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True / False Questions 1) Any risk is insurable as long as you can pay the premium

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True / False Questions

1) Any risk is insurable as long as you can pay the premium.

2. "Insurable interest" means that the policyholder is the one at risk to suffer a loss.
3. Insurance companies will provide coverage only for losses that are accidental.
4. The terrorist attack against the World Trade Center in 2001 is an example of pure risk.
5. Water sprinklers and smoke detectors can be used to minimize speculative risks.
6. Typically, the only option that firms have to deal with pure risk is to buy insurance.
7. UPS requires their delivery people to wear seat belts as they drive their trucks. This is an example of self-insuring as a risk management strategy.
8. Procter & Gamble Inc. is ready to launch a new shampoo in the marketplace. They will incur a speculative risk.
9. All-Star Manufacturing has decided to stop producing football helmets due to the potential size of losses involved in product liability cases. This is an example of avoiding risk as a risk management strategy.
10. Kuhlman Appliances produces all of its products in one gigantic production facility near an earthquake fault line. Kuhlman is the classic example of a firm that should use self- insurance to manage its risks.

11. 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.
12. The Ford Motor Company has an insurable interest in the lives of its top executives.
13. 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.
14. The best strategy for a profit-seeking insurance company would be to specialize in providing protection to people in a specific geographical area.
15. An insurance premium is the fee charged by the insurance company in return for their promise to pay for all or part of a loss.
16. An insurance policy is a written contract.
17. 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.
18. According to the rule of indemnity, an insured person cannot collect more than the actual loss from an insurable risk.
19. A stock insurance company is owned by its policyholders.
20. A mutual insurance company is a nonprofit organization.
21. A mutual insurance company is owned by its policyholders.
22. An insurance company can use the law of large numbers to predict the number of people in your community that will have a car accident in a given month.
23. The car insurance premium charged for young male drivers is higher than the premium for young female drivers. This is due to the rule of indemnity.
24. Insurance companies make predictions such as how recent health trends will affect the number of heart attacks that men in the United States over the age of 45 will suffer.
25. 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.
26. Property insurance covers losses from fires, accidents, or theft.
27. Liability losses result from property damage or injuries suffered by others for which the policyholder is held responsible.
28. One advantage of health savings accounts is that healthy people can use tax-deferred money to save for their future medical needs.
29. Health savings accounts are managed care plans that have a high deductible.
30. The chances of dying when young are much higher than the chances of becoming disabled when young.