risk is the house of a property owner."

22. From the point of view of an insurer, which of the following is a risk? • A thunderstorm – a peril • A large tree growing next to a house – a hazard • A hurricane – a peril • An insured automobile – a (covered) risk

23. From the point of view of an insurer, which of the following is a risk? • A thunderstorm – a peril • A large tree growing next to a house – a hazard • A hurricane – a peril • An insured automobile – a (covered) risk

24. Viviene is driving carelessly through the streets of Macon when she loses control of her car and crashes into a fire hydrant and the car is completely wrecked. To her insurer, Viviene’s car is now considered a: • Peril • Risk • Hazard • Loss

25. Viviene is driving carelessly through the streets of Macon when she loses control of her car and crashes into a fire hydrant and the car is completely wrecked. To her insurer, Viviene’s car is now considered a: • Peril - events or situations over which you have little or no control. • Risk - "Risk" is used in two ways. It can be the probability of loss, damage, injury, or liability, as in the statement, "I am going to risk investing in that company." • Hazard - storing explosives in a basement creates a hazard by increasing the chance of an explosion. • Loss - Loss occurs when the value of an insured item is reduced by a covered peril, or when expenses have to be paid because of the incident.

26. Viviene is driving carelessly through the streets of Macon when she loses control of her car and crashes into a fire hydrant and the car is completely wrecked. To her insurer, Viviene’s car is now considered a: • Risk • Hazard • Loss • Peril

27. Which of the following best describes the insurance concept of “exposure”? • The reduction in value of an insured item • The possibility of damage or loss • The cause of damage or loss • A condition that increases the possibility of a loss

28. Which of the following best describes the insurance concept of “exposure”? • Example: Steph wants to insure her house, which is built near a cliff. The underwriter would research the area to find out its history of mudslides before writing the policy. The insurer will find what the exposure has been for this area before issuing a policy and setting the premium.

29. Which of the following best describes the insurance concept of “exposure”? • The reduction in value of an insured item • The possibility of damage or loss • The cause of damage or loss • A condition that increases the possibility of a loss

30. A risk that carries no possibility of gain is called a __________ risk. • Speculative • Pure • Monetary • Slight

31. A risk that carries no possibility of gain is called a __________ risk. • Speculative - A person who takes a speculative risk makes a conscious choice to exchange money in return for a chance of gain, while knowing there could be loss instead. • Pure - Remember that the principle of indemnity states that the insured can be restored to his approximate financial condition before a claim, but cannot profit from it. • Monetary – Not an insurance term • Slight – not an insurance term

32. A risk that carries no possibility of gain is called a __________ risk. • Speculative • Pure • Monetary • Slight

33. Which of the following is NOT an insurable risk? • A small town • A collection of jewelry • An airplane • A forklift

34. Which of the following is NOT an insurable risk? • A small town • A collection of jewelry • An airplane • A forklift A risk must be definable and have a quantifiable value. A small town would be too hard to define and quantify.

35. Which of the following is NOT an insurable risk? • An airplane • A small town • A collection of jewelry • A forklift

36. Which of the following is NOT a qualification of an insurable risk? • An insurable risk must have definable parameters • An insurable risk must have guaranteed protection from damage • An insurable risk must have a quantifiable value • An insurer must be able to charge premium high enough to pay out claims

37. Which of the following is NOT a qualification of an insurable risk? • In order to be insurable: • a risk must be definable • have a quantifiable value • the insurer must be able to charge enough in premiums to be able to pay claims. Guaranteed protection from damage is impossible, not to mention the fact that this would negate the very purpose of insurance in the first place.

