FIN 151-900 Chapter 1 Review

FIN 151-900 Chapter 1 Review - Insurance 151-900 Chapter 1...

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Insurance 151-900 Chapter 1 Questions for Review The meaning of risk involves an improbability regarding the incident of a loss. An objective risk is the comparative difference between an actual loss from an anticipated loss. A subjective risk is the improbability based on the mental health or state of mind of a person. Chance of loss is the likelihood that an event will happen. Objective probability refers to the long-run rate of occurrence of an event based on the theories of a never-ending number of observations and of no change in the primary conditions. On the other hand, subjective probability is the individual’s personal approximation of loss. Peril is the basis of loss, whereas hazard is the condition that creates or escalates the chance of loss. Physical hazard is a tangible condition that boosts the chances of loss. Moral hazard is deceitfulness or character flaws in an individual that increase the occurrence or severity of loss. Morale hazard is recklessness or indifference to a loss because of the existence of
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