1. A company wants to insure its inventory against theft. Which of the following is a

characteristic of an insurable risk in this case?

a) The loss must be accidental and unintentional.

b) The loss must be large and catastrophic.

c) The loss must be measurable and verifiable.

d) The loss must be predictable and calculable.

*Answer: c) The loss must be measurable and verifiable.*

Rationale: For a risk to be insurable, the loss must be measurable and verifiable,

meaning that the amount and value of the loss can be determined objectively and

accurately. Option a) is also a characteristic of an insurable risk, but not specific to

this case. Option b) is incorrect, as the loss should be relatively small and noncatastrophic to avoid adverse selection and moral hazard. Option d) is also incorrect,

as the loss should be unpredictable and random to ensure a fair distribution of risk.

2. A homeowner wants to insure his house against fire. Which of the following is a

common risk class for this type of insurance?

a) Property insurance.

b) Liability insurance.

c) Life insurance.

d) Health insurance.

*Answer: a) Property insurance.*

Rationale: Property insurance covers the physical damage or loss of property due to