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Fundamentals of Risk and Insurance, 11th Edition by Therese M. Vaughan, Emmett J. Vaughan

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CHAPTER OBJECTIVES

When you have finished this chapter, you should be able to do the following:

  • Define and explain the meaning of the term risk
  • Distinguish among the terms risk, peril, and hazard
  • Identify and explain the classes of hazards
  • Differentiate between pure risk and speculative risk
  • Differentiate between fundamental and particular risk
  • Describe the categories into which pure risk may be subdivided
  • Identify and explain the principal methods of handling risk

You see the mangled metal of two cars that have collided on an interstate highway. A fire engine with its siren screaming roars down the street. A building in your neighborhood burns, or you see an ambulance racing to the hospital. Such tragic events arouse your interest and emotions. After the noise and excitement have died down, you are grateful that the loss did not happen to you and you may feel sorry for whoever suffered the loss. But you're glad that it wasn't you. Losses like these happen to some people, whereas others go along happily, free from misfortune. The fact that these losses or similar events could happen to you, and the fact that you can't tell for sure whether or not they will, is a condition we call risk. Risk is a pervasive condition of human existence. Although our instinctive understanding of the concept of risk is clear enough, terms that have a simple meaning in everyday usage sometimes have ...

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