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Exam 23: Managing Risk

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Question 61

True/False

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One advantage of health savings accounts is that healthy people can use tax-deferred money to save for their future medical needs.

A) True
B) False

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Question 62

Multiple Choice

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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

A) she could look forward to a check from both companies once they had paid the medical bills.
B) because of the rule of indemnity she would not be able to profit from her operation.
C) because of the law of large numbers both insurance companies would pay her directly.
D) because her risk was insurable, she would be able to collect from both insurance policies.

E) A) and D)
F) B) and D)

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Question 63

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Tom and Sarah are both 24 years old and looking for car insurance. While comparing numbers, they notice the car insurance premiums charged for young male drivers are higher than the premiums for young female drivers. This is due to the rule of indemnity.

Amusement parks often have a minimum height restriction on some of their most thrilling rides. This risk management strategy is done in an effort to

Risk management is

Marshall 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 an alternative risk management strategy.

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

Firms can take out term life-insurance policies on their top executives.

________ risk involves a chance of either profit or loss.

Risk management for business is critical due in part to

An uninsurable risk is one that no insurance company will cover.

Arturo is worried about the risk of potential flooding to his restaurant. He decides to buy insurance to cover this ________ risk.

Risk management is concerned only with risks to individuals and businesses.

SpeedyTime Delivery Service is managing risk by requiring all drivers to wear seat belts and hold a commercial driver's license, by monitoring any moving violations each driver obtains, and by keeping that information in the employee records. Additionally, SpeedyTime carries an insurance policy with a very large deductible, preferring to pay for small damages to its trucks out-of-pocket. SpeedyTime has built enterprise risk management into their organization.

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?

Risk management now includes the evaluation of

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. -When one of Waata's employees was stocking a particularly high shelf one morning; he reached a bit too far and fell off the ladder. Luckily he just broke his arm and returned to work later that day. His medical bills due to this accident were covered under

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

Risk is a term that refers to the chance of loss, the degree of probability of loss, and the amount of possible loss.