Chapter 2 Quiz - Policy Provisions and Contract Law

All of the following are found in the declarations section of a policy EXCEPT the a) exclusions b) policy premiums c) name of the insured d) limits of insurance

a) exclusions

The part of the insurance contract that describes the covered perils and the nature of coverage of the contractual agreement between the insurer and the insured is called the a) exclusions b) declarations c) insuring agreement d) conditions

c) insuring agreement

Which of the following describes the transfer of legal right or interest in an insurance policy? a) abandonment b) obligation c) legal purpose d) assignment

d) assignment

Termination of an in-force insurance policy prior to the expiration date shown in the policy is known as a) cancellation b) rescission c) nonrenewal d) cessation

a) cancellation

What term best describes the act of withholding material information that would be crucial to an underwriting decision? a) concealment b) withholding c) leading d) breach of warranty

a) concealment

Which of the following would modify the original insurance contract by either adding or removing coverage? a) endorsements b) additional coverage form c) conditions d) flexible policy

a) endorsements

The declarations page of the homeowners policy provides all of the following information EXCEPT a) what deductible amount applies to each loss covered by the policy b) a statement that earthquake damage is not covered c) the amount of premium charged for each coverage d) the insured's address

b) a statement that earthquake damage is not covered

An insured insists that the insurer owes him $10,000 for liability damages, while the insurer asserts that they owe no more than $7,000. Which of the following would most likely describe the type of claim settlement that the insured and insurer might pursue? a) appraisal hearing b) arbitration c) small claims court d) independent audit

b) arbitration

In the terms of parties to a contract, which of the following does NOT describe a competent party? a) the person much have at least completed secondary education b) the person must not be under the influence of drugs or alcohol c) the person must be of legal age d) the person must be mentally competent to understand the contract

a) the person much have at least completed secondary education

The part of a policy that clarifies terms in the policy is the a) exclusions b) definitions c) insuring agreement d) conditions

b) definitions

The proof of a loss statement must be a) an oral statement b) in writing c) both oral and in writing d) in a videotape format

b) in writing

Persons covered under an insurance policy, whether named or not, are known as the a) additional insureds b) insureds c) named insureds d) first named insureds

b) insureds

The Federal Fair Credit Reporting Act a) prevents money laundering b) regulates consumer reports c) protects customer privacy d) regulates telemarketing

b) regulates consumer reports

The Gramm-Leach-Bliley Act was passed to a) allow insurance companies access to medical information for underwriting purposes b) protect private customer information filed with a financial institution c) define insurance as interstate commerce d) allow consumers access to credit and private consumer reports

b) protect private customer information filed with a financial institution

When a mortgagee is named in a mortgagee clause attached to a fire or other direct damage policy a) the loss reimbursement is not awarded if damages arose from the insured's negligence b) the loss reimbursement is paid to the mortgagee c) the mortgagee is prohibited from bringing a suit against the insurer d) the loss reimbursement is paid to the insured

b) the loss reimbursement is paid to the mortgagee

Which of the following is a statement that is guaranteed to be true, and if untrue, may breach an insurance contract? a) representation b) warranty c) concealment d) indemnity

b) warranty

Duties of the insurer found in property policy conditions include all of the following EXCEPT a) provide advance notice of cancellation b) return any premiums to the insured c) notify the insured in the event of financial difficulty d) pay covered losses

c) notify the insured in the event of financial difficulty

In return for a premium, an insurance company must a) give the insurer valuable consideration b) be fair in underwriting and pay covered losses c) provide the insured with coverage adequate for all potential losses d) use standardized tables of coverage for specific risks to be excluded from coverage

c) provide the insured with coverage adequate for all potential losses

Which of the following would qualify as a competent party in an insurance contract? a) the applicant is under the influence of a mind-impairing medication at the time of application b) the applicant is intoxicated at the time of the application c) the applicant has a prior felony conviction d) the applicant is a 12-year-old student

c) the applicant has a prior felony conviction

A policy condition that stipulates how the amount of damaged or lost property will be determined if the insured and the principal do not agree on the value of a property loss is known as a) coinsurance b) loss valuation c) third-party provision d) appraisal

d) appraisal

Which of the following clauses establishes the procedure for determining the amount of a loss when the insurer and the insured cannot agree on the value of property or amount of loss? a) loss payment clause b) valuation clause c) loss settlement clause d) appraisal clause

d) appraisal clause

When a disagreement occurs as to how to settle a loss in a "fender bender" between two cars, what procedure is followed? a) a lawsuit is filed b) appeal to the DOI c) the adjuster's first opinion must be accepted d) arbitration through the court

d) arbitration through the court

Because an insurance policy is a legal contract, it must conform to the state laws governing contracts which require all of the following elements EXCEPT a) consideration b) legal purpose c) offer and acceptance d) conditions

d) conditions

Untrue statements on the application unintentionally made my insureds that, if discovered, would alter the underwriting decision of the insurance company, are called a) material misrepresentations b) fraudulent statements c) warranties d) common errors

a) material misrepresentations

Which of the following would NOT be considered a source of insurability information by an insurer? a) the applicant's marital status b) interviews with the applicant's neighbors and friends c) motor vehicle records d) insurance history

a) the applicant's marital status

When an insurance policy does not offer a continuation or replacement of its expiration date, it is considered a a) suspension b) cessation c) cancellation d) nonrenewal

d) nonrenewal

An insurer neglects to pay a legitimate claim that is covered under the terms of the policy. Which of the following insurance principles has the insurer violated? a) adhesion b) consideration c) good faith d) representation

b) consideration

Which of the following is NOT the consideration in a policy? a) the application given to a prospective insured b) something of value exchanged between parties c) the premium amount paid at the time of application d) the promise to pay covered losses

a) the application given to a prospective insured

In forming an insurance contract, when does acceptance usually occur? a) when an insurer's underwriter approves coverage b) when an insurer delivers the policy c) when an insurer receives an application d) when an insured submits an application

a) when an insurer's underwriter approves coverage

The section of an insurance policy that details what perils are not insured against and what persons are not insured is known as the a) exclusions b) declarations c) endorsements d) conditions

a) exclusions

A homeowner sells his house to a friend. The friend wants to keep the homeowner's current policy in effect. Under the assignment provision, which of the following is most likely? a) the homeowner will need to get written consent from the insurer before the policy can be reassigned b) the policy will have to be cancelled c) the homeowner should let the friend take over the premium payments d) the friend will have to apply for coinsurance from another insurance company

a) the homeowner will need to get written consent from the insurer before the policy can be reassigned

When an insured makes truthful statements on the application for insurance and pays the required premium, it is known as which of the following? a) contract of adhesion b) acceptance c) consideration d) legal purpose

c) consideration

Under the professional liability loss settlement provision, what must an insurer do before offering to pay a claimant to settle a claim? a) cancel the insured's policy b) refuse new business c) get the insured's consent d) sue the claimant

c) get the insured's consent