principles of risk amp insurance

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Assignment Instructions:

You must choose one question from Topic 1 (A or B) and one question from Topic 2 (C or D). You will be answering a total of two questions for this assignment.

Topic 1: Choose to answer either question 1 or 2

Topic 2:Choose to answer either question 3 or4

TOPIC 1 Questions:

1.Assume that the chance of loss is 3 percent for two different fleets of trucks. Explain how it is possible that objective risk for both fleets can be different even though the chance of loss is identical. (50 points)

2.Several types of risk are present in the American economy. For each of the following, identify the type of risk that is present. (nondiversifiable risk; pure risk; speculative risk); Explain your answer. (Total of 50 points)

  • a)The Department of Homeland Security alerts the nation of a possible attack by terrorists. (7 points)
  • b)A house may be severely damaged in a fire. (7 points)
  • c)A family head may be totally disabled in a plant explosion. (7 points)
  • d)An investor purchases 100 shares of Microsoft stock. (7 points)
  • e)A river that periodically overflows may cause substantial property damage to thousands of homes in the floodplain.(7 points)
  • f)Home buyers may be faced with higher mortgage payments if the Federal Reserve raises interest rates at its next meeting. (7 points)
  • g)A worker on vacation plays the slot machines in a casino. (8 points)

TOPIC 2 Questions:

3.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. (Total of 50 points)

a)Emily, age 28, is a single parent with two dependent children. She wants to make certain that funds are available for her children’s education if she dies before her youngest child finishes college.(10 points)

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. (10 points)

c)Jacob, age 30, is married with two dependents. He wants his income to continue if he becomes totally disabled and unable to work. (10 points)

d)Tyler, age 35, recently purchased 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. (10 points)

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. (10 points)

4.Buildings in flood zones are difficult to insure by private insurers because the ideal requirements of an insurable risk are difficult to meet. (Total of 50 points)

a)Identify the ideal requirements of an insurable risk. (25 points)

b)Which of the requirements of an insurable risk are not met by the flood peril? (25 points)

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