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Principles of Risk Management and Insurance

Principles of Risk Management and Insurance

I need to answer review questions from chapter 16 to 27 . (I will upload the book)

They are really easy, I just don’t have the time.

You can find the answers on Chegg and course hero but I want them paraphrased not copy paste.

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Global edition Global edition Principles of Risk Management and Insurance For these Global Editions, the editorial team at Pearson has collaborated with educators across the world to address a wide range of subjects and requirements, equipping students with the best possible learning tools. This Global Edition preserves the cutting-edge approach and pedagogy of the original, but also features alterations, customization, and adaptation from the North American version. tHiRteentH edition Rejda • McNamara tHiRteentH edition George E. Rejda • Michael J. McNamara GLOBal edition This is a special edition of an established title widely used by colleges and universities throughout the world. Pearson published this exclusive edition for the benefit of students outside the United States and Canada. If you purchased this book within the United States or Canada, you should be aware that it has been imported without the approval of the Publisher or Author. Principles of Risk Management and Insurance Pearson Global Edition Rejda_13_129215103X_Final.indd 1 12/09/16 7:12 AM Principles of Risk Management and Insurance A01_REJD1038_13_GE_FM.indd 1 9/20/16 2:35 PM The Pearson Series in Finance Berk/DeMarzo Corporate Finance†* Corporate Finance: The Core†* Keown Personal Finance: Turning Money into Wealth* Berk/DeMarzo/Harford Fundamentals of Corporate Finance†* Keown/Martin/Petty Foundations of Finance: The Logic and Practice of Financial Management†* Brooks Financial Management: Core Concepts†* Madura Personal Finance* Copeland/Weston/Shastri Financial Theory and Corporate Policy Marthinsen Risk Takers: Uses and Abuses of Financial Derivatives Dorfman/Cather Introduction to Risk Management and Insurance McDonald Derivatives Markets Fundamentals of Derivatives Markets Eakins/McNally Corporate Finance Online* Mishkin/Eakins Financial Markets and Institutions† Eiteman/Stonehill/Moffett Multinational Business Finance†* Moffett/Stonehill/Eiteman Fundamentals of Multinational Finance† Fabozzi Bond Markets: Analysis and Strategies Nofsinger Psychology of Investing Foerster Financial Management: Concepts and Applications†* Pennacchi Theory of Asset Pricing Frasca Personal Finance Rejda/McNamara Principles of Risk Management and Insurance† Gitman/Zutter Principles of Managerial Finance†* Principles of Managerial Finance—Brief Edition†* Smart/Gitman/Joehnk Fundamentals of Investing†* Haugen The Inefficient Stock Market: What Pays Off and Why Modern Investment Theory Holden Excel Modeling in Corporate Finance Excel Modeling in Investments Hughes/MacDonald International Banking: Text and Cases Hull Fundamentals of Futures and Options Markets† Options, Futures, and Other Derivatives† * † A01_REJD1038_13_GE_FM.indd 2 Solnik/McLeavey Global Investments Titman/Keown/Martin Financial Management: Principles and Applications* Titman/Martin Valuation: The Art and Science of Corporate Investment Decisions Weston/Mitchell/Mulherin Takeovers, Restructuring, and Corporate Governance Denotes titles with MyFinanceLab. Log onto www.myfinancelab.com to learn more. Denotes availability of Global Edition. 