Risk Management- Dallas, Texas Tornado Case

FINC: 437: INSURANCE AND RISK MANAGEMENT

MID MODULE EXAMINATION

Instructions:

This examination consists of three (2) sections: Section A and B.

Answer all questions from both sections.

DO NOT TURN OVER THIS PAGE UNTIL YOU ARE TOLD TO DO SO.

SECTION ONE

Answer all questions from this section

1. Explain the term deductible and give examples.

Deductible is the amount you have to pay out-of-pocket for expenses before the insurance company will cover the remaining costs. For example, if you get into an accident and your medical expenses are $2,000 and your deductible is $300, then you would have to pay the $300 out-of-pocket first before the insurance company paid the remaining $1,700. However, if your accident only resulted in $300 in medical expenses, then you would pay the $300 deductible and the insurance company would pay nothing.

2. What are the benefits of Insurance to society

The following are identified as major social and economic benefits of insurance to society

* Indemnification for loss

* Reduction of worry and fear

* Source of investment funds

* Loss prevention

* Enhancement of credit

3. Explain the term “Reinsurance

Reinsurance is an arrangement by which the primary insurer that initially writes the insurance transfers to another insurer referred to as or called the reinsurer, parts or all of the potential losses associated with such insurance.

4. Distinguish between Personal and Commercial Risks

Personal risks are risks that directly affect an individual or family. They involve the possibility of the loss or reduction of earned income, extra expenses and the depletion of financial assets. Major personal risks include: premature death, insufficient income during retirement, poor health and unemployment. In contrast, commercial risks are a wide variety of pure risks faced by business organizations that can financially cripple or bankrupt the firm if a loss occurs. These risks include:...