BUSA 308 Book: Principles of Risk Management and Insurance Ch.2, page 36

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BUSA 308 Sook Ja Lee

Text Book: Principles of Risk Management and Insurance

Author: Rejda, George E.

ISBN 978-0-13-299291-6 ISBN 13: 978-0-13-299497-2

Review Question:

Ch.2, page 36

2. Explain the law of large numbers.

3. Pure risks ideally should have certain characteristics to be insurable by private insurers. List the six characteristics of an ideally insurable risk.

5. Why are most market risks, financial risks, production risks, and political risks considered difficult to insure by private insures?

7. What are the two major differences between insurance and gambling?

9. a Identify the major fields of private insurance.

b. Identify several property and casualty insurance coverages.

10. a. Explain the basic characteristics of social insurance programs.

Application Questions:

Ch2. Page 36

1. Compare3 the risks of(i)fire with(ii)war in terms of how well they meet the requirements of an ideally insurable risk.

2. a. Private insurers provide social and economic benefits to society. Explain the following benefits of insurance to society.

(1) Indemnification for loss

(2) Enhancement of credit

(3) Source of funds for capital investment and accumulation

3. Buildings in flood zones are difficult to insure by private insurers because the ideal requirements of an insurable risk are difficult to meet.

a. Identify the ideal requirements of an insurable risk.

b. Which of the requirements of an insurable risk are not met by the flood peril?

4. Private insurance provides numerous coverages that can be used to meet specific loss situations. For each of the following situations, identify a private insurance coverage that would provide the desired protection.

a. Emily, age 28, is a single parent with two dependent children. She wants s to make certain that funds are available for her children’s education if she dies before her youngest child finishes college.

b. Danielle, age 16, recently obtained her driver’s license. Her parents want to make certain they are protected if Danielle negligently injures another motorist while driving a family car.

c. Jacob, age 30, is married with two dependents. He wants his income to continue if he becomes totally disabled and unable to work.

d. Tyler, age 35, recently purchases a house for $200,000 that is located in an area where tornadoes frequently occur. He wants to make certain that funds are available if the house is damaged or destroyed by a tornado.

e. Nathan, age 40, owns an upscale furniture store. Nathan wants to be protected if a customer is injured while shopping in the store and sues him for the bodily injury.

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