Which Statement Describes a Principle of the Insurance Industry

question 67

Multiple Choice

Which statement describes a principle of the insurance industry?

• A)Trade in risk can produce mutual gains.
• B)Diversification can increase risk.
• C)Deductibles add to the problem of moral hazard.
• D)Adverse selection should be used to reduce insurance costs.

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Definitions:

Multiple Production Department Rates

A method of applying overhead to products in which overhead costs are first directly traced or distributed to support and production departments.

Overhead Costs

Indirect expenses related to running a business that are not directly tied to producing a product or service, such as rent and utilities.

Support Department Costs

Expenses incurred by service departments that assist other units of a business, not directly involved in production.

Single Investment Application Rate

A metric used to assess the potential return on an individual investment to determine its profitability or effectiveness.