2 self insurance is the practice of a holding

2) Self insurance is the practice of
A) holding reserves within the firm to cover potential losses.
B) CEO's holding large life insurance policies on themselves, payable to the company.
C) companies in unrelated businesses forming subsidiaries to cover their insurance needs.
D) purchasing insurance policies directly rather than through a broker.
3) Which of the following is a consequence of transferring risk to an insurance company?
4) Self-insurance would not provide adequate protection in which of the following
circumstances?
5) Which of the following types of insurance does NOT involve a contract with an external
party?
6) Which of the following should determine whether or not the firm should purchase
insurance from an outside party?
A) Only the frequency of incidents
B) The cost of the policy and the expected losses
C) Only the maximum size of incidents
D) Only the firms normal cash reserves
7) Which of the following individual situations would best justify the cost of a life insurance
policy?
8) Which of the following types of insurance cannot be sold in the United States?

9) Workers' compensation insurance provides coverage for on-the-job injuries suffered by
employees.
10) Workers' compensation insurance protects employees income in case they are laid off or
fired.
11) It is not legal for a corporation to hold life insurance policies on its employees.
12) Directors and officers insurance protects the company if key personnel die or leave the
firm for other opportunities.
13) The decision to purchase insurance is justified if the cost of the contract is less than the
expected loss.
14) How should corporations decide when to self insure against certain risks and when to
purchase insurance from outside parties?