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Exam 22: Bonus B: Managing Risk

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Question 1

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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) A) and D)
F) C) and D)

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Question 2

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

A) True
B) False

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Question 3

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Workers' compensation insurance:

Insurance companies make predictions such as how recent health trends will affect the number of heart attacks that men in the United States over the age of 45 will suffer.

The Ford Motor Company has an insurable interest in the lives of its top executives.

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

Airlines likely consider risk management to be more important because of:

Risk management involves minimizing the losses from unexpected events.

The car insurance premium charged for young male drivers is higher than the premium for young female drivers.This is due to the rule of indemnity.

An insurance policy is a written contract.

________ risk involves the threat of loss with no chance for profit.

One way to lower the need for outside insurance is to self-insure.

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 shop.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 sweets 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 he has 22 people on the staff of the current,larger store. -Bookworm sales have been down for the last year due to new competition from a national chain and Waata is understandably concerned.He recently called his insurance agent to see if this downturn in sales was covered by his business policy.The agent,Will D.the company would definitely cover Waata's losses. An uninsurable risk is one that no insurance company will cover.Examples of things that you cannot insure include market risks (e.g. ,losses that occur because of price changes,style changes,or new products that make your product obsolete) ;political risks (e.g. ,losses from war or government restrictions on trade) ;some personal risks (such as loss of a job,NOT a decrease in sales at the store) ;and some risks of operation such as a strike or equipment malfunction. B.Safe,told Waata:

Insurance companies will provide coverage only for losses that are accidental.

An endorsement can provide additional coverage to a homeowner's policy for business equipment.

The management of risk is a small part of global business.

Bill,a professional hockey player,is upset when he discovers that his twin brother,a grade school PE teacher,pays 50% less for disability insurance than he does.What is the most likely explanation for this difference?

Product liability insurance covers liability arising out of defective products sold.

Risk management is:

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