9/20/16 2:35 PM Principles of Risk Management and Insurance George E. Rejda Michael J. McNamara Thirteenth Edition Global Edition A01_REJD1038_13_GE_FM.indd 3 9/20/16 2:35 PM Vice President, Business Publishing: Donna Battista Editor-in-Chief: Adrienne D’Ambrosio Senior Sponsoring Editor: Neeraj Bhalla Associate Acquisitions Editor, Global Edition: Ananya Srivastava Associate Project Editor, Global Edition: Paromita Banerjee Vice President, Product Marketing: Maggie Moylan Director of Marketing, Digital Services and Products: Jeanette Koskinas Senior Product Marketing Manager: Alison Haskins Executive Field Marketing Manager: Adam Goldstein Product Marketing Assistant: Jessica Quazza Team Lead, Program Management: Ashley Santora Team Lead, Project Management: Jeff Holcomb Project Manager: Karen Carter Project Manager, Global Edition: Nitin Shankar Senior Manufacturing Controller, Global Edition: Trudy Kimber Operations Specialist: Carol Melville Creative Director: Blair Brown Art Director: Jon Boylan Vice President, Director of Digital Strategy and Assessment: Paul Gentile Manager of Learning Applications: Paul DeLuca Media Production Manager, Global Edition: Vikram Kumar Full-Service Project Management and Composition: SPi Global Cover Designer: Lumina Datamatics, Inc. Cover Art: ©Bill Mack / Shutterstock Acknowledgments of third-party content appear on the appropriate page within the text. Pearson Education Limited Edinburgh Gate Harlow Essex CM20 2JE England and Associated Companies throughout the world Visit us on the World Wide Web at: www.pearsonglobaleditions.com © Pearson Education Limited 2017 The rights of George E. Rejda and Michael J. McNamara to be identified as the authors of this work have been asserted by them in accordance with the Copyright, Designs and Patents Act 1988. Authorized adaptation from the United States edition, entitled Principles of Risk Management and Insurance, 13th Edition, ISBN 978-0-13-408257-8 by George E. Rejda and Michael J. McNamara, published by Pearson Education © 2017. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without either the prior written permission of the publisher or a license permitting restricted copying in the United Kingdom issued by the Copyright Licensing Agency Ltd, Saffron House, 6–10 Kirby Street, London EC1N 8TS. All trademarks used herein are the property of their respective owners. The use of any trademark in this text does not vest in the author or publisher any trademark ownership rights in such trademarks, nor does the use of such trademarks imply any affiliation with or endorsement of this book by such owners. ISBN 10: 1-292-15103-X ISBN 13: 978-1-292-15103-8 British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library 10 9 8 7 6 5 4 3 2 1 Typeset in Times NRMT Pro by SPi Global Printed and bound by Vivar in Malaysia A01_REJD1038_13_GE_FM.indd 4 9/20/16 2:35 PM Contents Preface part one 15 Basic Concepts in Risk Management and Insurance Chapter 1 Risk and Its Treatment 19 Definitions of Risk 20 Chance of Loss 22 Peril and Hazard 22 Classification of Risk 23 Major Personal Risks and Commercial Risks 25 Burden of Risk on Society 31 Techniques for Managing Risk 31 Summary 35 ■ Key Concepts and Terms 36 ■ Review Questions 36 ■ Application Questions 36 ■ Internet Resources 37 ■ Selected References 38 ■ Notes 38 Case Application 34 Insight 1.1: What Are Your Chances of Not Being Able to Earn an Income? Calculate Your personal Disability Quotient 28 Chapter 2 Insurance and Risk 39 Definition of Insurance 40 Basic Characteristics of Insurance 40 Characteristics of an Ideally Insurable Risk 42 Two Applications: The Risks of Fire and Unemployment 44 Adverse Selection and Insurance 46 Insurance and Gambling Compared 46 Insurance and Hedging Compared 46 Types of Insurance 47 Benefits of Insurance to Society 51 Costs of Insurance to Society 52 Summary 56 ■ Key Concepts and Terms 57 ■ Review Questions 57 ■ Application Questions 57 ■ Internet Resources 58 ■ Selected References 58 ■ Notes 59 Case Application 56 Insight 2.1: Examples of Insurance Fraud—Hall of Shame 53 Insight 2.2: Have You Ever Committed Insurance Fraud? Think Again 55 Appendix: Basic Statistics and the Law of Large Numbers 60 Chapter 3 Introduction to Risk Management 64 Meaning of Risk Management 66 Objectives of Risk Management 66 