An Insurance Policy in Action

Zach is a 5-year-old boy who recently split his chin open after tripping on the sidewalk, and he was rushed by his parents to the emergency room at a nearby hospital. Although an MRI revealed that Zach needed only stitches and some mild pain medication, his medical bill for the hospitalization and tests totaled $4,178. Zach is covered under his parents insurance policy, which has a $200 hospital stay deductible and a coinsurance rate of 20%. His parents can therefore expect a reimbursement from the insurance company of $ ___________ (Note: Round your answer to the nearest dollar.)

Complete each statement that follows with the appropriate insurance term.

	Zachs fall was completely unexpected and therefore insurable. This is an example of: a. Physical hazard b. fortuitous loss c. speculative risk d. morale hazard e. moral hazard
	It is easier for the insurance company to predict the risk associated with an entire town than to predict the risks of a given individual. This reflects the: a. law of large numbers b. principle of indemnity c. large-loss principle
	Because Zach is young and has no history of medical conditions, he is a part of the: a. substandard b. preferred c. desirable class of insured.