Chapter Quiz Questions 1

The process of determining the premium charged and how much insurance is requieres for a particular loss is called

Loss valuation

The insured's house is located one mile from the county's new landfill and across the road from the entrance of a rock quarry. It would cost $150,000 to rebuild the house if something happened to it, but when the insured tried to sell it, the best offer he received was $80,000. The insurance company will insure the house for only $80,000. What method of valuation is used to insure this property?

Market Value

The insured's house is located one mile from the county's new landfill and across the road from the entrance of a rock quarry. It would cost $150,000 to rebuild the house if something happened to it, but when the insured tried to sell it, the best offer he received was $80,000. The insurance company will insure the house for only $80,000. What method of valuation is used to insure this property?

Market value

For insurance purposes, when an insured loses property to another because the person used violence or threat of violence to gain the property, this is defined as

Robbery

Which of the following would be covered under personal injury liability?

Slander

Property insurance that provides $100,000 coverage for a building and $50,000 coverage for personal property at a single location is called

Specific coverage

Events in which a person has both the chance of winning or losing are classified as

Speculative risk

A property insurance policy that is not subject to any coinsurance requirements but has a set amount of insurance scheduled for the property would use what loss valuation method?

Stated amount

Peril is most easily defined as

The cause of loss insured against

All of the following statements concerning coinsurance are true EXCEPT

The coin insurance formula will also be applied to total losses

Which of the following is most likely to occur if it determined by the audit that the deposit premium was too high?

The insured will receive a return premium

For the purpose of insurance, risk is defined as

The uncertainty or chance of loss

Which of the following best expresses the purpose of a stated value contract?

To pre-establish the amount of coverage available for property items that are difficult to value

When a direct chain of events resulting from a negligent act causes injury or damage, that act is considered to be

proximate cause

Which of the following is used in the formula for calculating the actual cash value of a property?

replacement cost

Payment for medical expenses, loss of wages, funeral expenses, or the cost to repair or replace damaged property are known as what type of compensatory damages?

special

What are two types of compensatory damages

special and general

An insured owns several buildings, each at a different location and insured on a separate policy. What type of coverage does the insured have?

specific

An insured relocated to another state for work. However, she still owns and insures a house in this state, but has had no one living in it for 3 months. She is also storing some of furniture and clothes in the house. From an insurance standpoint, the insured's house is considered

unoccupied

An insured's roof cost $4,000 when installed 5 years ago. It has been damaged by hail and must be replaced. The new roof will cost $6,000 at today's prices. If the roof has been depreciating at $200 per year and the insured's policy is written on the actual cash value(ACV), how much will the policy pay toward the insured's new roof?

$5000

A $100,000 house insured on a policy with an 80% coinsurance requirement has a fire that caused $40,000 of damage; the owner has a policy with $60,000 coverage. How much can the owner collect for his loss?

30,000

An insured's building has an actual cash value of $200,000, and he has insured the property for $120,000 with 80% coinsurance clause. A $40,000 loss occurs. How much will the policy pay?

30,000

If a liability policy had split limits of 50/100/30, what is the maximum amount that would be payable in the event of injury to a single person?

50,000

An insured owns a building that is valued at $400,000. To comply with the 80% coinsurance provision of his insurance policy, how much should he insure the property for?

80% of the property's replacement cost or more

Which of the following definitions best defines the term "accident"?

A sudden, unplanned and unexpected event, not under the control of the insured, resulting in injury or damage neither expected nor intended

What is a Certificate of Insurance

A written document showing the types and amounts of insurance that have been issued to the insured

What type of liability would a person who owns wild animals have?

Absolute

Which of these is defined as the maximum limit of coverage available under a liability policy during a policy year, regardless of the number of claims that may be made or the number of accidents that may occur?

Aggregate limit of liability

With respect to the business of insurance, a hazard is

Any condition or exposure that increases the possibility of loss

Insurable interest in a property policy must be proven

At the time of loss

A policy that insures all property at multiple locations for a single amount is refereed to as?

Blanket Insurance

A man is working on the roof of his house, and his neighbor is watching from the ground. When roof shingles are thrown off the roof, they hit the neighbor in the face, injuring his eye. Which best classifies the homeowner's legal liability?

Bodily Injury

Taking of property from within the premises leaving visible signs of forced entry is defined as

Burglary

The crime of forced entry into the premises of another by a person or persons with felonious intent is defined as a

Burglary

An insured is driving her car through a residential area when she loses control and crashes into a neighbor's front porch. The neighbor, who was sitting on the porch, is injured. The insured's liability policy has a limit of $500,000. This amount applies to the total of damages for any bodily injury and property damage resulting from one accident. Which type of limit of liability does the insured have?

