Question

Question 1

Identify the risk management technique being adopted in the following cases.

A.Understanding that WIFI signal may have harmful effect on human health, you continue setup a WIFI system at home.

B.Worrying that the banking system may collapse, you put all your money under your bed.

C.You put on a screen protector and a cover on your phone.

D.When you go travel, you select an airline company which is highly ranked in terms of safety.

Question 2

Explain whether the following is True or False

A. Buying insurance allows the insured to reduce his/her risk exposure.

B. Whole life insurance provides better protection than Universal life insurance.

C. You should always request the insurance company to put down the disability clause on the insurance plan.

D. A term life insurance will be the most suitable to a journalist who will be working in Afghan for 5 years.

E. If a loss is certain to occur, there is no risk.

Question 3

CY died with a $200,000 life insurance policy. His wife, Regina, was the primary beneficiary and their children, Chung-yan and Chai-yan, were the contingent beneficiaries. All three survived. How would the policy proceeds be distributed?

a. $200,000 to Regina

b. $100,000 each to Chung-yan and Chai-yan

c. $100,000 to Regina and $50,000 each to Chung-yan and Chai-yan

d. $66,666 each to Regina, Chung-yan, and Chai-yan

e. $150,000 to Regina and $25,000 each to Chung-yan and Chai-yan

Question 4

An insured usually chooses variable life insurance in order to

a. provide more flexible coverage.

b. emphasize the savings portion while still having death protection.

c. lessen the savings feature of life insurance.

d. substitute for fixed-dollar insurance protection.

e. reduce insurance premiums.

Question 5

Ho purchased a policy with an initial premium of $30,000 and may elect how much he desires to pay in premiums from now on. He has purchased a face value of $1,000,000 and can accumulate cash value. What type of life insurance has Ho purchased?

a. universal life

b. whole life

c. modified whole life

d. term life

e. adjustable whole life

Answer 1

Q1.) There are 5 major risk management techniques viz., Risk Avoidance, Risk Retention, Spreading Risk, Preventing Risk and Transferring Risk.

a.) This is a case of Risk Retention as although there are risk in installing wifi but greater risk to avoid it completely as it has become more of a necessity.

b.) This is a case of Risk Avoidance when out of complete fear of certain risk, you completely alter the direction or change action to avoid the risk completely.

c.) This is a case of Preventive or Reducing risk technique, where the risk is minimised by taking preventive measures. Here we take a middle approach where we're exposed to risk but try and minimise it !

d.) This again is an example of Risk Prevention or reducing chances. Risk Avoidance would have been change of mode of transport completely by Road or Train but since he chose to travel by Air but with the best rated one, its a Preventive Risk management technique

Q2.)

a.) True. Insurance by definition is a Risk cover. It provides a cover/shelter or safeguards from future uncertain events.

b.) True. Although, Choosing between whole and universal insurance is subjective, Whole Insurance provides stability and inculcates financial discipline by forcing insured to be consistent and being consistent in paying premiums and reaping additional benefits.

c.) True. Disability clause is very important aspect of Life Insurance as in case of full or partial disability, the potential to earn hampers drastically and that's what the cover or 'insurance' is for, to provide risk cover financially. Different Insurance providers have different policies with respect to disability and thus its important to include and understand them.

d.) True. A term Insuarnce is limited to the number of years the policy is taken for and thus when a term plan is taken for 5 years, the insured is protected against life risk till the event of death or end of 5 years whichever comes first.

e.) True. Risk is when the future event is uncertain, even when the event is not favourable like when a loss is certain there is no risk per se.

Q3.) Option A is correct. The entire amount will be transferred to Regina as she is the Primary Beneficiary. The kids are contingent beneficiary which means in the event when even Regina dies, then the proceeds will be distributed amongst them equally.

Q4.) Option A. As Variable Insurance provides more flexibility like a Mutual Funds to invest the premium paid into various categories of Insurance and can be decide on the Insured persons need and financial Strategy

Q5.) Universal Insurance

Under the Universal plan, the policy holder can change the premium amount, death features/benefits and some other features to his will and also reap the benefits of cash value or savings account.