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ChFC Insurance
Insurance exam
| Question | Answer |
|---|---|
| This is a test question | this is the answer |
| What is the difference between risk and uncertainty? | Risk is the possibility of loss. Uncertainty is the state of mind of being unsure. As a consequence, uncertainty can vary significantly from one person to another, even when each is confronted with the same facts, the samr reality, or the same risk. |
| Your client owns a printing business but rents the premises where the business is conducted. What direct and indirect losses might a fire cause to Jim's business? | Damage to the printing equipment and paper are examples of direct losses. The loss of income from having to close temporarily and the extra expense of having to rent other premises at a higher cost are examples of indirect loss. |
| Sally, a single mother with 2 kids, learned that her stress at work is giving her high blood pressure. She is worried that if she were to die, her kids would no have her income to support themselves. What is an example of risk, peril, and hazard? | Risk- the possibility of Sally's children losing her financial support. Peril- Sally's death Hazard- her high blood pressure, which increases the chance of loss. |
| For each of the following conditions, what type of hazard is involved? a. Anne is blind in one eye and has had 2 heart attacks. b. Al recently received 2 speeding tickets. C. There have been several instances where Al submitted inflated HO claims. | A. physical hazard B. attitudinal hazard C. moral hazard c. moral hazard. |
| How would you respond to the following? With the probability of death so small for a 29 year old, there's little chance I'll die in the near future. So why do I need life insurance? | Although the probability is low, she is only one person, and knowledge of the probability is no help in measuring the risk (the possibility of loss) that she alone faces. Low probability and high severity (single mom) is where insurance works best. |
| How would you respond to the following? If life insurance companies can use probabilities to determine the likelyhood that a woman aged 29 will die, why can't I use them to determine the likelihood that I will die? | Insurance companies measure their probabilities by observing large numbers of similar exposures. |
| What is the difference between fundamental and particular risks with respect to whom they affect? | Particular risks are loss possibilities that affect only individuals or small groups at the same time, rather than a large segment of society. Fundamental risks, are loss possibilities that can affect large segments of society at the same time. |
| How can ownership of a home provide a client with pure risk? | Home ownership can give rise to pure risk by providing a possibility of loss from fire, windstorm, theft, and many other property related perils as well as from legal liability (for example, the possibility of someone falling down your shaky stairs) |
| How can ownership of a home provide a client with speculative risk? | Home ownership can give rise to speculative risk by providing a possibility of a gain or a loss when the home is sold. |
| Insurance commonly deals with what types of risks? | Insurance is concerned mainly with the economic problems created by pure risks where there is only the potential for loss or no loss. |
| What are the 3 categories of pure risk? | Risks involving the person; risks involving loss of or damage to property, and risks involving liability for injury or damage to persons or the property of others. |
| Your client believes that insurance is just a form of gambling- why is insurance not gambling? | Gambling creates risk, while insurance transfers or reduces a risk that already exists. |
| What requirements must be met substantially in order for a risk to be considered insurable? | The amount of loss must be important. The loss must be of an accidental nature. Future losses must be calculable. The loss must be definite. the loss cannot be excessively catastrophic. |
| Why do various clients react to risk differently? | Most people are more risk averse than risk tolerant. The way in which risk is conveyed influences perception. |
| How do emotions play into insurance? | Emotions can severely limit a person's ability to make rational decisions about a risk. People are more likely to be risk averse if the impact will be to them or their loved ones vs a stranger. |
| How do people irrationally look at risk? | People tend to overestimate low-probability risks and underestimate higher probability risks. Most people have a greater fear of risks with which they are inexperienced than those with which they are familiar. |
| What costs are experienced by society as a result of pure risk? | Pure risks are damaging because their is no offsetting gain such as with speculative risks. There are also indirect losses such as productivity and profits. |
| What are the 3 factors that add to the costs of risks? | 1) fear and worry 2) inadequate preparation 3) expenses of managing risks. |
Created by:
Ratnok
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