FCS 340 MONEY MANAGEMENT EXAM 4 QUESTIONS ANSWERED CORRECTLY LATEST UPDATE 2026
Risk - Answers uncertainty about the outcome of a situation or event.
Risk Management - Answers process of identifying and evaluating purely risky situations to determine
and implement appropriate management.
Perils - Answers any event that can cause a financial loss.
property insurance - Answers protection from financial losses resulting from the damage to or
destruction of your property or possessions.
liability insurance - Answers protection from financial losses suffered when you are held liable for
others' losses.
risk reduction - Answers includes mechanisms, such as insurance that reduce the overall uncertainty
about the magnitude of loss.
risk retention - Answers accepting that some risks simply arise in the course of one's life and
consciously retaining that risk.
Risk avoidance - Answers the simplest way to handle risk is to avoid it.
deductible clause - Answers requires that the policyholder pays an initial portion of any loss.
loss control - Answers designing specific mechanisms to reduce loss frequency and loss severity.
large-loss principle - Answers a basic rule of risk management that encourages us to insure the risks
that we cannot afford and retain the risks that we can reasonably afford.
distinguish between pure risk and speculative risk - Answers pure risk exists when there is no
potential for gains, only the possibilities of loss. speculative risk in the other hand exists when there is
a possibility of gains as well as for loss. Example: stock market are speculative because you can either
win or loss depending on the market. Insurance policy is a pure risk because it will come up in the
event of loss or destruction of possessions.
explain the distinctions between risk and odds - Answers odds are based on ratio of things while risks
are based on probabilities.
distinguish among the five common risk exposures that most people face - Answers Risk avoidance,
risk retention, loss control, risk transfer, and risk reduction.
risk transfer - Answers another way to handle risk is to transfer it to an insurance company.
Describe the 5 steps of risk management - Answers 1. Identify your risk exposure-what you own and
what you do.
2- estimate your risk and potential losses- how frequently you can have a loss and how severe it
would be.
3- choose how to handle your risk of loss- choose which one of the five exposures you can handle.
4- implement your risk management program- what methods you will use to handle risk
management.
5- evaluate and adjust your program- life changes so the risks on it, periodically evaluate and check if
your methods are right for your current situation.
When considering likelihood of loss and severity of loss, explain which one of these two concepts is
more important when deciding whether to buy insurance and why. - Answers loss severity is most
important because if a person is involved in an accident, the amount he has to pay could be enormous
because liability is more expensive.
insurance - Answers mechanism for transferring and reducing pure risk though which a large number
of individuals share the financial losses suffered by members of the group as a whole.
premium - Answers the fee paid for insurance
insurance policy - Answers contract between the person buying insurance (the insured) and the
insurance company (The insurer).
hazard - Answers any condition that increases the probability that a peril will occur.
principle of indemnity - Answers insurance will pay no more than the actual financial loss suffered.
policy limits - Answers specify the maximum dollar amounts that will be paid under the policy.
coinsurance - Answers method by which the insured and the insurer share proportionately in the
payment for a loss.
law of large numbers - Answers as the number of members in a group increases, predictions about
the group's behavior become increasingly accurate.
insurance agents - Answers representative of an insurance company authorized to sell, modify,
service, and terminate insurance contracts.
, direct sellers - Answers companies that market insurance policies through salaried employees, mail-
order promotions, newspapers, the internet,, and even vending machines.
distinguish among the three types of hazards - Answers physical hazard- a particular characteristic of
the person who is insured or his insured property that can increase the chance of loss. for example,
having a high blood pressure is a hazard for the person covered by health insurance.
2. morale hazard- when the person is indifferent to a peril; not locking the doors because the insurer
already knows that the insurance will pay for a loss.
3- moral hazard- occurs when the insured person will cause an accident to occur to collect money
from the insurance.
why is the principle of indemnity so important to insurance sellers? - Answers because the insurance
will not pay more than the actual loss and also because it is protected against moral hazards.
identify 4 key points to review when reading an insurance policy - Answers 1- Perils covered, 2-
property covered, 3-people covered, 4- time period of coverage, 5- amount of coverage.
Summarize how to use deductibles, coinsurance, hazard reduction, and loss reduction to lower the
cost of insurance - Answers deductible is the amount of money pay by the insured before the
insurance provides coverage; coinsurance is paying a share of the costs of damage with the insurance;
for example the insurer pays 20% and insurance the remaining 80% of a loss. Hazard reduction is used
when the insurer takes steps to reduce the chances of losses. for example, losing weight or quit
smoking. Loss reduction takes place when the insurer takes steps to prevent the severity of loss in
case of a peril. installing smoke alarms and having fire extinguishers for example.
Differentiate among independent agents, exclusive agents, and direct sellers - Answers independent
agents are independent business people who act as a third party links between insurers and insureds.
they earn commissions from the companies they represent and look for the best insurance companies
for the clients.
Exclusive agents-represent only one company for a specific type of insurance. for example, life
insurance.
direct sellers market their business through salaried employees, magazines, internet, etc.
homeowner's insurance - Answers combines liability and property insurance overages that
homeowners and rents typically need into single-package policies
named-perils policies - Answers cover only losses caused by perils that the policy specifically
mentions.
all-risk (open-perils) policies - Answers cover losses caused bu all perils other than those that the
policy specifically excludes.
homeowner's general liability protection - Answers applies when you are legally liable for another
person's losses, other than those that arise out of use of vehicles or your professional duties.
special (Homeowner's insurance) form (HO-3) - Answers Provides open-perils protection (except for
the commonly excluded perils of war, earthquake, and flood) for four types of property losses
Renter's content broad form (HO-4) - Answers Named-perils policy that protects the insured from
losses to the contents of a rented dwelling rather than to the dwelling itself.
replacement-cost requirement - Answers stipulates that a home must be insured for 80 percent of its
replacement value (some conpanies require 100 percent) in order for any loss to be fully covered.
actual cash value (of personal property) - Answers represents the purchase price of the property less
depreciation.
contents replacement-cost protection - Answers option sometimes available in homeowner's
insurance policies (Including the renter's form) that pays the full replacement cost of any personal
property.
describe the types of losses covered under the property insurance portion of a homeowner's policy -
Answers damage to the dwelling, damage to other structures of the property or appurtenant
structures, damage to personal property and dwelling contents, and expenses arising out of a loss of
use of the dwelling.
give three examples of liability protection under homeowner's insurance policies - Answers
homeowner's general liability protection, homeowner's no-fault medical payments protection,
homeowner's no-fault property damage protection.
name the 3 types of homeowner's insurance policies for most residents - Answers HO-3 special form,
HO-4 Renter's contents broad form, HO-6 for condominium owners,
Risk - Answers uncertainty about the outcome of a situation or event.
Risk Management - Answers process of identifying and evaluating purely risky situations to determine
and implement appropriate management.
Perils - Answers any event that can cause a financial loss.
property insurance - Answers protection from financial losses resulting from the damage to or
destruction of your property or possessions.
liability insurance - Answers protection from financial losses suffered when you are held liable for
others' losses.
risk reduction - Answers includes mechanisms, such as insurance that reduce the overall uncertainty
about the magnitude of loss.
risk retention - Answers accepting that some risks simply arise in the course of one's life and
consciously retaining that risk.
Risk avoidance - Answers the simplest way to handle risk is to avoid it.
deductible clause - Answers requires that the policyholder pays an initial portion of any loss.
loss control - Answers designing specific mechanisms to reduce loss frequency and loss severity.
large-loss principle - Answers a basic rule of risk management that encourages us to insure the risks
that we cannot afford and retain the risks that we can reasonably afford.
distinguish between pure risk and speculative risk - Answers pure risk exists when there is no
potential for gains, only the possibilities of loss. speculative risk in the other hand exists when there is
a possibility of gains as well as for loss. Example: stock market are speculative because you can either
win or loss depending on the market. Insurance policy is a pure risk because it will come up in the
event of loss or destruction of possessions.
explain the distinctions between risk and odds - Answers odds are based on ratio of things while risks
are based on probabilities.
distinguish among the five common risk exposures that most people face - Answers Risk avoidance,
risk retention, loss control, risk transfer, and risk reduction.
risk transfer - Answers another way to handle risk is to transfer it to an insurance company.
Describe the 5 steps of risk management - Answers 1. Identify your risk exposure-what you own and
what you do.
2- estimate your risk and potential losses- how frequently you can have a loss and how severe it
would be.
3- choose how to handle your risk of loss- choose which one of the five exposures you can handle.
4- implement your risk management program- what methods you will use to handle risk
management.
5- evaluate and adjust your program- life changes so the risks on it, periodically evaluate and check if
your methods are right for your current situation.
