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102. A provision in a property insurance policy that requires the owner to have insurance for at least 80 percent of what it
would cost to rebuild the building or replace the personal property
103. A defect resulting from failure to convey to the user that hazards are associated with a product or to provide adequate
instructions on safe product use
104. Coverage designed to provide liability and physical damage protection for a vehicle
105. A defect resulting from a dangerous design, even though the product was made according to specifications
106. A form of punishment beyond compensatory damages that intends to punish wrongdoers for gross negligence or
callous disregard and to have a deterrent effect.
107. A program that designates part of a firm’s earnings to fund a portion of employee medical coverage
108. Laws that obligate an employer to pay employees for injury or illness related to employment, regardless of fault
109. Compensatory damages for such losses as pain and suffering, mental anguish, and loss of physical abilities
110. A defect resulting from a problem that occurs during the manufacturing process, causing the product to subsequently
not be made according to specifications
111. Coverage primarily against employee dishonesty
Match the term with its definition. Some terms may not be used.
a. All-risk approach
b. Business risk
c. Compensatory damages
d. Disability insurance
e. Economic damages
f. Health maintenance organization
g. Market risk
h. Named-peril approach
i. Peril
j. Preferred provider organization
k. Pure risk
112. A managed-care network providing health insurance that is less expensive but more limiting in choices of medical
providers
113. A cause of loss, either through natural events or through the actions of people
114. The possiblity of losses associated with the assets and earnings potential of a firm
115. Identifying the specific perils covered in a property insurance policy
116. The uncertainty associated with a situation where only loss or no loss can occur
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117. Economic or non-economic damages intended to make the claimant whole by compensating the claimant for any
injuries or loss arising from the negligent action
118. The uncertainty associated with an investment decision
119. Stating in a property insurance policy that all direct damages are covered except those caused by perils specifically
excluded
120. Compensatory damages that relate to economic loss, such as medical expenses and loss of income
121. A managed-care network providing health insurance that is more expensive but offers a broader choice of medical
providers
Matchteh term with its definition. Some terms may not be used.
a. Disability insurance
b. Personal property
c. Proximate cause
d. Real property
e. Risk control
f. Risk financing
g. Risk management
h. Risk retention
i. Risk transfer
j. Self-insurance
k. Torts
122. Any property other than land and anything physically attached to the land, such as buildings
123. Coverage that provides benefits upon the disability of a firm’s partner or other key employee
124. Coverage that designates part of a firm’s earnings as a cushion against possible future losses
125. Ways of coping with risk that are designed to preserve the assets and earning power of a firm
126. Making funds available to cover losses that cannot be eliminated by risk control
127. Wrongful acts or omissions for which an injured party can take legal action against the wrongdoer for monetary
damages
128. Buying insurance or making contractual arrangements that transfer risk to others
129. Financing loss intentionally through a firm’s cash flows
130. Land and anything physically attached to the land, such as buildings
131. Minimizing potential losses by preventing, avoiding, and/or reducing risk
132. Discuss advantages and disadvantages to a company obtaining a BOP policy.
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133. After discussing the risk management process, list specific areas of concern for each step.
134. Jackie owns a building in a downtown area. Her building is used for office space and is rented to a current business
tenant. What kind of risk is associated with this property and is this type of risk insurable?
135. Doug works security at a bar and was recently hurt by a patron who was being forcibly removed from the
premises. He believes he has been wrongfully treated by the bar. What four elements must be in place for Doug to make a
claim that the bistro has been negligent?
136. Discuss the differences between pure risk, business risk and market risk.
137. Dan bought a $500,000 marina two years ago and obtained $400,000 of property insurance. Recently economic
improvements on the lake has raised the property’s value to $550,000 (the good news). But the general store had a fire
causing $100,000 worth of damage (the bad news). How much will the insurance company pay to repair the store since
Dan has a coinsurance clause in the marina’s policy?
138. Since Melissa is starting a day care center in her home, what business risks should be insured? How can an
insurance agent assist in the insurance evaluation process?
139. List the basic principles in evaluating an insurance program. How can an insurance agent assist a small business
owner?
140. Beth has started an elder care service. Employees work with persons who are not ready to leave their home but have
some disability that prevents them from being fully mobile. What should Beth consider in managing the associated risk?
141. After explaining the different types of property and losses, which ones were an issue for Sandy Whann, owner of
Leidenheimer Baking Company?
142. Bob and Tom are partners in a business. Discuss the types of insurance the business should carry if something
should happen to one of the partners.
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Answer Key
1. True
2. False
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26. True
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52. b
53. a
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77. c
78. b
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in Dan becoming a co-insurer of the property. Because the actual insurance is only ˜91% of what it should be, Dan will be
required to make up a difference in the store claim. The insurance company would pay $90,909 and Dan would be
required to pay the difference of $9,091.
Dan should have insured the property for more than the 80% coinsurance clause or increased coverage with the new
appraisal. Hopefully he also had business interruption insurance as repairing the building from the fire damage might
require the building to be closed for repairs.
138. The first step in evaluating an insurance programs is to identify the business risks. For Melissa’s business, the
following risks should be discussed with the agent.
* What insurance is required by her state or federal laws?
* Is she required to keep certain insurance do to a contract?
* Will she drive the children and therefore need increased automobile insurance?
* What are the replacement costs for the building and any equipment being used for the day care center?
* What other liability issues should be considered related to having young children in her home?
* If she has a partner, how much insurance is needed to decrease the personal risks from premature death or poor health?
The agent can then provide quotes to cover these major potential losses (second step in the evaluation process) and also
provide guidance to her decisions concerning the feasibility and affordability of other smaller losses (step three).
139. Basic principles in evaluating an insurance program include three steps.
1. Identifying business risks to be insured: What insurance is required by state or federal laws or by contracts. The
agent can assist in providing what coverage will be needed and the premium charges involved. An owner should
determine the replacement costs for real and personal property to complete the step.
2. Securing coverage for major potential losses: Determining the magnitude of loss that it could bear without serious
financial difficulty is important in this step. The agent should be asked for replacement value of the firm’s assets, not the
actual cash value.
3. Considering the feasibility and affordability of smaller potential losses: The owner should age use the agent for
information especially as to suggestions for certain risks the new owner may not recognize as being a concern..
140. The company should identify ways for risk control such as loss prevention, loss avoidance and loss reduction. It
should then examine risk financing specifically risk transfer and risk retention methods.
The nature of this business has risks with the client being inadvertently hurt by an employee as well as the employee being
hurt by working with the client or due to a situation at the client’s home. Loss prevention methods might include all
employees being trained in proper lifting which might also assist in loss reduction. Loss avoidance is not possible as the
potential for employees and/or clients being hurt is high. Beth will definitely want to transfer some risk with liability
insurance and possibly an indemnification clause if the employee was hurt at the client’s home. Risk retention might be a
possibility by having a higher deductible. Since the business has just began, it is probably not large enough to have self
insurance.
141. There are two general types of property.
Real property consists of land and anything physically attached to land, such as buildings. It can not be easily moved.
Personal property is property that can be moved and includes such items as machinery, equipment, furniture, fixtures,
stock, and vehicles.
Direct losses occur when the physical damage to property reduces its value to the property owner.
Indirect losses result from a company’s inability to carry on normal operations due to a direct loss of property.
Leidenheimer Baking Company suffered all four types of losses due to the peril of the 2006 Katrina flood. The building
(real property) and contents (personal property) were damaged (direct loss) resulting in the company being closed
(indirect loss) until repairs could be made.
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