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RMIN 4000 Exam 1 Brown Questions and Answers | Latest Update | 2024/2025 | 100% Pass What is the definition of risk? Risk is the uncertainty concerning the occurrence of a loss. What is pure risk? Pure risk involves situations where there is only the possibility of loss or no loss, ...

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  • September 4, 2024
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  • 2024/2025
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RMIN 4000 Exam 1 Brown Questions and
Answers | Latest Update | 2024/2025 |
100% Pass

What is the definition of risk?


✔✔ Risk is the uncertainty concerning the occurrence of a loss.




What is pure risk?


✔✔ Pure risk involves situations where there is only the possibility of loss or no loss, without

any potential for gain.




What is speculative risk?


✔✔ Speculative risk involves situations where there is potential for both loss and gain, such as

investments.




What is the purpose of insurance?


✔✔ Insurance is a financial arrangement that transfers the risk of loss from an individual or

business to an insurance company in exchange for premiums.




1

,What is a premium in insurance?


✔✔ A premium is the amount of money paid to an insurance company in exchange for coverage.




What is the principle of indemnity?


✔✔ The principle of indemnity ensures that an insured party is compensated for a loss, but not

allowed to profit from it.




What is a deductible?


✔✔ A deductible is the amount the policyholder must pay out-of-pocket before the insurance

company will pay a claim.




What is moral hazard?


✔✔ Moral hazard refers to the increased likelihood of risk when the insured is protected from

the consequences of their actions, leading them to behave more recklessly.




What does adverse selection mean in insurance?


✔✔ Adverse selection occurs when individuals with a higher-than-average risk of loss are more

likely to purchase insurance, which can lead to higher losses for the insurer.




2

,What is reinsurance?


✔✔ Reinsurance is the practice where one insurance company transfers part of its risk portfolio

to another insurance company to reduce the potential for large losses.




What is underwriting?


✔✔ Underwriting is the process by which an insurer evaluates the risk of insuring a particular

individual or asset and decides on the terms and pricing of the insurance.




What is self-insurance?


✔✔ Self-insurance is a risk management strategy where a company or individual sets aside funds

to cover potential losses instead of purchasing insurance.




What is a risk transfer?


✔✔ Risk transfer involves shifting the financial burden of a risk to another party, such as

through an insurance policy.




What is risk retention?


✔✔ Risk retention occurs when a business or individual decides to take on the financial

responsibility for a loss rather than transferring it to an insurer.

3

, What is loss prevention?


✔✔ Loss prevention involves actions taken to reduce the frequency or likelihood of a loss

occurring, such as installing safety measures.




What is risk pooling?


✔✔ Risk pooling is the practice of combining multiple risks into a single group to reduce the

overall impact of any one loss.




What is the purpose of actuarial science in insurance?


✔✔ Actuarial science uses mathematics and statistics to assess and manage risk in the insurance

and finance industries.




What does claim settlement refer to?


✔✔ Claim settlement is the process by which an insurance company pays out benefits to the

policyholder after a covered loss has occurred.




What is the law of large numbers in insurance?




4

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