Examkin

Question

Difficulty: EasyDefinition and Types of Risk

Match each risk management scenario to the correct insurance concept it demonstrates.

  • Pure RiskA homeowner faces the possibility of their house being destroyed by a tornado.
  • Speculative RiskAn individual buys a lottery ticket hoping to win the jackpot.
  • Physical HazardA grocery store leaves a slippery spill on the floor, increasing the chance a customer falls.
  • Moral HazardA person intentionally sets fire to their own failing business to collect insurance money.

Answer

Pure Risk matches the tornado scenario; Speculative Risk matches the lottery ticket; Physical Hazard matches the slippery floor; Moral Hazard matches the intentional arson.
Each concept correctly aligns with its defining characteristics: pure risks only offer loss, speculative risks offer gain or loss, physical hazards are tangible dangers, and moral hazards relate to dishonest character.

Step-by-Step Solution

1
Analyze the tornado scenario.
It presents only a chance of loss or no loss, with no chance of financial gain.
This fits the definition of a Pure Risk, which is the only type of risk generally insurable.
2
Analyze the lottery ticket scenario.
It presents a chance for financial gain as well as a chance for loss.
This fits the definition of a Speculative Risk, which is typically uninsurable.
3
Analyze the slippery floor scenario.
It is a physical condition that increases the likelihood of a slip-and-fall loss.
This fits the definition of a Physical Hazard.
4
Analyze the intentional arson scenario.
It involves a dishonest and deliberate act by the insured to cause a loss.
This fits the definition of a Moral Hazard.

Key Concept

Classification of risk, hazards, and perils
Rate this question

Topics

Definition and Types of Risk

More questions from this topic