FIN331 Exam #1
1. Insurers: Companies offering insurance policies
2. Insured: The people or organizations covered by insurance or who own insured property
3. Expenditures to reduce risks: Airbags, seatbelts, head restraints Sprinklers in
buildings
Lights and video cameras in parking lots Drug testing
Cost of regulations (OSHA, electrical inspectors, fire alarm installations)
4. Lost opportunities from avoiding risks: Lost enjoyment/profits from avoiding certain actions judged as
too risky:
Wanting to live in the Outer Banks but fear hurricanes Declining travel job offers
to avoid creating family issues Staying home from work because of bad weather
5. What are the two issues of insurance: Insurance fraud and increased risk taking
6. Risk: Uncertainty about a future event where some basis exists for estimating the likelihood, or
probability, or a loss occurring
7. Uncertainty: The inability to make a defensible estimate of a future outcome
8. Pure vs Speculative: Based on outcomes
9. Static vs Dynamic: Based on rate of change
10.Objective vs Subjective: Based on measurability
11.Fundamental vs Particular: Based on breadth of impact
12.Pure risks: Result in only losses, and no gains are possible. Examples are floods, windstorms,
fires, premature death, being sued for negligence, auto acci- dents, disabilities, and health problems
13.Speculative risks: Where it is possible to either gain or lose. Examples are gambling, investing,
product innovations, and farming
14.Static risks: If the probability of a loss does not change over time. Examples are dying from an
accident, a hurricane striking, living past 130, bad weather, and catching a cold
15.Dynamic risks: If the probability of loss is changing at a significant rate. Exam- ples are developing
asthma/diabetes (increasing), getting injured at work (decreas- ing), developing alzheimer's (increasing),
and dying of an auto accident (decreasing)
16.What type of risk does insurance work best for: Static risks
17.Objective risks: Can be quantified (or measured) as to frequency, severity, and timing of occurrence.
Examples are dying at 60, becoming disabled, damage to home, and dying of an accident
, FIN331 Exam #1
18.Subjective risks: Are comprised of mental anguish that is not easily measured. Examples are not
investing in stocks because of the fear of losing money, and not going to the doctor because of the fear
of what might be discovered
19.Fundamental risks: Those affecting large populations/groups. Examples are warfare, hurricane,
floods, recessions, and epidemics
20.Particular risks: Those affecting individuals and individual organizations. Ex- amples are a home
destroyed by fire, an auto accident, an airplane crash, and a broken leg
21.Perils: Something that may cause a loss, or is the direct cause of a loss. They are usually verbs or
nouns. Examples are floods, collisions, thefts, windstorms, trips, heart attacks, and dying
22.Hazards: Conditions that increase the chances of losses from perils, or make losses worse once a
peril has occurred. They are usually adjectives or adverbs. Examples are icy, tired, too fast, and too
hot
23.Physical hazard: A physical condition making a peril more likely. Examples are Wet floors, failing
brakes, icy roads, and poor eyesight
24.Moral hazard: When a person wishes to purposely cause a loss because of dishonesty or some other
character defect. Examples are faking whiplash, arson, leaving door unlocked in hopes of being robbed,
and buying someone life insurance then wishing them death
25.Morale hazard: When a person is indifferent about losses or is careless. They don't want a loss to
occur, but their actions increase the chances of one occurring. Examples are accident-prone workers,
reckless driving, using gasoline to start a fire, and leaving key in ignition in high crime areas
26.What hazards are the main reason for deductibles, waiting periods, co-pays, and exclusions?:
Moral hazards
27.Is the risk of being struck by lightening static or dynamic?: Static
28.Is the risk of being injured while at work static or dynamic?: Dynamic
29.Is continuing to pay premiums on an ex-spouse's life insurance policy when there is no economic
dependency pure or speculative?: Speculative
30.Is the risk of incurring a medical expense from an unexpected visit to the doctor pure or speculative?:
Pure
31.Is SS retirement benefits lowering as changed are made to save the pro- gram from bankruptcy
particular or fundamental?: Fundamental
32.Is calling Big Louie a SOB to his face a peril or a hazard?: Hazard - Morale
33.Is Big Louis breaking your arm a peril or a hazard?: Peril
34.Is discovering a fire on the roof of your work and not saying anything, because you will get paid time
off a peril or a hazard?: Hazard - Moral
