CFP #512 - MODULE #1 (TERMINOLOGY) EXAM QUESTIONS
AND ANSWERS WITH COMPLETE SOLUTIONS VERIFIED
risk
the possibility of a loss—or a negative deviation from a desired outcome (EX: possible
loss to your house)
peril
the cause of a loss from risk (EX: hurricane, tornado, flood)
hazard
increases the potential for loss (EX: gas can sitting next to space heater)
Static risks
such as earthquakes and floods, result from factors other than changes in the economy.
They tend to occur with regularity and can be insured.
Dynamic risks
the result of changes in the economy, such as changes in the business cycle or
inflation. Insurance does not typically cover ___________ __________.
Fundamental risks
affect a large group of people. Examples include recessions and earthquakes.
Particular risks
affect individuals or small groups of people. Example: rare health condition
Pure risk
involves only the chance of loss or no loss; in other words, there is no chance of gain.
The possibility that a person's home will burn represents a __________ ___________
, because there is no chance of gain but only the chance of loss or no loss. __________
___________ are insurable.
Speculative risk
involves both the chance of loss and the chance of gain. Gambling is a classic example
of ___________________ _____________ because it presents both the chance of loss
and the chance of gain. ___________________ _____________ are not insurable.
Types of Risk Exposures
1. asset-related
2. contract law
3. tort law
asset-related risks
loss of the asset itself, loss of use of the asset, and other associated losses.
contract law risks
related to the asset or activity (e.g., acquisition of an asset resulting in liability to a
lender, a club membership contract putting certain responsibilities on the client, etc.).
tort law risks
(i.e., liability for a loss resulting from the use of an asset or from an activity—a boating
accident, practicing one's profession, etc.).
The two groups of managing risk:
1. Risk control. A risk management technique that seeks to minimize the risk of loss.
2. Risk financing. A risk management technique that pays the costs of losses incurred.
Two types of Risk control:
AND ANSWERS WITH COMPLETE SOLUTIONS VERIFIED
risk
the possibility of a loss—or a negative deviation from a desired outcome (EX: possible
loss to your house)
peril
the cause of a loss from risk (EX: hurricane, tornado, flood)
hazard
increases the potential for loss (EX: gas can sitting next to space heater)
Static risks
such as earthquakes and floods, result from factors other than changes in the economy.
They tend to occur with regularity and can be insured.
Dynamic risks
the result of changes in the economy, such as changes in the business cycle or
inflation. Insurance does not typically cover ___________ __________.
Fundamental risks
affect a large group of people. Examples include recessions and earthquakes.
Particular risks
affect individuals or small groups of people. Example: rare health condition
Pure risk
involves only the chance of loss or no loss; in other words, there is no chance of gain.
The possibility that a person's home will burn represents a __________ ___________
, because there is no chance of gain but only the chance of loss or no loss. __________
___________ are insurable.
Speculative risk
involves both the chance of loss and the chance of gain. Gambling is a classic example
of ___________________ _____________ because it presents both the chance of loss
and the chance of gain. ___________________ _____________ are not insurable.
Types of Risk Exposures
1. asset-related
2. contract law
3. tort law
asset-related risks
loss of the asset itself, loss of use of the asset, and other associated losses.
contract law risks
related to the asset or activity (e.g., acquisition of an asset resulting in liability to a
lender, a club membership contract putting certain responsibilities on the client, etc.).
tort law risks
(i.e., liability for a loss resulting from the use of an asset or from an activity—a boating
accident, practicing one's profession, etc.).
The two groups of managing risk:
1. Risk control. A risk management technique that seeks to minimize the risk of loss.
2. Risk financing. A risk management technique that pays the costs of losses incurred.
Two types of Risk control:
