38. When considering the feasibility and affordability of insuring small potential losses, which company
program will impact this decision?
a.
ACV
b.
FICA
c.
Self-insurance
d.
Workers’ compensation
39. Identifying in an insurance policy the specific perils covered is a __________ approach.
a.
no-risk
b.
named-peril
c.
coinsurance
d.
all-risk
40. Crime insurance is most critical for a small business when
a.
the business has financial controls.
b.
the firm is struggling.
c.
the owner has a personal distraction.
d.
the owner employs family members.
41. A coinsurance provision requires that a property be insured for at least ____ percent of its value.
a.
60
b.
70
c.
80
d.
90
42. Doug’s BOP on his fishing guide business excludes property losses due to the wakes of other fishing
boats. This example illustrated the ____ approach to property insurance.
a.
foreseen risk
b.
insurance-to–value
c.
all-risk
d.
named-peril
43. Assume that the physical property of a business is valued at $50,000. The company’s commercial
property policy contains a coinsurance clause with a stated percentage of 80 percent. The company
insures the property for $30,000 (75 percent of the specified minimum). The company incurs a fire
loss of $20,000. How much of the loss will the insurance company pay for?
a.
$0
b.
$15,000
c.
$20,000
d.
$10,000
44. Business interruption insurance is
a.
included in a PPO policy.
b.
may be part of an umbrella liability policy.
c.
not recognized as important by small business owners.
d.
part of a CGL no fault coverage plan.
45. Business interruption insurance covers
a.
debts to suppliers.
b.
shoplifting.
c.
lost income.
d.
defective products.
46. Commercial general liability insurance covers
a.
business interruption expenses.
b.
injury to customers.
c.
injury to employees.
d.
profession liability.
47. A customer’s slip and fall injury would be covered by
a.
commercial general liability insurance.
b.
surety bonds.
c.
business interruption insurance.
d.
commercial property coverage.
48. Which insurance coverage is required by law in most states?
a.
Workers’ compensation
b.
Product liability insurance
c.
Key executive coverage
d.
Employee bonding
49. A policy for small businesses that do not qualify for a BOP that combines property insurance and
commercial general liability insurance is called a
a.
personal policy.
b.
package policy.
c.
health policy.
d.
business owner’s policy.
50. A unique, attractive feature of a BOP is that both real and personal property are valued on
a.
an appraised cash value basis.
b.
a market-adjusted depreciated value basis.
c.
a replacement-cost basis.
d.
a proximal-to-value basis.
51. A managed-care network providing health insurance that is more expensive than an HMO but offers a
broader choice of medical providers is called a
a.
key-person organization.
b.
package policy.
c.
personal maintenance organization.
d.
preferred provider organization.
52. Disability buyout insurance
a.
is common in small firms that are single owner operations.
b.
protects the firm from losses due to the death of a key employee.
c.
provides money to buy out a partner.
d.
replaces revenue lost when a key employee is disabled.
MATCHING
Match the term with its definition. Some terms may not be used.
a.
Actual cash value
g.
Loss avoidance
b.
Aggregate stop loss limit
h.
Loss prevention
c.
Direct loss
i.
Loss reduction
d.
Disability buyout insurance
j.
Replacement value of property
e.
Disability insurance
k.
Specific stop loss limit
f.
Indirect loss
1. A loss in which physical damage to property reduces its value to the property owner
2. Lessening the frequency, severity, or unpredictability of potential losses
3. A loss arising from an inability to carry on normal operations due to a direct loss of property
4. An insurance term that refers to the depreciated value of property
5. Keeping a loss from happening
6. A firm’s per-employee limit on self-funding for medical claims
7. A comprehensive limit on annual expenses should a number of employees reach the firm’s per–
employee limit on self-funding for medical claims
8. Choosing not to engage in hazardous activities
9. The cost of replacing personal property and rebuilding real property at today’s prices
10. Insurance that provides a healthy partner the cash to buy out a partner who becomes ill
Match the term with its definition. Some terms may not be used.
a.
All-risk approach
g.
Market risk
b.
Business risk
h.
Named-peril approach
c.
Compensatory damages
i.
Peril
d.
Disability insurance
j.
Preferred provider organization
e.
Economic damages
k.
Pure risk
f.
