Question

Assignment Instructions You must choose one question from Topic 1 (A or B) and one question from Topic 2 (C or D). You will be answering a total of two questions for this assignment. Topic 1: Choose to answer either question 1 or 2 Topic 2: Choose to answer either question 3 or 4 TOPIC 1 Questions: 1. Assume that the chance of loss is 3 percent for two different fleets of trucks. Explain how it is possible that objective risk for both fleets can be different even though the chance of loss is identical. (50 points) 2. Several types of risk are present in the American economy. For each of the following, identify the type of risk that is present. (nondiversifiable risk; pure risk; speculative risk); Explain your answer. (Total of 50 points) a) The Department of Homeland Security alerts the nation of a possible attack by terrorists. (7 points) b) A house may be severely damaged in a fire. (7 points) c) A family head may be totally disabled in a plant explosion. (7 points) d) An investor purchases 100 shares of Microsoft stock. (7 points) e)A iver that periodically overflows may cause substantial property damage to thousands of homes in the floodplain. (7 points) Home buyers may be faced with higher mortgage payments if the Federal Reserve raises interest rates at its next meeting. (7 points) g) A worker on vacation plays the slot machines in a casino. (8 points) TOPIC 2 Questions: 3. Private insurance provides numerous c that can be used to meet specific loss situations For each of the following situations, identify a private insurance coverage that would provide the desired protection. (Total of 50 points) overages a) Emily, age 28, is a single parent with two dependent children. She wants to make certain that funds are available for her children's education if she dies before her youngest c finishes college. (10 points) b) Danielle, age 16, recently obtained her driver's license. Her parents want to make certain they are protected if Danielle negligently injures another motorist while driving a family car. (10 points) c) Jacob, age 30, is married with two dependents. He wants his income to continue if he becomes hild totally disabled and unable to work. (10 points) d) Tyler, age 35, recently purchased a house for $200,000 that is located in an area where tornadoes frequently occur. He wants to make certain that funds are available if the house is damaged or destroyed by a tornado. (10 points) e) Nathan, age 40, owns an upscale furniture store. Nathan wants to be protected if a customer is injured while shopping in the store and sues him for the bodily injury. (10 points) 4. Buildings in flood zones are difficult to insure by private insurers because the ideal requirements of an insurable risk are difficult to meet. (Total of 50 points) a) Identify the ideal requirements of an insurable risk. (25 points) b) Which of the requirements of an insurable risk are not met by the flood peril? (25 points)

Answer 1

Answer 1:- It is possible that objective risk for both fleets can be different even though the chances of loss is identical is because the probability of something going wrong could be the same for both fleets. For example, the chances of a tire blowing out on the truck is the same for both truck fleets, the chances of an engine being blown is the same for both fleets. However, the objective risk can be different because maybe one fleet is going the longer distance or is carrying more weight than the other fleet so the risk can be greater for one fleet over the other.

Answer 2:-

(a )The Department of Homeland Security alerts the nation of a possible attack by terrorists. This is a fundamental risk because the entire nation can be affected by terrorist attack.

(b) A house may be severely damaged in a fire. This is a pure risk. Rarely will an insured profit if a house is damaged in a fire.

(c) A family head may be totally disabled in a plant explosion. This is pure risk because of the loss of earned income. You usually do not profit if you are totally disabled.

(d). An investor purchases 100 shares of Microsoft stock. This is a speculative risk. Both profit or loss are possible.

(e)A river that periodically overflows may cause substantial property damage to thousands of homes in the floodplain. This is a fundamental risk because large numbers of people can lose their homes in a major flood

(f) Home buyers may be faced with higher mortgage payments if the Federal Reserve raises interest rates at its next meeting. This is a fundamental risk because large numbers of homebuyers will be adversely affected by higher interest rates and higher monthly mortgage payments. From the viewpoint of homebuilders and realtors, a rise in interest rates is also a financial risk that can slow down the sale of new and used homes.

(g) A worker on vacation plays the slot machines in a casino. This is a speculative risk because both profit and loss are possible

Answer 3:-

(a) Life insurance can provide the needed funds for a college education.

(b) Auto liability insurance will protect the parents if Danielle negligently injures someone while driving a family car.

(c) An individual or group disability income policy will provide periodic income payments if Jacob becomes totally disabled.

(d) A homeowner’s policy will provide the desired protection. Windstorm and hurricanes are covered perils.

(e) A commercial general liability insurance policy will cover Nathan if a customer is injured in his store

Answer 4:-

a. Identify the ideal requirements of an insurable risk.

The requirement for floods insurance provides coverage for flood losses to homeowners and business firms in flood zones. Flood losses are excluded under standard homeowners and renters policies and are sold by participating property and casualty insurers. The national flood insurance program are available to homeowners that reside in flood zones

b.Which of the requirements of an insurable risk are not met by the flood peril?

Flood peril is difficult to insure because of problem such as high catastrophic loss, prohibitively high premiums, and adverse selection.

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