1. Insurers: Companies offering insurance policies
2. Insured: The people or organizations covered by insurance or who own insured property
3. Expenditures to reduce risks: Airbags, seatbelts, head restraints Sprinklers in
buildings
Lights and video cameras in parking lots Drug testing
Cost of regulations (OSHA, electrical inspectors, fire alarm installations)
4. Lost opportunities from avoiding risks: Lost enjoyment/profits from avoiding certain actions judged as
too risky:
Wanting to live in the Outer Banks but fear hurricanes Declining travel job offers
to avoid creating family issues Staying home from work because of bad weather
5. What are the two issues of insurance: Insurance fraud and increased risk taking
6. Risk: Uncertainty about a future event where some basis exists for estimating the likelihood, or
probability, or a loss occurring
7. Uncertainty: The inability to make a defensible estimate of a future outcome
8. Pure vs Speculative: Based on outcomes
9. Static vs Dynamic: Based on rate of change
10.Objective vs Subjective: Based on measurability
11.Fundamental vs Particular: Based on breadth of impact
12.Pure risks: Result in only losses, and no gains are possible. Examples are floods, windstorms,
fires, premature death, being sued for negligence, auto acci- dents, disabilities, and health problems
13.Speculative risks: Where it is possible to either gain or lose. Examples are gambling, investing,
product innovations, and farming
14.Static risks: If the probability of a loss does not change over time. Examples are dying from an
accident, a hurricane striking, living past 130, bad weather, and catching a cold
15.Dynamic risks: If the probability of loss is changing at a significant rate. Exam- ples are developing
asthma/diabetes (increasing), getting injured at work (decreas- ing), developing alzheimer's (increasing),
and dying of an auto accident (decreasing)
16.What type of risk does insurance work best for: Static risks
17.Objective risks: Can be quantified (or measured) as to frequency, severity, and timing of occurrence.
Examples are dying at 60, becoming disabled, damage to home, and dying of an accident
, FIN331 Exam #1
18.Subjective risks: Are comprised of mental anguish that is not easily measured. Examples are not
investing in stocks because of the fear of losing money, and not going to the doctor because of the fear
of what might be discovered
19.Fundamental risks: Those affecting large populations/groups. Examples are warfare, hurricane,
floods, recessions, and epidemics
20.Particular risks: Those affecting individuals and individual organizations. Ex- amples are a home
destroyed by fire, an auto accident, an airplane crash, and a broken leg
21.Perils: Something that may cause a loss, or is the direct cause of a loss. They are usually verbs or
nouns. Examples are floods, collisions, thefts, windstorms, trips, heart attacks, and dying
22.Hazards: Conditions that increase the chances of losses from perils, or make losses worse once a
peril has occurred. They are usually adjectives or adverbs. Examples are icy, tired, too fast, and too
hot
23.Physical hazard: A physical condition making a peril more likely. Examples are Wet floors, failing
brakes, icy roads, and poor eyesight
24.Moral hazard: When a person wishes to purposely cause a loss because of dishonesty or some other
character defect. Examples are faking whiplash, arson, leaving door unlocked in hopes of being robbed,
and buying someone life insurance then wishing them death
25.Morale hazard: When a person is indifferent about losses or is careless. They don't want a loss to
occur, but their actions increase the chances of one occurring. Examples are accident-prone workers,
reckless driving, using gasoline to start a fire, and leaving key in ignition in high crime areas
26.What hazards are the main reason for deductibles, waiting periods, co-pays, and exclusions?:
Moral hazards
27.Is the risk of being struck by lightening static or dynamic?: Static
28.Is the risk of being injured while at work static or dynamic?: Dynamic
29.Is continuing to pay premiums on an ex-spouse's life insurance policy when there is no economic
dependency pure or speculative?: Speculative
30.Is the risk of incurring a medical expense from an unexpected visit to the doctor pure or speculative?:
Pure
31.Is SS retirement benefits lowering as changed are made to save the pro- gram from bankruptcy
particular or fundamental?: Fundamental
32.Is calling Big Louie a SOB to his face a peril or a hazard?: Hazard - Morale
33.Is Big Louis breaking your arm a peril or a hazard?: Peril
34.Is discovering a fire on the roof of your work and not saying anything, because you will get paid time
off a peril or a hazard?: Hazard - Moral
