Risk avoidance Risk retention Risk reduction Risk transference

1. Selective Mobile company has been offered a great deal on a purchase of televisions from a company called Circuit City. They’ve never purchased televisions from Circuit City, so they’re hesitant to make such a large purchase. Finally, Circuit City offers to provide to you and your warranties for each of the dishwashers. This is an example of:​ Risk avoidanceRisk retentionRisk reductionRisk transference

2. Risk avoidance allows companies to eliminate risk, but often negates the possibility of some additional profit. • Risk reduction means taking measures to decrease the likelihood of a loss. • Risk transference means transferring risk to someone else (usually through insurance), and • Risk retention means assuming or accepting risk.

3. Selective Mobile company has been offered a great deal on a purchase of televisions from a company called Circuit City. They’ve never purchased televisions from Circuit City, so they’re hesitant to make such a large purchase. Finally, Circuit City offers to provide to you and your warranties for each of the dishwashers. This is an example of:​ Risk avoidanceRisk retentionRisk reductionRisk transference

4. Selective State Real Estate company has been offered a great deal on ten building properties in Cleveland, OH. The economy of Cleveland has been declining recently, but the Owner of Selective State Real Estate company expects it to recover soon. This could be an exceptional opportunity for Selective State but it’s also risky. In the end, Selective State decides not to purchase the properties. This is an example of:​ Risk avoidanceRisk retentionRisk reductionRisk transference

5. Selective State Real Estate company has been offered a great deal on ten building properties in Cleveland, OH. The economy of Cleveland has been declining recently, but the Owner of Selective State Real Estate company expects it to recover soon. This could be an exceptional opportunity for Selective State but it’s also risky. In the end, Selective State decides not to purchase the properties. This is an example of:​ Risk avoidance - seeks to avoid compromising events entirely by not taking an action that involves risk Risk retention (acceptance) - Acceptance means that we accept the identified risk. Risk reduction - deals with reducing the likelihood and severity of a possible loss. Risk transference - risk management and control strategy that involves the contractual shifting of a pure risk from one party to another.

6. Selective State Real Estate company has been offered a great deal on ten building properties in Cleveland, OH. The economy of Cleveland has been declining recently, but the Owner of Selective State Real Estate company expects it to recover soon. This could be an exceptional opportunity for Selective State but it’s also risky. In the end, Selective State decides not to purchase the properties. This is an example of:​ Risk avoidanceRisk retentionRisk reductionRisk transference

7. Selective State Real Estate company has purchased ten building properties in Cleveland, OH. Selective State decides not to purchase insurance because funds are low. Selective State is practicing:​ Risk avoidanceRisk retentionRisk reductionRisk transference

8. Selective State Real Estate company has purchased ten building properties in Cleveland, OH. Selective State decides not to purchase insurance because funds are low. Selective State is practicing:​ Risk avoidance - Quentin’s Scooters decides not to open a new store on the coast of Florida in order to avoid the potential risks of unreliable employees Risk retention - Quentin’s Scooters retains the risk of damage to their company trucks by choosing not to purchase comprehensive insurance coverage for them. Risk reduction - Quentin’s Scooters reduces risk by renting a store, rather than buying a building for its shop. Risk transference - Quentin’s Scooters transfers the risk of wind & hail damage to the insurance company by purchasing property insurance for their building.

9. Selective State Real Estate company has purchased ten building properties in Cleveland, OH. Selective State decides not to purchase insurance because funds are low. Selective State is practicing:​ Risk avoidanceRisk retentionRisk reductionRisk transference

10. Risk avoidance is a risk management technique that: • Increases risk • Reduces risk • Counterbalances risk • Eliminates risk

11. Risk avoidance is a risk management technique that: • Risk avoidance is the elimination of hazards, activities and exposures that can negatively affect an organization's assets. Risk avoidance seeks to avoid compromising events entirely by not taking an action that involves risk • Example – Quentin’s Scooters decides not to open a new store on the coast of Florida in order to avoid the potential risks of unreliable employees, liability lawsuits, and windstorm damage.

12. Risk avoidance is a risk management technique that: • Increases risk • Reduces risk • Counterbalances risk • Eliminates risk

13. Which of the following is NOT a risk management technique • Risk equality • Risk reduction • Risk retention • Risk avoidance

14. Which of the following is NOT a risk management technique • Risk equality - NIIT • Risk reduction - Risk reduction is a strategy of dealing with risks that consists in taking some measures (countermeasure) to reduce the level of risk. • Risk retention - means that we accept the identified risk. • Risk avoidance - the elimination of hazards, activities and exposures that can negatively affect an organization's assets.

15. Which of the following is NOT a risk management technique • Risk reduction • Risk equality • Risk retention • Risk avoidance

16. Jamie needs more floor space in her antique furniture store, so she buys a storage building 3 miles away. She is worried about keeping the furniture in the storage building sage, so she puts in an alarm system and smoke detectors, Jamie is practicing: Risk avoidanceRisk retentionRisk reductionRisk transference

17. Jamie needs more floor space in her antique furniture store, so she buys a storage building 3 miles away. She is worried about keeping the furniture in the storage building sage, so she puts in an alarm system and smoke detectors, Jamie is practicing: Risk avoidance - Risk avoidance seeks to avoid compromising events entirely by not taking an action that involves riskRisk retention - RiskRetention is one of the strategies of dealing with risks. Acceptance means that we accept the identified risk.Risk reduction - Risk reduction (mitigation) deals with reducing the likelihood and severity of a possible loss. Risk transference - example is the purchase of an insurance policy, by which a specified risk of loss is passed from the policyholder to the insurer.

18. Jamie needs more floor space in her antique furniture store, so she buys a storage building 3 miles away. She is worried about keeping the furniture in the storage building sage, so she puts in an alarm system and smoke detectors, Jamie is practicing: Risk avoidanceRisk reductionRisk transference Risk retention

19. Chuck hopes to purchase a new insurance policy for his car, but he has an extremely poor driving record. The insurance company decides to issue Chuck an insurance policy, but charges him a premium much higher than the average driver. The insurance company is practicing: • Risk transference • Risk reduction • Risk avoidance • Risk retention

20. Chuck hopes to purchase a new insurance policy for his car, but he has an extremely poor driving record. The insurance company decides to issue Chuck an insurance policy, but charges him a premium much higher than the average driver. The insurance company is practicing: • Risk transference - involves the contractual shifting of a pure risk from one party to another • Risk reduction – The insurance company has mitigated its risk by charging Chuck higher premiums. • Risk avoidance - elimination of hazards, activities and exposures that can negatively affect an organization's assets. • Risk retention - Quentin’s Scooters retains the risk of damage to their company trucks by choosing not to purchase comprehensive insurance coverage for them.

21. Chuck hopes to purchase a new insurance policy for his car, but he has an extremely poor driving record. The insurance company decides to issue Chuck an insurance policy, but charges him a premium much higher than the average driver. The insurance company is practicing: • Risk transference • Risk reduction • Risk avoidance • Risk retention

22. Jim’s grocery store recently suffered a break-in. When an adjuster comes to investigate the crime, he asks Jim had any large fuel containers in the store. Jim does have propane tanks, but if he knows that, if the insurance company finds out, they will not indemnify him and he will be financially ruined. Jim tells the adjuster he does not. Which of the following most accurately describes Jim’s Statement to the adjuster? • Misrepresentation • Hard Fraud • Moral Hazard • Warranty

23. Jim’s grocery store recently suffered a break-in. When an adjuster comes to investigate the crime, he asks Jim had any large fuel containers in the store. Jim does have propane tanks, but if he knows that, if the insurance company finds out, they will not indemnify him and he will be financially ruined. Jim tells the adjuster he does not. Which of the following most accurately describes Jim’s Statement to the adjuster? • Misrepresentation - any false, distorted, or deceptive statements regarding any information relevant to an insurance contract. • Hard Fraud - getting into an accident on purpose so that you can claim the insurance money • Moral Hazard - when an insured person consciously and deliberately acts in a way that is more likely to result in a loss. • Warranty - Promise or guarantee that certain conditions will be met

24. Jim’s grocery store recently suffered a break-in. When an adjuster comes to investigate the crime, he asks Jim had any large fuel containers in the store. Jim does have propane tanks, but if he knows that, if the insurance company finds out, they will not indemnify him and he will be financially ruined. Jim tells the adjuster he does not. Which of the following most accurately describes Jim’s Statement to the adjuster? • Misrepresentation • Hard Fraud • Moral Hazard • Warranty

25. Knowingly preventing disclosure of materially relevant facts in an insurance case is called: • Warranty • Representation • Fraud • Concealment

26. Knowingly preventing disclosure of materially relevant facts in an insurance case is called: • Warranty - Promise or guarantee that certain conditions will be met • Representation - an insurance policy is an utmost good faith contract, it is based on factual statements, called representations • Fraud - deceiving an insurer to profit from an insurance policy • Concealment - the act of hiding or not putting forward any relevant fact in front of the insurer that need to be revealed

27. Knowingly preventing disclosure of materially relevant facts in an insurance case is called: • Warranty • Representation • Fraud • Concealment

28. Chuck’s motorcycle policy states that the insurer may cancel coverage if a premium is more than 30 days late. However, Chuck is currently more than 30 days late, and has been so five times in the last year, and his insurer has done nothing about it. When Chuck gets into an accident and files a claim, which of the following is most likely to happen? • The insurer will pay the claim because of the express waiver they have made by not canceling Chuck’s policy the previous times he was late with his payments • The insurer will deny the claims and cancel Chuck’s policy because he is more than 30 days late with his payment • The insurer will deny the claim and cancel Chuck’s policy because of the implied waiver they have made by not canceling his policy the previous times he was late with his payments • The insurer will pay the claim because of the implied waiver they have made by not canceling Chuck’s policy the previous times he was late with his payments

29. Implied waiver - whenever it may be reasonably and fairly inferred from the act, omission or silence of the party who has the power of waiving. • Express Waivers: may be oral or written. In either case, they are clear statements that a right is being given up. If your insurance company, for example, notifies you that it has not lapsed your policy for nonpayment of premiums, even though it had the right to do so, it has expressly waived that right.

