RMIN 4000 Final Exam Review Part 1(Material from Ch 1-8) with Complete Solutions
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Course
RMIN 4000
Institution
RMIN 4000
RMIN 4000 Final Exam Review Part 1(Material from Ch 1-8) with Complete SolutionsRMIN 4000 Final Exam Review Part 1(Material from Ch 1-8) with Complete SolutionsRMIN 4000 Final Exam Review Part 1(Material from Ch 1-8) with Complete Solutions
frequency - ANSWER-- how often does a loss occur?
- the ...
RMIN 4000 Final Exam Review Part 1(Material from Ch 1-8) with Complete Solutions
frequency - ANSWER-- how often does a loss occur?
- the number of losses (such as fire, theft, collision) that occur within a specified time period.
- probability of a loss
ex) probability of a fire is 0.0071 per loss exposure per
year
severity - ANSWER-- how much does it cost when a loss does occur?
- the dollar amount of loss for a specific peril (fire, theft, collision).
ex) average fire loss is $32,547
peril - ANSWER-- cause of a loss
- things that could happen to assets
- ex) fire, tornado, collision, burglary, etc.
hazard - ANSWER-- condition that creates or increases the frequency
and/or severity of a loss.
- does not cause a loss.
types of hazards - ANSWER-physical, moral, morale (attitudinal), and legal
physical hazard - ANSWER-a physical condition that increases the frequency or severity of loss
moral hazard - ANSWER-- dishonesty or character defects in an individual that increase
the frequency and/or severity of a loss.
- the presence of insurance changes the behavior of the insured.
examples: - using a hammer to create "hail" damage to a roof.
- exaggerating the value of insured property. morale (attitudinal) hazard - ANSWER-carelessness or indifference to a loss, which increases the frequency and/or severity of a loss.
examples:
- leaving car keys in an unlocked car.
- neglecting a tree limb growing over your roof.
legal hazard - ANSWER-characteristics of legal system or regulatory environment that increase the frequency and/or severity of a loss.
examples:
- juries in some areas are more sympathetic than other areas (meaning larger damage awards in liability lawsuits).
- Georgia now requires Diminution in Value to be paid on property losses (meaning increased severity in Georgia).
pure risk vs speculative risk - ANSWER-pure risk (2 future states)
1) loss
2) no loss
ex: fire, dance, dog bites a visitor
speculative risk (3 future states)
1) loss
2) no loss/no gain
3) gain
ex: investment, gambling, drinking
can you buy insurance for pure risks? speculative risks? - ANSWER-pure risk: insurable
~~ typically insurable through commercial, personal, or liability insurance policies.
speculative risk: not insurable
types of pure risks - ANSWER-- personal risk
- property risk
- liability risk
- loss of business income
- cyber security
personal risk - ANSWER-directly affects an individual or family; involves the possibility of loss of income, extra expenses, depletion of financial assets.
perils that might be involved:
- death, unemployment, disability/injury/poor health, and/or inadequate retirement income
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