When considering likelihood of loss and severity of loss, explain which one of these two concepts is
more important when deciding whether to buy insurance and why. - Answers loss severity is most
important because if a person is involved in an accident, the amount he has to pay could be enormous
because liability is more expensive.
insurance - Answers mechanism for transferring and reducing pure risk though which a large number
of individuals share the financial losses suffered by members of the group as a whole.
premium - Answers the fee paid for insurance
insurance policy - Answers contract between the person buying insurance (the insured) and the
insurance company (The insurer).
hazard - Answers any condition that increases the probability that a peril will occur.
principle of indemnity - Answers insurance will pay no more than the actual financial loss suffered.
policy limits - Answers specify the maximum dollar amounts that will be paid under the policy.
coinsurance - Answers method by which the insured and the insurer share proportionately in the
payment for a loss.
law of large numbers - Answers as the number of members in a group increases, predictions about
the group's behavior become increasingly accurate.
insurance agents - Answers representative of an insurance company authorized to sell, modify,
service, and terminate insurance contracts.
, direct sellers - Answers companies that market insurance policies through salaried employees, mail-
order promotions, newspapers, the internet,, and even vending machines.
distinguish among the three types of hazards - Answers physical hazard- a particular characteristic of
the person who is insured or his insured property that can increase the chance of loss. for example,
having a high blood pressure is a hazard for the person covered by health insurance.
2. morale hazard- when the person is indifferent to a peril; not locking the doors because the insurer
already knows that the insurance will pay for a loss.
3- moral hazard- occurs when the insured person will cause an accident to occur to collect money
from the insurance.
why is the principle of indemnity so important to insurance sellers? - Answers because the insurance
will not pay more than the actual loss and also because it is protected against moral hazards.
identify 4 key points to review when reading an insurance policy - Answers 1- Perils covered, 2-
property covered, 3-people covered, 4- time period of coverage, 5- amount of coverage.
Summarize how to use deductibles, coinsurance, hazard reduction, and loss reduction to lower the
cost of insurance - Answers deductible is the amount of money pay by the insured before the
insurance provides coverage; coinsurance is paying a share of the costs of damage with the insurance;
for example the insurer pays 20% and insurance the remaining 80% of a loss. Hazard reduction is used
when the insurer takes steps to reduce the chances of losses. for example, losing weight or quit
smoking. Loss reduction takes place when the insurer takes steps to prevent the severity of loss in
case of a peril. installing smoke alarms and having fire extinguishers for example.
Differentiate among independent agents, exclusive agents, and direct sellers - Answers independent
agents are independent business people who act as a third party links between insurers and insureds.
they earn commissions from the companies they represent and look for the best insurance companies
for the clients.
Exclusive agents-represent only one company for a specific type of insurance. for example, life
insurance.
direct sellers market their business through salaried employees, magazines, internet, etc.
homeowner's insurance - Answers combines liability and property insurance overages that
homeowners and rents typically need into single-package policies
named-perils policies - Answers cover only losses caused by perils that the policy specifically
mentions.
all-risk (open-perils) policies - Answers cover losses caused bu all perils other than those that the
policy specifically excludes.
homeowner's general liability protection - Answers applies when you are legally liable for another
person's losses, other than those that arise out of use of vehicles or your professional duties.
special (Homeowner's insurance) form (HO-3) - Answers Provides open-perils protection (except for
the commonly excluded perils of war, earthquake, and flood) for four types of property losses
Renter's content broad form (HO-4) - Answers Named-perils policy that protects the insured from
losses to the contents of a rented dwelling rather than to the dwelling itself.
replacement-cost requirement - Answers stipulates that a home must be insured for 80 percent of its
replacement value (some conpanies require 100 percent) in order for any loss to be fully covered.
actual cash value (of personal property) - Answers represents the purchase price of the property less
depreciation.
contents replacement-cost protection - Answers option sometimes available in homeowner's
insurance policies (Including the renter's form) that pays the full replacement cost of any personal
property.
describe the types of losses covered under the property insurance portion of a homeowner's policy -
Answers damage to the dwelling, damage to other structures of the property or appurtenant
structures, damage to personal property and dwelling contents, and expenses arising out of a loss of
use of the dwelling.
give three examples of liability protection under homeowner's insurance policies - Answers
homeowner's general liability protection, homeowner's no-fault medical payments protection,
homeowner's no-fault property damage protection.
name the 3 types of homeowner's insurance policies for most residents - Answers HO-3 special form,
HO-4 Renter's contents broad form, HO-6 for condominium owners,