Combined Single

An insured's business is damaged because of a fire, and he is forced to close the business temporarily for repairs. As a result, the insured lost income. What type of loss is this?

Consequential

In property and casualty insurance, what is the term for the amount of a loss that the insured must cover out of pocket, and the insurer will only pay for the additional amount of the loss above this limit?

Deductible

An insured is applying for a casualty insurance policy. One of the conditions of the policy allows the insurance company to inspect the insured's books at the end of the policy term to make sure sufficient premium has been collected for the exposure she plans to insure. Which condition is part of the insured's policy?

Deposit premium audit

A beauty parlor burns to the ground. What type of loss is this to the owner?

Direct

What term includes damage where the insured peril was the proximate cause of loss?

Direct loss

What is the purpose of the coinsurance clause found in property insurance policies?

Encourage the insured to insure the property closer to its full value

What type of compensatory damages will pay for pain and suffering and disfigurement?

General

Events or conditions that increase the chances of an insured loss occurring are referred to as

Hazards

Which insurance principle states that if a policy allows for greater compensation than the financial loss incurred, the insured may only receive benefits for the amount lost?

Indemnity

To purchase insurance, the policy owner must have financial interest in the property insured. This is known as

Insurable interest

All of the following are factors in the determination of actual cash value EXCEPT

Insurance premium paid

Persons covered under an insurance policy, whether named or not, are known as the

Insureds

All of the following are true regarding deposit premium EXCEPT?

It is 50% of the actual premium

All of the following states describe the concept of strict liability EXCEPT

It is imposed on defendants engaged in hazardous activities

For the reported losses of an insured group to become more likely to equal the statistical probability of loss for that particular class, the insured group must become

Larger

Insurance is a contract by which one seeks to protect another from

Loss

Which of the following is the basis for a claim against an insurance policy?

Loss

The process of determining the premium charged and how much insurance is required for a particular loss is called

Loss Valuation

Which of the following coverages in dwelling and homeowners policies is for indirect losses?

Loss of use

Most insurance policies exclude losses by

Mysterious disappearance

The failure to due what a reasonable prudent person would do under given circumstances is defined as

Negligence

Which of the following does the term proximate cause refer to

Negligence that leads to injury

Losses caused by continuous or repeated exposure to conditions resulting in injury persons or damage to property that is neither intended nor expected is the definition of which of the following terms?

Occurrence

What type of insurance policy insures against all risk of loss that are not specifically excluded by the policy?

Open peril policy

An insured has a liability policy that sets the amount for all claims that arise from a single incident at $50,000. Which type of limit of liability does this insured's policy have

Per occurrence

Which of the following is defined as the legal liability arising from physical damage to the belongings of others caused by negligence of an insured?

Property Damage Liability

What type of damages may be awarded by the court to create disincentives that discourage behavior that is seem high undesirable by society?

Punitive

The risk of loss may be classified as

Pure risk and speculative risk

Which method of loss valuation is contrary to the basic concept of indemnity?

Replacement cost

In property insurance, actual cash value is defined as which of the following?

Replacement cost at the time of the loss, less depreciation

In case of a loss, the indemnity provision in insurance policies

Restores an insured person to the same financial state as before the loss

Taking of property by use of force, violence, or fear is defined as

Robbery

When the amount of insurance written in a property policy is not subject to any coinsurance provision and that amount is paid in the event of a covered loss, the coverage is said to be written as

Stated amount

The policy provision found in the property insurance policies that prevents the insured from collecting twice for the same loss is called

Subrogation

The transfer of an insured's right to seek damages from a negligent party to the insurer is found in which of the following clauses?

Subrogation

A building is insured, but no one has lived or worked in it for 10 years. The building is completely empty of any furniture or personal belongings. From an insurance standpoint, the building is considered

Vacant

Liability imposed on one party as a result of the actions of another person is known as

Vicarious Liability

An insured's 9 year old son threw a ball, accidentally breaking a neighbor's plate glass window. The insured was found legally liable for the cost of replacing the window. This is an example of

Vicarious liability

When a parent is required to pay for damages caused by his or her children, this is an example of

Vicarious liability

In property and casualty insurance, what is the term for the amount of a loss that the insured must cover out of pocket, and the insurer will only pay for the additional amount of the loss above this limit?

deductible

An additional loss that results from a direct loss of property is called a/an

indirect loss

Most insurance policies exclude losses by

mysterious disappearance