In General,the Presence of Insurance Against the Negative Outcome of an Event

question 133

Multiple Choice

In general,the presence of insurance against the negative outcome of an event (e.g. ,fire insurance) tends to

• A)lessen the likelihood of the event.
• B)have no effect on the likelihood of the event.
• C)increase the incentive to prevent the event.
• D)decrease the incentive to prevent the event.

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Definitions:

Cash Method

An accounting method where transactions are recorded when cash is received or paid out, in contrast to the accrual method.

Constructively Received

Income considered received by the taxpayer once it is made available to them, not necessarily when actually in hand.

Income

Financial gains obtained regularly as a result of working or investing.

Imputed Interest Rules

IRS rules that assign a market-rate interest value to certain transactions where no interest or an unrealistic amount of interest is charged.