Insurers rely on specific characteristics to determine if an exposure is an insurable risk. Match each proposed insurance scenario with the primary element of an insurable risk that it violates.
- A farmer requests a policy that pays a claim if they voluntarily decide to destroy their own crop before harvest.Loss must be accidental and unintentional
- A homeowners association seeks coverage for a theoretical, subjective decline in neighborhood prestige.Loss must be definite and objectively measurable
- An insurance carrier evaluates offering property coverage for damage caused exclusively by a global nuclear war.Loss must not be catastrophic to the insurance pool
- A demolition derby driver attempts to purchase standard collision coverage, resulting in a quoted annual cost that exceeds the actual cash value of the vehicle.Premium must be economically feasible
Answer
The farmer matches with Accidental, the neighborhood prestige matches with Definite and Measurable, the nuclear war matches with Not Catastrophic, and the demolition driver matches with Economically Feasible.
Each scenario directly violates one core element of an insurable risk. Voluntary acts are not accidental. Subjective value is not measurable. Widespread simultaneous disasters are catastrophic. Premiums exceeding the asset's actual value are economically unfeasible.
Step-by-Step Solution
Key Concept
Elements of Insurable Risk
Estimated Time:1m 30s