Insurance

Insurance and Risk Management

Finance and Business Economics

DeGroote School of Business

McMaster University

TERM TEST #1

Student Name:         

Student Number:                                         

Part 1 – Closed Book – 19 marks

1. When dealing with risk management, risk is defined as:

1. An undesirable event
2. An unexpected loss
3. The uncertainty about the occurrence of a loss***
4. An expected loss.

1. Maxine lost her expensive new coat when it was stolen from the night club where she was partying.  This is an example of:

1. Speculative risk
2. Dynamic risk
3. Personal risk ***
4. Exogenous risk.

1. Mark lost his job when the economy experienced a downturn.  This is an example of:

1. Subjective risk
2. Speculative risk
3. Dynamic risk ***
4. Particular risk.

1. The minimax regret theory states:

1. Minimize our maximum loss
2. Minimize our maximum regret
3. Both of the above***
4. Neither of the above.

1. Negligence often leads to the application of:

1. Contract law
2. Tort law ***
3. Public law
4. All of the above.

1. Alice is walking her dog, day-dreaming about how she will decorate her living room. She stops for a red light and when it turns green, she steps off the sidewalk and is hit by a car who is turning right.  The driver of the car was watching for the intersection to clear of traffic.  Her leg is broken in two places.  She sues the driver for negligence.  Which of the following elements of negligence is missing?

1. Duty of care
2. Injury
3. Proximate cause
4. No element is missing. ***

1. Which of the following is not part of a valid contract?

1. A “for sale” sign on your lawn. ***
2. Giving $1 to seal the bargain.
3. Making a contract with an artificial person.
4. Making a contract with a 12-year old.

1. Which of the following is not true about an insurance contract?

1. It is an aleatory contract.
2. It is a bilateral contract. ***
3. It is a contract of indemnity.
4. It sometimes includes co-insurance requirements.

1. Tom lives in a province where he has no-fault insurance as well as the right to sue.  The no-fault plan he has is:

1. Pure no-fault
2. Modified no-fault
3. Add-on no-fault ***
4. Choice no-fault.

1. Which of the following principles is generally not relevant to auto insurance in jurisdictions without no-fault insurance?

1. Absolute liability
2. Strict liability ***
3. Negligence
4. Subrogation.

1. Steve causes an accident in Nova Scotia where the minimum required liability insurance is $500,000.  He lives in Ontario and has only the required mandatory insurance.  He is sued and held liable for $350,000.  His insurer will pay:

1. $0 since it was his fault
2. $0 since he does not have the optional coverage
3. $200,000
4. $350,000 ***

1. A homeowners policy that provides all risks coverage on the building and named perils coverage on the         contents is called

1. A basic coverage policy
2. A broad coverage policy ***
3. A comprehensive coverage policy
4. None of the above

1. Which of the following statements is correct regarding Home Owner’s Policy?

1. Only direct losses are covered
2. Only indirect losses are covered
3. Broad Coverage is a “named perils” policy
4. Both direct and indirect losses are covered ***
5. All of the above

1. Coinsurance principle means that:

1. You must insure a minimum amount if you expect to collect the full amount of the loss ***
2. Two people must insure the home
3. Usually if the 80% coinsurance requirement is not met, the insurer will still pay the full amount of the loss
4. The 60% rule is used.

1. Under the homeowners’ policy, you are insured against claims for _______, arising out of your ownership, use or operation of any trailer or its equipment, provided that such trailer _______ being towed by, attached to or carried on a motorized vehicle.

1. bodily injury or damage to the property of others, is not ***
2. damage to the property of others, is
3. bodily injury or damage to the property of others, is
4. damage to the property of others, is

1. Casualty insurance includes coverage on all of the following except:

1. Liability insurance
2. Crime insurance
3. Business continuation insurance
4. Marine insurance ***

1. Which of the following are types of deductibles a building owner can choose from?

1. Aggregate deductibles
2. Self-insurance deductibles
3. Franchise deductibles
4. Both a and c ***

1. Holden Brewer’s has just become a victim of a vat explosion within their brewery. The CEO, Mr. Holden, wants to know which type of insurance protects losses such as lost time and profit as a result of this accident. You reply:

1. Consequential Damage coverage
2. Extra Expenses coverage
3. Business Interruption coverage ***
4. Business Income and Extra Expenses coverage

1. Captain Ken is wondering what types of insurance he should buy to cover the safety of his crew on the Captain Kenneth Kole marine ship. You would suggest that he acquire:

1. Cargo Insurance
2. Hull Insurance
3. Freight Insurance
4. Two of the above
5. None of the above ***