Risk Management & Insurance Quiz
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Risk Management & Insurance Quiz

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Questions and Answers

Which type of risk is characterized by potential outcomes of loss, no change, or gain?

  • Personal Risk
  • Liability Risk
  • Speculative Risk (correct)
  • Pure Risk
  • Which of the following is NOT considered a pure risk?

  • Disability
  • Unemployment
  • Death
  • Investment loss (correct)
  • What term describes an act or condition that increases the probability of a peril occurring?

  • Peril
  • Risk
  • Hazard (correct)
  • Loss
  • Which type of hazard pertains to a person's attitudes or carelessness impacting the probability of a loss?

    <p>Morale Hazard</p> Signup and view all the answers

    Which of the following risks typically involves both emotional and financial losses?

    <p>Personal Risk</p> Signup and view all the answers

    What are the three types of pure risks mentioned?

    <p>Personal, Property, Liability</p> Signup and view all the answers

    What defines a peril in the context of risk management?

    <p>The source of risk leading to loss</p> Signup and view all the answers

    Which type of risk is associated with negligence that might cause harm to others?

    <p>Liability Risk</p> Signup and view all the answers

    What is the primary function of personal liability insurance for agents?

    <p>To protect against claims from dissatisfied clients</p> Signup and view all the answers

    Which of the following is an example of Actual Authority for an insurance agent?

    <p>Collecting initial premiums</p> Signup and view all the answers

    What does Apparent Authority refer to in the context of an agent's role?

    <p>The implied authority the agent may portray to others</p> Signup and view all the answers

    Which of the following actions is within the scope of Actual Authority?

    <p>Soliciting insurance applications</p> Signup and view all the answers

    What is the significance of setting clear limits on an agent's Apparent Authority?

    <p>To reduce the risks of unauthorized actions</p> Signup and view all the answers

    What can be a potential consequence of Apparent Authority for the principal?

    <p>Risk of being bound by unauthorized actions</p> Signup and view all the answers

    In what situation would an agent NOT have Actual Authority?

    <p>When acting contrary to explicit instructions</p> Signup and view all the answers

    Which of the following types of insurance can agents sell?

    <p>Life, disability, health insurance, and investments</p> Signup and view all the answers

    What is the primary purpose of risk avoidance in risk management?

    <p>To completely eliminate exposure to high-frequency and severe risks</p> Signup and view all the answers

    Which strategy is used when the severity of risk is minor but must be retained?

    <p>Risk Retention</p> Signup and view all the answers

    What is the role of actuaries in the insurance underwriting process?

    <p>To base premium calculations on statistical estimates of payout</p> Signup and view all the answers

    How does risk transfer protect against financial implications?

    <p>By passing the financial risk to a third party, such as an insurer</p> Signup and view all the answers

    What is meant by sub-standard risk in risk classification?

    <p>Risks that require a higher premium due to their high exposure</p> Signup and view all the answers

    What might an exclusion rider in an insurance policy indicate?

    <p>Specific risks are not covered by the policy</p> Signup and view all the answers

    Which of the following is a characteristic of risk reduction?

    <p>Includes everyday practices such as wearing helmets</p> Signup and view all the answers

    What does transferring risk primarily involve?

    <p>Shifting financial responsibility to another entity</p> Signup and view all the answers

    Why do insurers charge different premiums based on the risk posed by insured individuals?

    <p>To ensure profitability based on risk assessment</p> Signup and view all the answers

    What is a common method used by insurers to predict potential payouts?

    <p>Using laws of probability and mortality tables</p> Signup and view all the answers

    What action requires written consent from an irrevocable beneficiary?

    <p>Changing the irrevocable beneficiary designation</p> Signup and view all the answers

    Which of the following individuals generally do NOT have rights under insurance legislation?

    <p>The life insured</p> Signup and view all the answers

    In what situation do creditors have a claim on the insurance policy proceeds?

    <p>When the cash surrender value is used as collateral for a loan</p> Signup and view all the answers

    Which proof is NOT required when making a claim for insurance benefits?

    <p>Proof of the insurance policy number</p> Signup and view all the answers

    Which of the following actions does NOT require consent from an irrevocable beneficiary?

    <p>Payment of policy dividends</p> Signup and view all the answers

    What primarily differentiates severe risks from less severe risks?

    <p>The frequency at which they occur</p> Signup and view all the answers

    Which of the following is a consequence of permanent loss of income due to premature death?

    <p>Ongoing financial obligations for the surviving family</p> Signup and view all the answers

    How are risks usually categorized regarding their impact on individuals?

    <p>By severity and frequency</p> Signup and view all the answers

    Which type of insurance benefits comes from employer-sponsored plans?

    <p>Group insurance benefits</p> Signup and view all the answers

    What is a common reason for the temporary loss of income?

