Question 1

Lyla owns a small jewelry business with only four employees. She opened her business recently and makes just enough to pay her bills each week. Yesterday, just before the end of her first quarter in business, she received a notice from the government indicating that she needed to provide evidence of workers' compensation insurance. Lyla
A) realized she was required to provide this insurance so she immediately got a policy.
B) is not required to carry workers' compensation because she has less than ten employees.
C) doesn't need workers' compensation because her business is in Louisiana.
D) doesn't need workers' compensation because she is not in the construction business.

Accepted Answer

All 50 states require employers to provide workers' compensation insurance.

Question 2

A ________ insurance company is owned by stockholders, just like any other investor-owned company. A ________ insurance company is owned by its policyholders.
A) stock; mutual
B) corporate; stock
C) stock; corporate
D) mutual; limited liability

Accepted Answer

A stock insurance company is owned by stockholders who invest in the company and hope to make a profit on their investment. A mutual insurance company, on the other hand, is owned by its policyholders who contribute premiums and share in any profits the company earns.

Question 3

The risk of environmental harm is ________ in its proportions on issues such as global warming.
A) local
B) regional
C) national
D) international

Accepted Answer

Global warming is a global issue that affects the entire planet, so the risk of environmental harm is international in its proportions.

Question 4

Erin received a letter from her employer's insurance company inquiring if her children had health insurance coverage from another provider. According to the ________, the insurance provider has the right to this information.
A) rule of 80
B) rule of indemnity
C) law of legal compliance
D) law of large numbers

Accepted Answer

The rule of indemnity states that a policyholder cannot expect payment by two different insurance companies for the same claim.

Question 5

Aqua Sprinkler Systems experienced increasing sales for several years. The firm expanded its product offerings, and now serves both commercial and residential customers. Which of the following situations would be considered an uninsurable risk for Aqua Sprinkler Systems?
A) a fire that destroys its warehouse
B) employee sues company due to injury on the job
C) equipment theft that causes work downtime
D) drought-resistant grass technology that disrupts sales

Accepted Answer

An uninsurable risk is one that insurance companies will not cover. When new technologies become marketable, there is always the risk that products that were used for the same purpose become obsolete. Speculative risks are not insurable. Pure risks are usually insurable.

Question 6

Antonio is a silversmith and works with various metals. At the end of the day, he reclaims and separates each metal by using an inexpensive toxic acid though other methods are available. The risk of fire as well as health dangers to Antonio is unknown. What should Antonio do?
A) Dispose of the used acid by pouring it down the drain since the government will take care of any environmental issues that come from polluting the water.
B) Get a fire insurance policy and make sure to visit the doctor regularly.
C) Switch to another potentially less dangerous method of separating each metal.
D) Pour it out in back of the studio in the gutter.

Accepted Answer

Risk management should be the concern of each individual as well as the international community. No insurance company can protect humanity from every risk especially those that may contribute to global warming so many companies are going out of their way to protect the environment.

Question 7

The ________ says that an insured person cannot collect more than the actual loss from an insurable risk.
A) law of large numbers
B) rule of indemnity
C) law of diminishing returns
D) rule of finite loss coverage

Accepted Answer

The rule of indemnity is a fundamental principle of insurance, which states that the insured should be reimbursed only to the extent of their actual financial loss. The purpose of insurance is not to provide a windfall profit to the insured but rather to compensate them for their actual losses. This principle prevents the insured from receiving more than the amount of their loss and also ensures that they do not profit from the loss.

Question 8

A characteristic of a health savings account that distinguishes it from other types of health care coverage is that it
A) is not tax-deferred.
B) allows people to save money for medical expenses in a tax-deferred account.
C) covers only emergency procedures.
D) provides unlimited access to routine medical services (such as office visits) and minor medical tests and procedures (such as blood tests and X-rays) at no cost.

Accepted Answer

Health savings accounts (HSAs) are tax-deferred accounts that allow people to save money for medical expenses. Part of the money currently spent on health insurance is deposited into an HSA and used to buy a catastrophic insurance policy that covers major medical expenses.

