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©THEBRIGHTSTARS 2024 RMIN 4000 uga test 1 Questions With Revised Answers Types of risk - answer-pure risk -speculative risk -diversifiable risk -nondiversifiable risk -enterprise risk -systemic risk risk - answeruncertainty concerning the occurrence of a loss uncertainty - answerprobabil...

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  • September 8, 2024
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©THEBRIGHTSTARS 2024



RMIN 4000 uga test 1 Questions With
Revised Answers

Types of risk - answer✔✔-pure risk
-speculative risk
-diversifiable risk
-nondiversifiable risk
-enterprise risk
-systemic risk

risk - answer✔✔uncertainty concerning the occurrence of a loss

uncertainty - answer✔✔probabilities cannot be estimated

loss exposure - answer✔✔any situation or circumstance in which a loss is possible, regardless of
whether a loss actually occurs
example: earthquake or flood causing damage to a manufacturing plant

objective risk (degree of risk) - answer✔✔the relative variation of actual loss from expected loss
example:10,000 houses insured of a long period of time and on average 100 houses burn each
year, however it would be rare for exactly 100 to burn each year

law of large numbers - answer✔✔as the number of exposure units increases, the more closely the
actual loss experience will approach the expected loss experience


example: as the number of homes under observation increases, the greater is the degree of
accuracy in predicting the proportion of homes that will burn

subjective risk (perceived risk) - answer✔✔uncertainty based on a person's mental condition or
state of mind

, ©THEBRIGHTSTARS 2024


example: driver with previous convictions for drunk driving tries to drive home and wonders if
he will get arrested by the police or not

chance of loss - answer✔✔the probability that an event will occur

objective probability - answer✔✔the long run relative frequency of an event based on the
assumptions of an infinite number of observations and of no change in the underlying conditions

two ways objective probability can be determined - answer✔✔1) deductive reasoning (priori
probabilities): probability of getting a head from the toss of a perfectly balanced coin is 1/2 bc
there are two sides
2) inductive reasoning: the probability that a person age 21 will die before age 26 cannot be
logically deduced, life insurers can estimate the probability of death and sell a 5 year life
insurance policy for a 21 yr old

subjective probability - answer✔✔the individual's personal estimate of the chance of loss
example: people who buy a lottery ticket on their birthday may believe it is their lucky day and
overestimate the small chance of winning

objective risk - answer✔✔the relative variation of actual loss from expected loss

peril - answer✔✔the cause of loss
example: house burns down, peril is the fire

hazard - answer✔✔condition that creates or increases the frequency or severity of loss

4 types of hazards - answer✔✔1) physical hazard
2) moral hazard
3) attitudinal hazard
4) legal hazard

physical hazard - answer✔✔physical condition that increases the frequency or severity of loss.
example: icy roads that increase chance of automobile accident

moral hazard - answer✔✔dishonesty or character defects in an individual that increase the
frequency or severity of loss
example: faking an accident to collect benefits from an insurer

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