1. Pure risk refers to a situation where there is the probability of loss or gain. True or False? Explain and give an example.
2. A franchise deductible is different from a straight deductible, except that once the amount of loss equals the deductible, the entire loss is paid in full. True or False? Explain?
3. Indemnity is supported by two concepts: subrogation and contribution. True or false? Explain and give an example.
4. In life insurance, the cash surrender value is the same in every policy year when the insured surrenders the policy before its maturity. True or false? Explain?
5. Fundamental risks are insurable risks. True or false? Explain and give an example.
EXPERT ANSWER
1. False. Pure risk is uncontrollable. Pure risk refers to complete loss or no loss at all. There is no gain or profit in this situation. Examples can be death, fire, or natural disasters.
2. False. Franchise deductible is similar as straight deductible except that once the amount of loss is fully paid. Franchise deductible is used in crop hail insurance.
3. True. Indemnity is supported by two concepts i.e. subrogation and contribution. For example, by giving up subrogation rights, the insured doesn’t collect the losses twice.
4. True. The cash surrender value is same when the insured surrenders before the maturity. The surrender panelty is charged while surrendering.
5. True. Fundamental risks were not to be insured because these were considered as responsibility of state. But now because of insurers strength ,these risks are insurable. Examples can be due to chance, definiteness and measurability, etc.