Question 9

Home-based business owners add a ________ to their homeowner's insurance policy to ensure that they have adequate coverage.
A) deductible unit
B) compensation clause
C) rider
D) tag

Accepted Answer

A rider is a specific addition to an insurance policy that provides additional coverage for certain items or situations not covered by the basic policy. Home-based business owners often need to add a rider to their homeowner's insurance policy to ensure that their business-related equipment and liability are covered.

Question 10

________ insurance replaces part of your income if you become unable to work for an extended period of time.
A) Product liability
B) Workers' compensation
C) Professional liability
D) Disability

Accepted Answer

Disability insurance replaces part of your income if you become unable to work for an extended period of time. Product liability insurance provides protection against claims for personal injury or property damage caused by a product. Workers' compensation provides wage replacement and medical benefits to employees injured in the course of employment. Professional liability insurance provides protection against claims of negligence or harm caused by professional services.

Question 11

There have been a series of large judgments in product liability cases against companies producing hair dryers. If this trend continues, insurance companies will respond by ________ the premiums charged for liability insurance for hair dryer manufacturers.
A) lowering
B) canceling
C) increasing
D) underwriting

Accepted Answer

The premium is the fee charged by an insurance company for its coverage. The insurance firm must charge a premium that is adequate to cover its losses and make a profit. As damage awards have increased, so have the premiums charged for the risk protection.

Question 12

New Dimensions Athletic Association was formed to administer youth soccer leagues and tournaments in a popular urban area. All board members recently resigned stating that they could no longer assume the risk of participating on a board that did not insure its volunteer members against serious player injuries and other unanticipated problems. Collectively, these members are
A) self-insuring against risk.
B) avoiding risk.
C) participating in risk reduction.
D) filing a grievance against the association.

Accepted Answer

Risk avoidance means that the business or individual has made the decision not to participate, in order to avoid risk at all cost. Businesses will sometimes make the decision not to sell certain products or services due to their high risk nature.

Question 13

Which of the following statements best reflects the concept behind the rule of indemnity?
A) If a large number of people are exposed to the same risk, a predictable number of losses will occur during a given period of time.
B) If a written contract exists between the insured and an insurance company, the insured is entitled to receive the maximum amount stated in the contract in the event of a loss.
C) If an insurance company's premiums generate excess funds, these excess funds must be returned to the policyholders in the form of dividends or reductions in future premiums.
D) An insured person cannot collect more than the actual loss from an insurable risk.

Accepted Answer

The rule of indemnity states that individuals cannot gain from risk management. They can only minimize their losses.

Question 14

________ insurance provides benefits to the survivors of workers who die as a result of work-related injuries.
A) Health
B) Professional liability
C) Workers' compensation
D) Malpractice

Accepted Answer

Workers' compensation insurance is specifically designed to provide benefits to surviving family members if the worker dies as a result of work-related injuries. This insurance is a mandatory requirement for all businesses, and it offers financial support to the family members of the deceased worker, usually in the form of death benefits and funeral expenses. Health insurance, professional liability insurance, and malpractice insurance do not generally provide this type of coverage.

Question 15

DeMario was turned down when he attempted to buy a life insurance policy on his former Introduction to Business instructor. The most likely reason the insurance company turned down his attempt to insure the life of his former instructor was that
A) the chance of the loss could not be measured.
B) he did not have an insurable interest in the instructor's life.
C) the instructor had already taken out a policy.
D) the loss would not be accidental.

Accepted Answer

In order for a risk to be insurable, the policyholder must have an insurable interest. This means that the policyholder must be at risk to suffer an economic loss. Though DeMario probably would feel very sad at the demise of his instructor, nothing in the question suggests he would suffer an economic loss.

Question 16

________ insurance guarantees payment of wages, medical care, and rehabilitation services for employees who are injured on the job.
A) Product liability
B) Workers' compensation
C) Professional liability
D) Malpractice

Accepted Answer

Workers' compensation insurance is specifically designed to cover medical expenses, lost wages, and rehabilitation services for employees who are injured while carrying out job-related duties. This type of insurance is required by law in most states and provides important protection for both employers and employees in case of workplace accidents or injuries. Product liability, professional liability, and malpractice insurance are all different types of coverage that are designed to provide protection for specific types of risks or liabilities, but they do not provide the same type of coverage as workers' compensation insurance.