38. Which of the following is NOT a qualification of an insurable risk? • An insurable risk must have definable parameters • An insurable risk must have guaranteed protection from damage • An insurable risk must have a quantifiable value • An insurer must be able to charge premium high enough to pay out claims

39. Jen’s home in Marietta burns to the ground after a lightning strike. Jen’s has a homeowners policy that covers lightning damage. The insurance company now views Jen’s House as a: • Peril • Loss • Risk • Hazard

40. Jen’s home in Marietta burns to the ground after a lightning strike. Jen’s has a homeowners policy that covers lightning damage. The insurance company now views Jen’s House as a: • Peril – the cause of a loss • Loss – In property or casualty insurance, a structure may burn, or a commercial truck may be involved in an accident, causing a loss. • Risk - “Risk” is the possibility (uncertainty) that a loss might occur and is the reason that people buy insurance. • Hazard - A “hazard” is any condition that increases the possibility, or severity of a loss

41. Jen’s home in Marietta burns to the ground after a lightning strike. Jen’s has a homeowners policy that covers lightning damage. The insurance company now views Jen’s House as a: • Peril • Loss • Risk • Hazard

42. Which of the following statements best describes the Law of Large Numbers? • The larger the number of units insured, the more accurately the insurer can predict the number of claims from that group • The larger the number of insurance policies written, the higher the profit for the insurer • The larger the amount an insurance polices written, the more an insurer will pay out. • The larger the amount an insurance company can charge in premiums, the less likely a policyholder will file a claim

43. Which of the following statements best describes the Law of Large Numbers? • Insurance is based on the Law of Large Numbers. This law shows us that we can predict, fairly accurately, what will happen to a large group of similar individuals in a given time period. • When large groups of similar individuals are combined, we call them “risk pools”. • Insurance companies hire “actuaries” who make mathematical predictions about things like, how many of the people in any given “risk pool” will have their home destroyed by a tornado, be diagnosed with cancer, or die in a given year. • Using the law of large numbers, insurers are able to calculate their probable losses and to establish the rates for premiums that will cover losses and operating expenses.

44. Which of the following statements best describes the Law of Large Numbers? • The larger the number of units insured, the more accurately the insurer can predict the number of claims from that group • The larger the number of insurance policies written, the higher the profit for the insurer • The larger the amount an insurance polices written, the more an insurer will pay out. • The larger the amount an insurance company can charge in premiums, the less likely a policyholder will file a claim

45. Cliff wants to build a cabin in a heavily wooded area. He would like to buy insurance for this cabin, but the underwriter of his insurance company first wants to research the history of forest fires in the area in which Cliff wants to build. The underwriter is trying to determine: • The perils • The hazards • The risks • The exposure

46. Cliff wants to build a cabin in a heavily wooded area. He would like to buy insurance for this cabin, but the underwriter of his insurance company first wants to research the history of forest fires in the area in which Cliff wants to build. The underwriter is trying to determine: • The perils - the actual cause of a loss, for example, fire, windstorm or hail. • The hazards - A “hazard” is any condition that increases the possibility, or severity of a loss. • The risks - the possibility (uncertainty) that a loss might occur and is the reason that people buy insurance. If a certain event happens, - accident, sickness, or death – loss occurs. • The exposure - The state of being subject to loss because of some type of hazard.

47. Cliff wants to build a cabin in a heavily wooded area. He would like to buy insurance for this cabin, but the underwriter of his insurance company first wants to research the history of forest fires in the area in which Cliff wants to build. The underwriter is trying to determine: • The perils • The hazards • The risks • The exposure

48. Cliff wants to build a cabin in a heavily wooded area. He would like to buy insurance for this cabin, but the underwriter of his insurance company first wants to research the history of forest fires in the area in which Cliff wants to build. The underwriter is trying to determine: • The perils • The hazards • The risks • The exposure

49. Chris lives in a high crime rate. When he inherits a very valuable original painting by Rembrandt, he tries to buy an insurance policy on the painting, but has trouble finding an insurance company that will sell him a policy. Why might this be? • The exposure to loss is too great, based on where Chris lives • The peril is higher than the insurer is willing to take on by issuing a policy • The painting is not an insurable risk • Since Chris did not buy the painting, it does not have a quantifiable value

50. Chris lives in a high crime rate. When he inherits a very valuable original painting by Rembrandt, he tries to buy an insurance policy on the painting, but has trouble finding an insurance company that will sell him a policy. Why might this be? • The exposure to loss is too great, based on where Chris lives • The peril is higher than the insurer is willing to take on by issuing a policy • The painting is not an insurable risk • Since Chris did not buy the painting, it does not have a quantifiable value