30. Chuck’s motorcycle policy states that the insurer may cancel coverage if a premium is more than 30 days late. However, Chuck is currently more than 30 days late, and has been so five times in the last year, and his insurer has done nothing about it. When Chuck gets into an accident and files a claim, which of the following is most likely to happen? • The insurer will pay the claim because of the express waiver they have made by not canceling Chuck’s policy the previous times he was late with his payments • The insurer will deny the claims and cancel Chuck’s policy because he is more than 30 days late with his payment • The insurer will deny the claim and cancel Chuck’s policy because of the implied waiver they have made by not canceling his policy the previous times he was late with his payments • The insurer will pay the claim because of the implied waiver they have made by not canceling Chuck’s policy the previous times he was late with his payments

31. Which of the following statements applies to the concept of utmost good faith? • The insured must divulge the exact nature and potential of the risks being transferred to the insurer • Utmost good faith applies to the insured, but not the insurer • Utmost good faith is based upon the number of misrepresentations made in an application • The insurer can choose to suspend the utmost good faith requirement in an insurance contract, but only if the insured agrees

32. Utmost Good Faith • The Doctrine of Utmost Good Faith – To form an insurance contract, each party to the contract must substantially rely on the honesty and integrity of the other party. • When someone is applying for coverage, she must be completely honest about how much risk the insurer would be taking on by issuing him a policy.

33. Which of the following statements applies to the concept of utmost good faith? • The insured must divulge the exact nature and potential of the risks being transferred to the insurer • Utmost good faith applies to the insured, but not the insurer • Utmost good faith is based upon the number of misrepresentations made in an application • The insurer can choose to suspend the utmost good faith requirement in an insurance contract, but only if the insured agrees

34. In order to qualify for an insurance policy, Rosa’s Rare Rubies must agree to have a security guard on the premises 24/7. This is called a: • Representation • Warranty • Binder • Waiver

35. In order to qualify for an insurance policy, Rosa’s Rare Rubies must agree to have a security guard on the premises 24/7. This is called a: • Representation - an insurance policy is an utmost good faith contract, it is based on factual statements, called representations. Warranty - Promise or guarantee that certain conditions will be met. Warranties are found on the conditions page • Binder - Insurance binders are contracts of temporary insurance pending the issuance of a formal policy or proper rejection of the application by the insurer. • Waiver - Waivers can be “express” or “implied”

36. In order to qualify for an insurance policy, Rosa’s Rare Rubies must agree to have a security guard on the premises 24/7. This is called a: • Binder • Warranty • Representation • Waiver

37. Josh applies for a homeowners policy with his agent, who gives him immediate temporary coverage. However, after checking Josh’s background information, the agent discovers that Josh’s has been convicted of arson, so his application is denied. What type of coverage did Josh have before the agent declined his application? • A warranty - found on the conditions page, are guarantees that certain conditions in the contract will be met. • A representation – a statement or fact • A binder – temporary coverage for an insurance applicant until the policy is issued • An estoppel - legal principle that prevents an insurer from denying coverage if the insured has reasonably come to believe that he has coverage

38. When an applicant for a homeowners insurance policy lists the address, size, and description of his home, he is providing: • Declarations page • Misrepresentations • Factual misrepresentations • representation

39. When an applicant for a homeowners insurance policy lists the address, size, and description of his home, he is providing: • Declarations page - This page contains the name and address of the insured or policyowner, the policy term or period, the limits of liability, the amount of the policy premium, and any deductibles that may apply. • Misrepresentations - a false, distorted, or deceitful statement of fact or opinion, even if made unintentionally • Factual misrepresentations – NIIT • Representation – factual statements that an insurance policy is based upon

40. When an applicant for a homeowners insurance policy lists the address, size, and description of his home, he is providing: • Declarations page • Misrepresentations • Factual misrepresentations • Representation

41. Which of the following statements about the principle of estoppel is TRUE? • Estoppel essentially guarantees no increases in the policyholder premiums after a policy term expires • Estoppel protects the insurer from the effects of a warranty • Estoppel protects the insured party from an insurer who initially approves coverage, but then later denies coverage after the insured pays for repairs • Estoppel allows an insurer to change the coverage in an insurance policy without the policyholder’s consent

42. Estoppel • The principle that precludes a person from asserting something contrary to what is implied by a previous action or statement of that person or by a previous pertinent judicial determination.

43. Which of the following statements about the principle of estoppel is TRUE? • Estoppel essentially guarantees no increases in the policyholder premiums after a policy term expires • Estoppel protects the insurer from the effects of a warranty • Estoppel protects the insured party from an insurer who initially approves coverage, but then later denies coverage after the insured pays for repairs • Esptoppel allows an insurer to change the coverage in an insurance policy without the policyholder’s consent