Fundamentals of Risk and Insurance Quiz

Risk in insurance refers to the uncertainty of potential loss.

Insurance primarily functions to shift the burden of risk from the insured to the insurer.

A deductible is the portion of a claim that the insured must pay out of pocket before the insurance coverage kicks in.

Exclusions in insurance policies specify risks or conditions that are not covered by the insurance policy.

Property insurance is not a type of life insurance; it covers assets and belongings against damage or theft.

The premium in insurance is the amount paid by the insured to the insurer for coverage.

Insurable risks are those involving only the possibility of loss, such as pure risks.

Adverse selection occurs when those who are more likely to experience losses are more inclined to purchase insurance.

Underwriting involves assessing and evaluating risks to determine whether they are acceptable for insurance coverage.

Moral hazard refers to the increased tendency of insured parties to take risks or act irresponsibly because they are protected against the consequences.

The law of large numbers states that as the number of similar exposure units increases, the more closely the actual loss experience will approach the expected loss experience.

Reinsurance is a process by which insurers transfer portions of their risk portfolios to other parties to reduce the likelihood of having to pay a large obligation resulting from an insurance claim.

Residual risk is the risk that remains after insurance coverage has been applied.

Catastrophe insurance provides coverage for rare and severe events that could result in significant losses, such as natural disasters.