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Exam 24: Extension: Managing Risk

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Question 21

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Demetrius 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.

E) All of the above
F) B) and C)

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Question 22

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Firestone and Ford recalled thousands of tires when several people died in traffic accidents blamed on faulty tires. This is an example of which of the following?

A) Avoiding the risk
B) Self-insuring against the risk
C) Reducing the risk
D) A loss-prevention program

E) All of the above
F) C) and D)

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Question 23

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

Sadly, during a war many civilians watch everything they have destroyed. Insurance companies will view this type of loss as:

All-Star Manufacturing has decided to stop producing football helmets due to the potential size of losses involved in product liability cases. This is an example of avoiding risk as a risk management strategy.

Some businesses will set aside money to cover routine losses and buy "catastrophe" policies to cover big losses. This is an example of which of the following?

The chance of a fire is an example of a pure risk.

An insurance company can use the law of large numbers to predict the number of people in your community that will have a car accident in a given month.

Mini-Case The Bookworm is a bookstore and café located on a busy downtown main street in Denver. The owner, Waata Reader, prides himself on the vast selection of books available in the store. The store has three stories, with both stairs and an elevator to each level. In the back of the first floor is the café, which serves pastries and coffee drinks. Many times customers will linger there over a cup of coffee, deciding which book to purchase. Waata has expanded several times and now has 22 people on the staff. -One of Waata's staff members has been out on sick leave because she had an emergency appendectomy. She brought the hospital bills in to Waata for his opinion. It seems she had been covered by two health insurance policies for some time and now she thinks she may be able to collect from both companies in payment for the operation. Waata assured his employee that:

An insurance policy is a written contract.

The Pension Benefit Guaranty Corporation provides retirement benefits, life insurance, health insurance, and disability income insurance.

Pure risk involves the chance of either a profit or a loss.

The premium charged for workers' compensation insurance is the same for all workers, regardless of their occupation.

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

A firm that chooses to self-insure and cover losses out of its budget is said to:

The chances of dying when young are much higher than the chances of becoming disabled when young.

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:

Risks such as global warming are the concern of businesses and governments primarily in the U.S.

Which type of risk management strategy is a company using when it installs mirrors and surveillance cameras to spot and prevent shoplifting?

Outsourcing helps some companies avoid risk.