    <p>Accidental disability or sickness</p> Signup and view all the answers

    Which of the following can lead to a loss of wealth?

    <p>Inadequate insurance coverage for medical expenses</p> Signup and view all the answers

    What are private insurance coverages primarily characterized by?

    <p>Being individually purchased</p> Signup and view all the answers

    Which of the following best describes the impact of severe risks on standard of living?

    <p>They may lead to financial ruin</p> Signup and view all the answers

    Study Notes

    Risk Management & Insurance

    • Risk is the probability of harm, injury, loss, danger or destruction occurring in the future. Losses can be emotional, physical or financial.
    • Speculative Risk has three possible outcomes: loss, no change, gain.
    • Pure Risk has two possible outcomes: loss, no change.
    • Pure Risk Types include:
      • Personal risk - death, disability & unemployment
      • Property risk - direct and indirect losses due to material possessions
      • Liability risk – due to carelessness or negligence
      • Failure of others – performance of service(s)
    • Peril is the source of risk, such as death, disability, illness, accident, lawsuit & dishonesty.
    • Hazard is an act or condition that increase the probability of a peril or the severity of a loss.
    • Hazard Types include:
      • Physical -
      • Morale - a persons’ attitude /carelessness that increase probability of a loss
      • Moral - dishonest behaviour i.e.falsifying insurance application
    • Risk is measured by severity and frequency - more severe risks occur less frequently.
    • Severity of Risk determines financial implications:
      • Most severe can cause financial ruin
      • Less severe may require financial adjustments that result in a lower standard of living
    • Risks faced by individuals include:
      • Loss of income during the period of family obligations (premature death, disability)
      • Loss of wealth (medical expenses, travel medical, long-term care)
    • Loss of Income can occur permanently or temporarily:
      • Permanent loss (death of an income earner):
        • Expenses experienced by family: final expenses, continuing expenses
      • Temporary loss (sickness or accident creating disability):
        • Living expenses and obligations continue while income is reduced or eliminated
    • Risk Management Strategies include:
      • Primary Strategies:
        • Risk Control
          • Risk Reduction
          • Risk Avoidance
      • Risk Financing
        • Risk Retention
        • Risk Transference
    • Risk Avoidance is used when high frequency of risk and severity are critical. Avoiding the activity is the preferred alternative to expensive coverage.
    • Risk Reduction is used when low to high frequency of risk and severity are minor, material or critical. It is practiced daily (e.g. hard hats, vehicle maintenance, vaccinations) and may not eliminate risk but reduces it.
    • Risk Transfer is used when low or medium frequency of risk and severity are critical or major. It transfers the financial implication to a third party.
    • Risk Retention is used when low or medium frequency of risk and severity are minor. It uses deductibles.
    • Insurance companies transfer risk from policy owner to insurer.
    • Insurers control risk by charging premiums based on the risk the insured represents, classifying risk as:
      • Preferred Risk
      • Standard Risk
      • Sub-standard Risk/Special Risks
      • Rated Policies:
        • Permanent or temporary basis
        • Flat-dollar or % increase (table ratings)
      • Exclusion Riders or Waivers

    Insurance Basics

    • Insurance can be purchased by individuals, groups, and businesses.
    • Insurance agents sell life, disability, health, and investment insurance.
    • Coverage is the face amount of a life insurance contract, the benefit from a disability income contract, or the reimbursement amount from a health insurance contract.
    • Agents need to carry personal liability insurance (Errors and Omissions Insurance).
    • Actual Authority is the authority given to an agent to perform certain tasks.
    • Apparent Authority is the implied or suggested authority granted to an agent, even if it wasn't the intention of the principal. Contracts often limit an agent's apparent authority.
    • The Principal is bound by the agent's apparent authority because apparent authority can create a misconception that the insurer has approved the action.
    • Actual Authority defines what the principal has instructed the agent to do.
    • Apparent Authority implies or suggests that the agent has been authorized to do tasks not specifically defined.

    Policyowner & Beneficiary

    • Irrevocable beneficiary requires written consent to change the beneficiary designation, assign the policy, surrender the policy, or take out a policy loan (except automatic premium loans).
    • The life insured, if not the policyowner, has no automatic rights under legislation but may have certain rights in the contract or a separate agreement.
    • Beneficiary receives the death benefit, which is not part of the insured's estate and is not subject to creditors' claims.
    • Creditors may have a claim on insurance monies to the extent of an outstanding loan.

    Claims & Payment

    • Claims generally require the following documentation:
      • Proof of the event upon which insurance benefits are payable (e.g. a death certificate)
      • Proof of the age of the person whose life is insured
      • Proof of the claimant's right to receive payment (e.g. a beneficiary designation)

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    Description

    Test your knowledge about risk management concepts and insurance principles in this quiz. It covers various types of risks, hazards, and their implications. Explore pure and speculative risks to enhance your understanding of this critical field.

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