Question

3) The aggregate increased costs to society of operating the insurance mechanism includes all of the following except A) cast of operating the insurance company B) losses due to uninsured flood losses C) the occurrence of intentional losses to collect insurance D) the tendency of insureds to exaggerate the amount of actual losses in the claim process 4) Which of the following factors is not considered when an insurance rate or premium is calculated? A) The cost of the actual losses B) The cost of the insurance salesman and other company expenses C) Investment earnings on prepaid premiums D) The decision by the U.S. Supreme Court in 1943 5) Billy is driving to the beach for spring break. Before leaving on his trip, he takes some cold medicine that makes him sleepy. He falls asleep at the wheel and collides with another car on the highway and breaks his leg. In this context, which of the following is the hazard? A) Spring break B) Knowing how to drive C) Taking the medicine D) Broken leg

Answer 1

3 D

The first 3 represent costs to the society while the tendency to exaggerate losses is not a direct cost of insurance.

4: D

This option is irrelavent. The first 2 are costs which have to be considered while computing the cost of premium. The third is income from investment which should also be taken into account.

5: C

The hazard is the event which can cause a probability of loss. In this case, taking the medicine created the risk of the accident.