Question 17

Workers' compensation insurance
A) covers people who are found liable for professional negligence.
B) provides coverage against liability arising out of products sold.
C) is only required by 48 states.
D) guarantees payment of wages and medical costs for employees who are injured on the job.

Accepted Answer

Workers' compensation insurance guarantees payment of wages, medical care, and rehabilitation services for employees who are injured on the job.

Question 18

The National Highway Traffic Safety Administration (NHTSA) provides consumers with recall notices for all makes and models of cars, trucks, motorcycles, and even school buses. In terms of risk management, the purpose of the NHTSA service is
A) to reduce risk.
B) to avoid risk.
C) to self-insure against risk.
D) to make available the opportunity for vehicle owners to purchase insurance against risk.

Accepted Answer

Business and individuals can help manage pure risk. In this example, when auto manufacturers recall vehicles for maintenance and repair, they are effectively reducing the risk of accidents or auto failure.

Question 19

Risk management now includes the evaluation of
A) worldwide risks such as global warming.
B) worldwide issues such as poverty.
C) European issues such as the value of the euro.
D) political risks in South America.

Accepted Answer

Risk management goes beyond the protection of individuals, businesses, and nonprofit organizations from known risks. It means the evaluation of worldwide risks such as global warming.

Question 20

Risky Business Insurance Company insures business clients against unexpected disasters such as tornadoes and floods. The company operates in several regions in the U.S., and negotiates contracts following standard insurance industry guidelines. A strategic business guideline that the company would follow is
A) The amount of loss should be equal to or less than a loss covered by a competitor company.
B) There should be documentation that clearly attests to the fact that the loss of buildings, equipment, and even lives is not measurable.
C) The company's clients should be dispersed among several geographic areas so that the lack of natural disasters in some areas will compensate for more natural disasters in other areas.
D) All insurance companies that sell similar insurance would equally divide the number of claims, so as not to compete unfairly against each other.

Accepted Answer

There are limits as to what an insurance company will cover in a premium. The industry has criteria that are followed when deciding what is insurable and what is not insurable. Selling premiums to clients in several different regions where weather patterns and geologic events differ will reduce the insurance firm's overall risk.

Quiz 23: Appendix: Managing Risk

A insurance company is owned by stockholders, just like any other investor-owned company. A insurance company is owned by its policyholders.

The risk of environmental harm is ________ in its proportions on issues such as global warming.

Erin received a letter from her employer's insurance company inquiring if her children had health insurance coverage from another provider. According to the ________, the insurance provider has the right to this information.

Aqua Sprinkler Systems experienced increasing sales for several years. The firm expanded its product offerings, and now serves both commercial and residential customers. Which of the following situations would be considered an uninsurable risk for Aqua Sprinkler Systems?

Antonio is a silversmith and works with various metals. At the end of the day, he reclaims and separates each metal by using an inexpensive toxic acid though other methods are available. The risk of fire as well as health dangers to Antonio is unknown. What should Antonio do?

The ________ says that an insured person cannot collect more than the actual loss from an insurable risk.

A characteristic of a health savings account that distinguishes it from other types of health care coverage is that it

Home-based business owners add a ________ to their homeowner's insurance policy to ensure that they have adequate coverage.

________ insurance replaces part of your income if you become unable to work for an extended period of time.

There have been a series of large judgments in product liability cases against companies producing hair dryers. If this trend continues, insurance companies will respond by ________ the premiums charged for liability insurance for hair dryer manufacturers.

Which of the following statements best reflects the concept behind the rule of indemnity?

________ insurance provides benefits to the survivors of workers who die as a result of work-related injuries.

DeMario was turned down when he attempted to buy a life insurance policy on his former Introduction to Business instructor. The most likely reason the insurance company turned down his attempt to insure the life of his former instructor was that

________ insurance guarantees payment of wages, medical care, and rehabilitation services for employees who are injured on the job.

Workers' compensation insurance

The National Highway Traffic Safety Administration (NHTSA) provides consumers with recall notices for all makes and models of cars, trucks, motorcycles, and even school buses. In terms of risk management, the purpose of the NHTSA service is

Risk management now includes the evaluation of