Steps in the Risk Management Process 66 5 A01_REJD1038_13_GE_FM.indd 5 9/20/16 2:35 PM 6 CONTENTS Benefits of Risk Management 77 Personal Risk Management 77 Summary 80 ■ Key Concepts and Terms 81 ■ Review Questions 81 ■ Application Questions 81 ■ Internet Resources 82 ■ Selected References 83 ■ Notes 83 Case Application 79 Insight 3.1: Bermuda Leads Global Captive Domiciles Insight 3.2: Advantages of Self-Insurance 71 72 Chapter 4 Enterprise Risk Management and Related Topics 85 Enterprise Risk Management 86 Insurance Market Dynamics 92 Loss Forecasting 98 Financial Analysis in Risk Management Decision Making 100 Other Risk Management Tools 102 Summary 105 ■ Key Concepts and Terms 105 ■ Review Questions 106 ■ Application Questions 106 ■ Internet Resources 106 ■ Selected References 107 ■ Notes 107 Case Application 104 Insight 4.1: Weather Futures and Options: Financial Tools That Provide a Means of Transferring Risk Associated with Adverse Weather Events 97 part two The Private Insurance Industry Chapter 5 Types of Insurers and Marketing Systems 109 Overview of Private Insurance in the Financial Services Industry 110 Types of Private Insurers 111 Agents and Brokers 116 Types of Marketing Systems 117 Group Insurance Marketing 120 Summary 121 ■ Key Concepts and Terms 121 ■ Review Questions 122 ■ Application Questions 122 ■ Internet Resources 123 ■ Selected References 124 ■ Notes 124 Case Application 121 Insight 5.1: Show Me the Money—How Much Can I Earn as an Insurance Sales Agent? 117 Chapter 6 Insurance Company Operations 125 Insurance Company Operations 126 Rating and Rate Making 126 Underwriting 127 Production 130 Claims Settlement 131 Reinsurance 133 Investments 138 Other Insurance Company Functions 140 Summary 142 ■ Key Concepts and Terms 142 ■ Review Questions 143 ■ Application Questions 143 ■ Internet Resources 143 ■ Selected References 144 ■ Notes 145 A01_REJD1038_13_GE_FM.indd 6 9/20/16 2:35 PM CONTENTS Case Application 7 141 Insight 6.1: Home Owner’s Failure to Cooperate Yields Denied Claim 133 Insight 6.2: Be a Smart Consumer—Check the Claims Record of Insurers before You Buy 134 Chapter 7 Financial Operations of Insurers 146 Property and Casualty Insurers 147 Life Insurance Companies 152 Rate Making in Property and Casualty Insurance 154 Rate Making in Life Insurance 158 Summary 159 ■ Key Concepts and Terms 160 ■ Review Questions 160 ■ Application Questions 161 ■ Internet Resources 162 ■ Selected References 162 ■ Notes 162 Case Application 159 Insight 7.1: How Profitable Is the Property and Casualty Insurance Industry? 153 Chapter 8 Government Regulation of Insurance 164 Reasons for Insurance Regulation 165 Historical Development of Insurance Regulation 166 Methods for Regulating Insurers 168 What Areas Are Regulated? 168 State versus Federal Regulation 174 Current Issues in Insurance Regulation 177 Modernizing Insurance Regulation 177 Insolvency of Insurers 180 Market Conduct Regulation 181 Summary 184 ■ Key Concepts and Terms 185 ■ Review Questions 185 ■ Application Questions 185 ■ Internet Resources 186 ■ Selected References 186 ■ Notes 187 Case Application 183 Insight 8.1: The Pros and Cons of Credit-Based Insurance Scores part three 182 Legal Principles in Risk and Insurance Chapter 9 Fundamental Legal Principles 188 Principle of Indemnity 189 Principle of Insurable Interest 192 Principle of Subrogation 193 Principle of Utmost Good Faith 194 Requirements of an Insurance Contract 197 Distinct Legal Characteristics of Insurance Contracts 198 Law and the Insurance Agent 199 Summary 202 ■ Key Concepts and Terms 203 ■ Review Questions 203 ■ Application Questions 203 ■ Internet Resources 204 ■ Selected References 204 ■ Notes 204 Case Application 201 Insight 9.1: C  orporation Lacking Insurable Interest at Time of Death Can Receive Life Insurance Proceeds 194 A01_REJD1038_13_GE_FM.indd 7 9/20/16 2:35 PM 8 CONTENTS Insight 9.2: Auto Insurer Denies Coverage Because