Test your knowledge

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Which of the following is false?

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An insurance policy is a legal contract.

In risk management, you should only buy insurance to cover amounts "at risk."

You can save money by buying only benefits and riders you need.

You should always insure property against loss.

You should always insure property against loss. You should only insure property for losses you cannot afford.

There are many ways to manage risks in your financial life. For example, not taking any steps at all to reduce the risk of financial loss is called _______.

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Assuming risk

Avoiding risk

Sharing risk

Transferring risk

Assuming risk. In this scenario, you assume the risk yourself, along with having to pay for the financial consequences.

Premiums for insurance are based partly upon the likelihood of a negative event occurring.

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True

False

True. That likelihood, as well as other factors such as the amount of benefits to be paid, determine the premiums you must pay for the insurance.

It is possible to eliminate all risk in personal finance.

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True

False

False. Though it is possible to minimize it, no one has yet succeeded in eliminating risk entirely.

If you injure yourself at work and become unable to perform your duties, what form of insurance is designed to pay you benefits for a certain length of time?

Choose wisely. There is only one correct answer.

Liability insurance

Life insurance

Disability insurance

Health insurance

Disability insurance. Disability insurance provides financial benefits if you should become unable to work due to a disabling illness or injury.

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