Health maintenance organization
11. A managed-care network providing health insurance that is less expensive but more limiting in choices
of medical providers
12. A cause of loss, either through natural events or through the actions of people
13. The possibility of losses associated with the assets and earnings potential of a firm
14. Identifying the specific perils covered in a property insurance policy
15. The uncertainty associated with a situation where only loss or no loss can occur
16. 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
17. The uncertainty associated with an investment decision
18. Stating in a property insurance policy that all direct damages are covered except those caused by perils
specifically excluded
19. Compensatory damages that relate to economic loss, such as medical expenses and loss of income
20. 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
g.
Risk management
b.
Personal property
h.
Risk retention
c.
Proximate cause
i.
Risk transfer
d.
Real property
j.
Self-insurance
e.
Risk control
k.
Torts
f.
Risk financing
21. Any property other than land and anything physically attached to the land, such as buildings
22. Coverage that provides benefits upon the disability of a firm’s partner or other key employee
23. Coverage that designates part of a firm’s earnings as a cushion against possible future losses
24. Ways of coping with risk that are designed to preserve the assets and earning power of a firm
25. Making funds available to cover losses that cannot be eliminated by risk control
26. Wrongful acts or omissions for which an injured party can take legal action against the wrongdoer for
monetary damages
27. Buying insurance or making contractual arrangements that transfer risk to others
28. Financing loss intentionally through a firm’s cash flows
29. Land and anything physically attached to the land, such as buildings
30. Minimizing potential losses by preventing, avoiding, and/or reducing risk
26. ANS: K PTS: 1 REF: p. 627 OBJ: LO: 23-2b
NAT: BUSPROG: Analytic KEY: Bloom’s: Knowledge
Match the term with its definition. Some terms may not be used.
a.
Business interruption insurance
g.
Package policy
b.
Business owner’s policy
h.
Personnel risks
c.
Commercial general liability insurance
i.
Proximate cause
d.
Disability insurance
j.
Reasonable standard
e.
Indemnification clause
k.
Workers’ compensation insurance
f.
Key-person life insurance
31. A negligent act that is the clear cause of damages sustained
32. Coverage for general liability loss exposure
33. A policy for small businesses that do not qualify for a BOP that combines property insurance,
commercial general liability insurance, and crime insurance
34. A contractual clause that requires one party to assume the financial consequences of another party’s
legal liabilities
35. The typical standard of care, based on what a reasonable or prudent person would have done under
similar circumstances
36. A business version of a homeowner’s policy designed to meet the property and general liability
insurance needs of some small business owners
37. Risks that directly affect individual employees but may have an indirect impact on a business as well
38. Coverage that provides benefits to a firm upon the death of key personnel
39. Coverage that reimburses a business for the loss of anticipated income following the interruption of
business operations
40. Coverage that provides benefits to employees injured at work
Match the term with its definition. Some terms may not be used.
a.
Automobile insurance
g.
Noneconomic damages
b.
Coinsurance clause
h.
Partially self-funded program
c.
Crime insurance
i.
Proximate cause
d.
Design defect
j.
Punitive damages
e.
Manufacturing defect
k.
Workers’ compensation legislation
f.
Marketing defect
41. 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
42. 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
43. Coverage designed to provide liability and physical damage protection for a vehicle
44. A defect resulting from a dangerous design, even though the product was made according to
specifications
45. A form of punishment beyond compensatory damages that intends to punish wrongdoers for gross
negligence or callous disregard and to have a deterrent effect.
46. A program that designates part of a firm’s earnings to fund a portion of employee medical coverage
47. Laws that obligate an employer to pay employees for injury or illness related to employment,
regardless of fault
48. Compensatory damages for such losses as pain and suffering, mental anguish, and loss of physical
abilities
49. A defect resulting from a problem that occurs during the manufacturing process, causing the product to
subsequently not be made according to specifications
50. Coverage primarily against employee dishonesty
ESSAY
1. Discuss the differences between pure risk, business risk and market risk.
2. 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?
3. After explaining the different types of property and losses, which ones were an issue for Sandy
Whann, owner of Leidenheimer Baking Company?
4. 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?
5. After discussing the risk management process, list specific areas of concern for each step.
6. 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?
7. List the basic principles in evaluating an insurance program. How can an insurance agent assist a
small business owner?
8. 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?
9. 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?
10. Discuss advantages and disadvantages to a company obtaining a BOP policy.
11. 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.