Basics of Insurance
An insured purchased new furniture for $ 6,000. At the time of a fire loss, it had depreciated $2,000. At current rates, the same furniture will cost $7,000 to replace. the actual cash value of the destroyed furniture is:
$5,000
How many days does an insurance company have to give unearned premium back to an agent?
10 days
How many days does an agent have t o return unearned premium to an insured?
15 days
Insurance contracts are between how many parties
2
HOw many days does an insurer have to return unearnd premium to an insured?
25 days
A peril is defined as:
A cause of loss
Which insurance company is owned and formed for the benefit of its members
A mutual insurer
A fiduciary must hold funds and property, in a position of trust. They must also
Act in a prudent fashion
A person that solicits, negotiates and effect contracts on behalf of an insurer is a:
Agent (producer)
An insured loss reserved for a claim is:
An estimate of the amount that the insurer will pay
What is Hazard?
Anything that increases the chances of loss
A risk management technique that a loss exposure and reduces the chance of loss to zero is
Avoidance
In order for negligence to exist which of the following must be present?
Breach of the duty to act Occurrence of injury or damage Duty of act
A person that sells insurance for only one company is
Captive agent
The process whereby an insured suffers a loss and is paid to return him to his prior financial condition is:
Ceding
An illegal practice which occurs when an agent mixes personal funds with the insured's or insurer's funds
Commingling
Failure to disclose material facts is:
Concealment
A term that refers to a situation in which two or more perlis cause a loss
Concurrent causation
What department is set up in order to regulate insurance rates?
DOI
Where is a policy personalized to say who is covered, what is covered, limit of insurance and policy period?
Declarations
In an insurance contract, D.I.C.E refers to:
Declarations, Insuring clause, Conditions, and Exclusions
A reduction in the value of property that results immediately from damage to the property is known as:
Direct Loss
Provision that deny coverage for certain perlis
Exclusions
The insuring agreement contains all of the following except
Exclusions
Grouping people by similar characteristics is:
Fair discrimination
A speculative risk, like a pure risk is insurable
False
Compensatory damages in a hearing will generally determine the amount of punitive damages
False
An insurer cancels a policy an returns the entire premium. this is:
Flat cancellation
An insurer organized in a state outside of the state of California can be referred to as what kind of insurer
Foreign
Misrepresentation, deceit or trickery can be defined as:
Fraud
Because insurance is a contract of adhesion, ambiguous language in a contract will show which party at fault
Insurance company
Assignment/ transfer cannot be made without written consent from
Insurer
A monoline policy
Is a policy that is written to cover property only
Insurance has a number of characteristics. Witch of the following is not one of them
It involves a catastrophic exposure
The insured should be compensated for his loss, returning him to the condition that existed prior to the loss. this is the principle of indemnity. which of the following is correct?
It is a basic principle of insurance
Which of the following is a true statement about the insurance?
It is a method of transferring the risk
Which of the following is not a benefit of insurance?
It reduces the risk exposure
The total amount an insurance company is liable to pay out is:
Limit of insurance
A pure risk involves a chance of
Loss
To qualify as an insurable risk
Losses must be definable losses must be accidental losses must be enough to cause hardship to the insured
An incorporated insurer owned by its policy holders and formed for their benefit is called
Mutual insurer
Which of the following is an example of loss retention?
Not purchasing collision insurance on your auto
An event that result in a loss to an insured at a definite time and place or due to repeated exposure can be defined as
Occurrence
Insurers may purchase reinsurance for a variety of reasons. Which of the following is NOT a goos example of the use of reinsurance? Insurer purchases reinsurance:
Only on the below average business submitted to them, keeping the good business to them.
Which of the following must be on ALL insurance policies?
Parties of the contract Insurable interest Term of the policy
To what does insurable interest mean?
Peril
If an individual or a family suffers a loss due to death or disability of a member, what type of loss is it?
Personal Loss
A house located next to a dynamite plants is considered what kind of hazard
Physical
The method in which the insurance companies receive approval from the DOI before using certain rates
Prior approval
When the insured cancels a policy and only retain the earned premium, this is:
Pro-rata cancellation
Insureds must comply with certain provisions when submitting a claim these include:
Prompt notice of loss or damage Submitting claims Notifying the police if theft is involved
Which of the following is an example of reducing risk probability
Putting a fence around the pool
What effect does increasing a deductible have on a policy?
Reduces the premium payment
A way for insurers to avoid having to pay for large or catastrophic losses
Reinsurance
Insurance companies transfer part of a particularly large risk through what process
Reinsurance
The amount to replace property with like property of the same quality and construction is the
Replacement cost
What is the actual cash value
Replacement cost - depreciation
When suffering a covered loss an insured individual should do which of the following
Send a list of items damaged statin the quantity and receipts of purchase. Submit to an interview with the insured's representative without any other person present Notify the police if there is a theft loss
When an insurance policy is cancelled by the insured, and the company retains premium for the protection provided plus expenses, cancellation is said to be on a:
Short rate basis
The insurer's right to recovers its claim payment to an insured from a negligent 3rd party is know as:
Subrogation
To what does lapse refer?
Termination due to non-payment
An insured suffers a loss caused by a third party. How will the insured's insurance company handle the claim?
The insurer will pay the insured for a covered loss and seek reimbursement from the party at fault with the cooperation of the insured
Which of the following statement is true regarding compensatory damages?
There is usually no direct correlation between the amount of general and special damages awarded to the victim.
What is unoccupied?
There may be furniture but no people in a building
Liability losses are referred to as
Third party losses
If it is proven that another person negligence contribute to an injury, ehant gives the injured party the right to seek compensation?
Tort of law
The main purpose of insurance is to:
Transfer the risk
A consequential loss in not directly caused by a peril but assumed as a result of a direct loss
True
A deductible is the portion of a loss retained by the insured before the insurer will cover a claim
True
Coinsurance refers to the amount of insurance an insured must carry in order to be fully insured
True
Complete the definition. A risk is
Uncertainty of loss
The system in which the insurers determine who to insure and what rates to charge is known as:
Underwriting
What is the process called whereby insurers decide which customers to insure and what coverage to offer?
Underwriting
Aleatory in nature refers to:
Unequal exchange by two parties
Which of the following is not a method for risk management?
Variance
Through what kind of liability can a person be held responsible for the actions of others. i.e. negligent acts of a child or employee
Vicarious
If an insured voluntary relinquishes his rights, this is an example of:
Waiver
A policy may not be transferred to another without:
Written consent of the insurer