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RMIN 4000 Uga Test 1 UPDATED ACTUAL Exam Questions and CORRECT Answers
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RMIN 4000 Uga Test 1 UPDATED ACTUAL Exam Questions and CORRECT Answers
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RMIN 4000 Uga Test 1 UPDATEDACTUAL Exam Questions and CORRECT
Answers
types of risk - CORRECT ANSWER✔✔- -pure risk
-speculative risk
-diversifiable risk
-nondiversifiable risk
-enterprise risk
-systemic risk
risk - CORRECT ANSWER✔✔- uncertainty concerning the occurrence of a loss
uncertainty - CORRECT ANSWER✔✔- probabilities cannot be estimated
loss exposure - CORRECT ANSWER✔✔- any situation or circumstance in which a loss is
possible, regardless of whether a loss actually occurs
example: earthquake or flood causing damage to a manufacturing plant
objective risk (degree of risk) - CORRECT ANSWER✔✔- the relative variation of actual
loss from expected loss
example:10,000 houses insured of a long period of time and on average 100 houses burn each
year, however it would be rare for exactly 100 to burn each year
law of large numbers - CORRECT ANSWER✔✔- as the number of exposure units
increases, the more closely the actual loss experience will approach the expected loss
experience
example: as the number of homes under observation increases, the greater is the degree of
accuracy in predicting the proportion of homes that will burn
,subjective risk (perceived risk) - CORRECT ANSWER✔✔- uncertainty based on a person's
mental condition or state of mind
example: driver with previous convictions for drunk driving tries to drive home and wonders
if he will get arrested by the police or not
chance of loss - CORRECT ANSWER✔✔- the probability that an event will occur
objective probability - CORRECT ANSWER✔✔- the long run relative frequency of an event
based on the assumptions of an infinite number of observations and of no change in the
underlying conditions
two ways objective probability can be determined - CORRECT ANSWER✔✔- 1) deductive
reasoning (priori probabilities): probability of getting a head from the toss of a perfectly
balanced coin is 1/2 bc there are two sides
2) inductive reasoning: the probability that a person age 21 will die before age 26 cannot be
logically deduced, life insurers can estimate the probability of death and sell a 5 year life
insurance policy for a 21 yr old
subjective probability - CORRECT ANSWER✔✔- the individual's personal estimate of the
chance of loss
example: people who buy a lottery ticket on their birthday may believe it is their lucky day
and overestimate the small chance of winning
objective risk - CORRECT ANSWER✔✔- the relative variation of actual loss from expected
loss
peril - CORRECT ANSWER✔✔- the cause of loss
example: house burns down, peril is the fire
hazard - CORRECT ANSWER✔✔- condition that creates or increases the frequency or
severity of loss
4 types of hazards - CORRECT ANSWER✔✔- 1) physical hazard
, 2) moral hazard
3) attitudinal hazard
4) legal hazard
physical hazard - CORRECT ANSWER✔✔- physical condition that increases the frequency
or severity of loss.
example: icy roads that increase chance of automobile accident
moral hazard - CORRECT ANSWER✔✔- dishonesty or character defects in an individual
that increase the frequency or severity of loss
example: faking an accident to collect benefits from an insurer
-can try to control this by careful underwriting of applicants for insurance and by various
policy provisions, such as deductibles, waiting periods
attitudinal hazard - CORRECT ANSWER✔✔- carelessness or indifference to a loss, which
increases the frequency or severity of a loss
example: leaving car keys in an unlocked car, which increases the chance of theft, changing
lanes on highway without blinker
legal hazard - CORRECT ANSWER✔✔- characteristics of the legal system or regulatory
environment that increase the frequency or severity of losses.
example: adverse jury verdicts or large damage awards in liability lawsuits; statues that
require insurers to include coverage for certain benefits in health insurance plans
pure risk - CORRECT ANSWER✔✔- situation in which there are only the possibilities of
loss or no loss
example: premature death, lightning, flood
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