20 abc insurance retains the first 1 million of each

20) ABC Insurance retains the first $1 million of each property damage loss and purchases insurance for that part
of any property loss that exceeds $1 million. The insurance for property losses above $1 million is called
A) excess insurance. B) liability insurance.
C) coinsurance. D) primary insurance.
Answer: A
Question Status: Previous Edition
Chapter 3 Introduction to Risk Management 29
30
Rejda · Principles of Risk Management and Insurance, Tenth Edition
21) Which of the following statements about the use of deductibles is (are) true? I. They represent risk
retention by insurance purchasers. II. They tend to increase the cost of adjusting small claims.
A) I only B) II only
C) both I and II D) neither I nor II
Answer: A
Question Status: Previous Edition
22) Which of the following statements about an excess insurance plan is true?
A) The insurer does not participate in a loss until it exceeds the amount the firm has decided to retain.
B) The insurer pays first up to some specified level; the insured then pays all losses exceeding the insurer ! s
retention level.
C) Losses in excess of a specified amount are not covered. D) The insured and insurer share equally in any loss
that occurs.
Answer: A
Question Status: Revised
23) Factors a risk manager must consider in selecting an insurer include which of the following? I. The
availability of risk management services. II. The financial strength of the insurer.
A) I only B) II only
C) both I and II D) neither I nor II
Answer: C
Question Status: Previous Edition
24) An insurance policy specifically written and designed to meet the needs of an insurance purchaser is called
a(n)
A) manuscript policy. B) bureau policy.

C) standard policy. D) excess policy.
Answer: A
Question Status: Previous Edition
25) All of the following are disadvantages of using insurance in a risk management program EXCEPT A) There
is an opportunity cost because premiums must be paid in advance.
B) Considerable time and effort must be spent selecting and negotiating coverages. C) It results in considerable
fluctuations in earnings after a loss occurs. D) Attitudes toward loss control may become lax when losses are
insured.
Answer: C
Question Status: Revised
26) Which of the following types of loss exposures may be appropriately handled through the purchase of
insurance? I. High - frequency, low - severity II. Low - frequency, high - severity
A) I only B) II only
C) both I and II D) neither I nor II
Answer: B
Question Status: Previous Edition
27) Which of the following types of loss exposures are best handled by the use of avoidance? A) low - frequency,
low - severity
B) low - frequency, high - severity C) high - frequency, low - severity D) high - frequency, high - severity
Answer: D
Question Status: Revised
28) Low - frequency, low - severity loss exposures are best handled by A) avoidance.