1.Risk transfer is most likely ideal for a risk with

1. a high degree of separation and a low potential severity,
2. a high expected frequency and a low potential severity,
3. a high expected frequency and a high potential severity,
4. a low expected frequency and a high potential severity.

2.Matching

a. agreed amount clause

1.

Losses not directly caused by a peril are called _________________.

b. Basic form

2.

_________________ measure an indirect loss in terms of so many dollars per unit of time that passes until the subject matter can be restored.

c. Boiler and machinery insurance

3.

When property at two or more locations is specifically listed in an insurance contract, it is called _________________.

d. broad form

4.

_________________ reimburses the insured for profits and fixed charges lost as a result of damage to property from a peril.

e. Business income

5.

Under the _________________, the period of loss is defined to mean that period necessary to return to normal business operations.

f. consequential damage endorsement

6.

_________________ are used to insure those losses that result from fire, but where the loss cannot be measured by damage to property or time elapsed.

g. consequential losses

7.

The _________________ covers loss of power due to an insured peril to an object on the insured's own premises.

h. Contracts without time element

8.

_________________ covers explosions, such as those caused by steam boilers, compressors, engines, and furnaces.

i. extended-period-of-indemnity endorsement

9.

________________is the BPP option that covers fire, lightning, explosions, windstorm and hail, smoke, riot or civil commotion, vandalism, sprinkler linkage, sinkhole collapse, and volcanic action.

j. maximum period of indemnity

10.

The _________________causes of loss include the basic perils plus falling objects (exterior damage must occur before interior damage is covered); the weight of ice, sleet, and snow; and accidental discharge of water or steam from a system or appliance containing steam or water other than an automatic sprinkler system.

k. scheduled coverage

11.

The _________________ cause of loss covers all direct physical losses except those that are excluded; its new name is "open perils."

l. special form

12.

The _________________ option replaces the insurance-to- value requirement with a maximum restoration period of 120 days.

m. Time-element contracts

13.

A/An _________________ is an endorsement that substitutes a dollar amount for the coinsurance percentage with respect to insurance to value provisions in a property insurance contract.

3.The major advantages of credit insurance include all but one of the following:

1. Credit insurance offers a way of transferring a significant economic risk to those better able to bear it,
2. Credit insurance generally represents the only feasible solution to the problem it is designed to meet,
3. Credit insurance stabilizes a firm's profits by tending to place definite limits on the size of bad debt losses,
4. Credit insurance has certain psychological benefits for encouraging sales,
5. Credit insurance may enable a firm to accept accounts it would not otherwise accept.

4.The policy that gives the insured the best liability coverage is the

1. claims-made policy,
2. business income policy,
3. occurrence policy.

5.A factor that favors purchasing workers' compensation insurance is

1. small firm,
2. high interest rates,
3. stable work force.

6.Doe has the personal automobile policy with liability limits as follows: $25,000/$50,000 BI and $10,000 PD. Doe is held liable in an accident in which he must pay for bodily injuries as follows: A, $15,000, B, $5,000, and C, $30,000. His contract will reimburse him to the extent of a. $25,000,

b. $30,000,

c. $45,000,

d. $50,000,

e. none of these.

7. I.Most of the premiums collected by auto insurance companies

1. are paid to insureds as benefits,
2. are retained as profits for the companies,
3. are paid to lawyers,
4. pay the expenses of the insurance companies.

II.Which of the following does not improve auto safety?

1. lightweight, high-mileage cars,
2. air bags,
3. child restraint laws,
4. center-mounted brake lights.

8.The first action that should be taken in establishing a personal risk management program is

1. call your insurance agent,
2. purchase a homeowners' policy,
3. take an inventory of your personal property,
4. have a will made.

9.The cash value option allows the insured

1. to receive in cash the present value of the face amount of the policy based on the life expectancy of the insured,
2. to surrender the policy for the accumulated cash value,
3. to collect the death benefits in a lump sum,
4. to be assured that the lump-sum option will be selected by the policy beneficiary.

10.A change that would tend to decrease the premium on a disability policy is

1. a shorter elimination period,
2. use of an any occupation definition of disability instead of an any occupation to which reasonably suited definition,
3. increasing the benefit level from 67 percent to 75 percent of prior earnings,
4. lowering the payment period from until age 70 to until age 65.

11.If Harry can purchase a straight life annuity with a monthly benefit of $500 for a single premium of $100,000, what can be said about the size of the monthly benefit associated with a joint and survivor annuity that Harry and his wife can purchase for the same premium?

1. Nothing can be said about the size of the benefit,
2. The benefit will be less than $500 per month,
3. The benefit will be more than $500 per month,
4. The benefit will be less than $500 per month if Harry is older than his wife, and more than $500 if Harry is younger than his wife.

12The three most commonly used methods of loss control are:

a. risk retention, risk avoidance, and risk transfer.

b. self-insurance, diversification, and risk transfer.

c. frequency reduction, severity reduction, and diversification.

d. insurance transfers, frequency reduction, and severity reduction