of Material Misrepresentation 195 Insight 9.3: Insurer Voids Coverage Because of Misrepresentations in Proof of Loss 196 Chapter 10 Analysis of Insurance Contracts 206 Basic Parts of an Insurance Contract 207 Definition of “Insured” 209 Endorsements and Riders 211 Deductibles 211 Coinsurance 213 Coinsurance in Health Insurance 214 Other-Insurance Provisions 214 Summary 217 ■ Key Concepts and Terms 217 ■ Review Questions 218 ■ Application Questions 218 ■ Internet Resources 219 ■ Selected References 219 ■ Notes 219 Case Application 216 Insight 10.1: W  ill Your Auto Insurance Cover You When You Drive another Person’s Car? 210 part four Life and Health Risks Chapter 11 Life Insurance 220 Premature Death 221 Financial Impact of Premature Death on Different Types of Families 222 Amount of Life Insurance to Own 223 Types of Life Insurance 228 Variations of Whole Life Insurance 234 Other Types of Life Insurance 242 Summary 246 ■ Key Concepts and Terms 247 ■ Review Questions 248 ■ Application Questions 248 ■ Internet Resources 249 ■ Selected References 250 ■ Notes 251 Case Application 245 Insight 11.1: Cash-Value Life Insurance as an Investment—Don’t Ignore Two Points Insight 11.2: Be a Savvy Consumer—Four Life Insurance Policies to Avoid 233 244 Chapter 12 Life Insurance Contractual Provisions 252 Life Insurance Contractual Provisions 253 Dividend Options 259 Nonforfeiture Options 261 Settlement Options 263 Additional Life Insurance Benefits 267 Summary 272 ■ Key Concepts and Terms 273 ■ Review Questions 274 ■ Application Questions 274 ■ Internet Resources 275 ■ Selected References 276 ■ Notes 276 Case Application 272 Insight 12.1: Is This Death A Suicide? 255 Insight 12.2: Selection of the Best Dividend Option in a Participating Whole Life Policy Insight 12.3: Accelerated Death Benefits—A Real-Life Example 270 Insight 12.4: What Is a Life Settlement? Examples of Actual Cases A01_REJD1038_13_GE_FM.indd 8 260 271 9/20/16 2:35 PM CONTENTS 9 Chapter 13 Buying Life Insurance 277 Determining the Cost of Life Insurance 278 Rate of Return on Saving Component 281 Taxation of Life Insurance 283 Shopping for Life Insurance 285 Summary 288 ■ Key Concepts and Terms 288 ■ Review Questions 288 ■ Application Questions 289 ■ Internet Resources 289 ■ Selected References 290 ■ Notes 290 Case Application 287 Insight 13.1: Be Careful in Replacing an Existing Life Insurance Policy Appendix: Calculation of Life Insurance Premiums 281 291 Chapter 14 Annuities and Individual Retirement Accounts 296 Individual Annuities 297 Types of Annuities 298 Taxation of Individual Annuities 305 Individual Retirement Accounts 306 Adequacy of IRA Funds 309 Summary 312 ■ Key Concepts and Terms 313 ■ Review Questions 313 ■ Application Questions 314 ■ Internet Resources 314 ■ Selected References 315 ■ Notes 315 Case Application 1 311 Case Application 2 312 Insight 14.1: Advantages of an Immediate Annuity to Retired Workers Insight 14.2: Bells and Whistles of Variable Annuities 299 302 Insight 14.3: Ten Questions to Answer Before You Buy a Variable Annuity 306 Insight 14.4: Will You Have Enough Money at Retirement? Monte Carlo Simulations Can Be Helpful 310 Chapter 15 Healthcare Reform: Individual Health Insurance Coverages 316 Defects in the Healthcare System in the United States 317 Basic Provisions of the Affordable Care Act 322 Individual Medical Expense Insurance 328 Individual Medical Expense Plans and Managed Care 330 Health Savings Accounts 331 Long-Term Care Insurance 332 Disability-Income Insurance 336 Individual Health Insurance Contractual Provisions 339 Summary 341 ■ Key Concepts and Terms 342 ■ Review Questions 342 ■ Application Questions 343 ■ Internet Resources 343 ■ Selected References 344 ■ Notes 345 Case Application 341 Insight 15.1: H  ealth Insurance Options for College Students under the Affordable Care Act 325 A01_REJD1038_13_GE_FM.indd 9 9/20/16 2:35 PM 10 CONTENTS Chapter 16 Employee Benefits: Group Life and Health Insurance 346 Meaning of Employee Benefits 347 Fundamentals of Group Insurance 347 Group Life Insurance 349 Group Medical Expense Insurance 350 Managed Care Plans 352 Affordable Care Act and Group Medical Expense Insurance 354 Key Features of Group Medical Expense Insurance 356 Consumer-Directed Health Plans 357 Recent Developments in Employer-Sponsored Health Plans 358 Group Medical Expense Contractual Provisions 361 Group Dental Insurance 362 Group Disability-Income Insurance 363 Cafeteria Plans 364 Summary 366 ■ Key Concepts and Terms 367 ■ Review Questions 367 ■ Application Questions 368 ■ Internet Resources 369 ■ Selected References 369 ■ Notes 369 Case Application 365 Insight 16.1: Basic Characteristics of the Small Business Health Options (SHOP) Marketplace Program 356 Chapter 17 Employee Benefits: Retirement Plans 371 Fundamentals of Private Retirement Plans 372 Types of Qualified Retirement Plans 375 Defined-Benefit Plans 375 Defined-Contribution Plans 378 Section 401(K) Plan 379 Section 403(B) Plan 381 Profit-Sharing Plans 382 Retirement Plans for the Self-Employed (Keogh Plans) 382 Simplified Employee Pension (SEP) 382 Simple IRA Plan 383 Saver’s Credit 383 Funding Agency and Funding Instruments 384 Problems and Issues in Tax-Deferred Retirement Plans 385 Summary 387 ■ Key Concepts and Terms 388 ■ Review Questions 388 ■ Application Questions 388 ■ Internet Resources 389 ■ Selected References 389 ■ Notes 390 Case Application 386 Insight 17.1: Six Common 401 (k) Mistakes 380 Chapter 18 Social Insurance 391 Social Insurance 392 Old-Age, Survivors, and Disability Insurance 394 Types of Benefits 395 Medicare 401 Problems and Issues 406 Unemployment Insurance 409 Workers Compensation 411 A01_REJD1038_13_GE_FM.indd 10 9/20/16 2:35 PM CONTENTS 11 Summary 416 ■ Key Concepts and Terms 416 ■ Review Questions 417 ■ Application Questions 417 ■ Internet Resources 418 ■ Selected References 419 ■ Notes 419 Case Application part five 415 Insight 18.1: Claiming Social Security Benefits­—S­ trategies for Single Persons 398 Insight 18.2: How Would You Reduce the Long-Range Social Security Deficit? 407 Personal Property and Liability Risks Chapter 19 The Liability Risk 421 Basis of Legal Liability 422 Law of Negligence 423 Imputed Negligence 425 Res Ipsa Loquitur 426 Specific Applications of the Law of Negligence 426 Current Tort Liability Problems 428 Summary 438 ■ Key Concepts and Terms 438 ■ Review Questions 439 ■ Application Questions 439 ■ Internet Resources 440 ■ Selected References 440 ■ Notes 441 Case Application 437 Insight 19.1: Judicial Hellholes 2014–2015 431 Chapter 20 Auto Insurance 443 Overview of Personal Auto Policy 444 Part A: Liability Coverage 445 Part B: Medical Payments Coverage 451 Part C: Uninsured Motorists Coverage 452 Part D: Coverage for Damage to Your Auto 456 Part E: Duties after an Accident or Loss 463 Part F: General Provisions 464 Insuring Motorcycles and Other Vehicles 465 Summary 466 ■ Key Concepts and Terms 466 ■ Review Questions 466 ■ Application Questions 467 ■ Internet Resources 468 ■ Selected References 469 ■ Notes 469 Case Application 465 Insight 20.1: What Do Ride Sharing and Car Sharing Mean for Personal Auto Insurance? 448 Insight 20.2: New Study Reveals a Declining Trend in the Percentage of Uninsured Motorists 453 Insight 20.3: Using Electronic Devices while Driving Is a Serious Problem 460 Chapter 21 Auto Insurance (Continued) 471 Approaches for Compensating Auto Accident Victims 472 Auto Insurance for High-Risk Drivers 482 Cost of Auto Insurance 483 Shopping for Auto Insurance 487 Summary 491 ■ Key Concepts and Terms 491 ■ Review Questions 492 ■ Application Questions 492 ■ Internet Resources 493 ■ Selected References 493 ■ Notes 493 A01_REJD1038_13_GE_FM.indd 11 9/20/16 2:35 PM 12 CONTENTS Case Application 490 Insight 21.1: Filing an Auto Claim with the Ot …

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