Insurance and Risk Management Flashcards
7 cards from real PSI practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Insurance and Risk Management flashcards as text
Which type of risk involves the possibility of loss but no chance of gain?
Answer: Pure risk
Pure risk involves only the possibility of loss or no loss, with no opportunity for financial gain.
An insured suffers a $50,000 loss. The policy has a $5,000 deductible and an 80% coinsurance clause. If the insured carried adequate insurance, how much does the insurer pay?
Answer: $45,000
After the $5,000 deductible, the remaining $45,000 is paid 100% by the insurer since coinsurance was met.
What does the principle of indemnity prevent?
Answer: Insureds from profiting from a loss
The principle of indemnity states that insurance should restore the insured to their pre-loss financial position, not allow them to profit.
Which of the following best describes 'adverse selection'?
Answer: High-risk individuals seeking insurance more than low-risk individuals
Adverse selection occurs when those with higher-than-average risk are more likely to seek and purchase insurance.
A business owner's policy (BOP) is designed primarily for which type of insured?
Answer: Small to mid-sized commercial businesses
A BOP bundles property and liability coverages at a discounted rate specifically for small to mid-sized businesses.
Under a claims-made liability policy, what triggers coverage?
Answer: When the claim is first reported to the insurer during the policy period
Claims-made policies are triggered when the claim is reported to the insurer, regardless of when the event occurred.
What is the purpose of a 'hold harmless' agreement in risk management?
Answer: To transfer financial responsibility for certain losses from one party to another
A hold harmless agreement contractually transfers liability for specified losses from one party (transferor) to another (transferee).