P & C Unit 3 checkpoint

Nathan and Allison have two insurance policies on their home. Policy A has a coverage limit of $100,000. Policy B has a coverage limit of $200,000. When Nathan and Allison have a house fire and have a $100,000 claim, Policy A paid $50,000 and Policy B paid $50,000. This is an example of which other insurance provision?

Contribution by equal shares Reason - Under the contribution by equal shares provision, all insurers pay equal amounts, up to the limit of the policy with the smallest limit. When that company pays its policy limit, it stops paying and the other companies share in the remainder of the loss. This continues until each company has paid its policy limit or the loss is paid in full.

Which of the following is NOT part of the underwriting process?

Evaluating premium expense loads Reason - Underwriting is the process of evaluating the risk and exposures of potential clients. During the underwriting process, the premium amount and coverage amount of the applicant is determined. Insurance companies employ underwriters who ultimately decide whether to accept or reject the applications sent in by producers or agents on the basis of company underwriting standards.

Natalie has an insurance policy that specifically does NOT cover flood damage. This information can be found in which of the following sections of the policy?

Exclusions section Reason - Exclusions take coverage away from the insuring agreement by describing property, perils, hazards, or losses arising from specific causes that are not covered by the policy.

Which following NOT example insurable interest?

Person's interest in property she sold Reason - A person does not have an insurable interest in property that she neither possesses nor owns.

Which of the following states that a policy may not be transferred to anyone else without the written consent of the insurer?

The assignment condition Reason - The assignment condition specifies that a policy may not be transferred to anyone else without the written consent of the insurer. This provision is sometimes called the transfer of rights or duties under this policy provision. However, if the named insured dies, the policy may be assigned to the insured's legal representative until the policy renewal date.

Which part of the policy states the rules of conduct, duties, and obligations that are required for coverage?

The conditions section Reason - The conditions section states the policy provisions, rules of conduct, duties, and obligations required for coverage. If policy conditions are not met, the insurer can deny the claim.

Which of the following is NOT a factor that determines premium rates?

The insurer's credit Reason - Factors that determine premium rates include loss reserves (the amount the company thinks it will have to pay when a claim is made), cost of handling claims, operating expenses, and profits. Insurance companies employ actuaries to calculate the rates.

Which of the following statements about the deductible in an insurance policy is CORRECT?

The lower the deductible, the higher the premium. Reason - The deductible is the amount that must be paid out of pocket by the policyowner before an insurer pays any expenses. Insurance premiums are typically cheaper when they involve higher deductibles.

A written statement that gives an insured immediate coverage for a specified time is known as

a binder Reason - A binder is a temporary written oral statement made by the insurer that gives the insured immediate coverage for a specified period of time.

According to the Gramm-Leach Bliley Act, anyone who has an ongoing relationship with a financial institution is considered to be

a customer Reason - Anyone about whom a company collects information is a consumer. A customer is a consumer who has an ongoing relationship with the financial institution.

All of the following statements about the Fair Credit Reporting Act are true EXCEPT

a notice to the applicant must be sent within five days after the report is requested Reason - A notice to applicant must be sent within three days after is requested.

Brady and his wife Julie had an insurance policy that was cancelled by the insurer before the expiration date. They will receive a portion of their premium back on

a prorated basis Reason - In a case where the insurer cancels the insured's policy, the entire unearned premium is returned on a prorated basis. A prorated basis means that the insured will receive a portion of the premium back, depending on when the policy is canceled.

The penalty for early cancellation of an insurance policy by the insured is applied on

a short-rated basis Reason - When an insured cancels a policy before the expiration date, the insurer is entitled to retain a larger percentage of the unearned premium. There is a surcharge or a penalty for early cancellation, and it is applied on a short-rated basis.

The declarations section of a policy contains all of the following information EXCEPT

covered perils Reason - Covered perils are part of the insuring agreement. The name of the insured(s), a current address, a legal description of the insured property, the policy deductibles, and the term of the coverage are contained in the declarations section.

Glenn's insurance policy was cancelled by the insurer on the effective date. This is called

flat cancellation Reason - When a policy is canceled on the effective date, by either the insurer or insured, it's called a flat cancellation.

All of the following statements about property insurance are correct EXCEPT

property insurance primarily provides coverage for damage to t property of others Reason - Property insurance provides insurance protection on belongings (from perils such as fire, theft, and weather damage). Casualty insurance is often known as liability insurance and provides insurance protection against the "other guy."

Casualty insurance

protects an insured from legal liability arising from injury or damage to the property of others Reason - Property insurance provides insurance protection on belongings (from perils such as fire, theft, and weather damage). Casualty insurance is often known as liability insurance and provides insurance protection against the "other guy." Casualty insurance protects an insured from legal liability arising from injury or damage to the property of others.

All of the following are included in the duties after loss provision EXCEPT

salvage damaged property Reason - The insured must protect the property from further damage, not salvage damaged property.

A car speeds through the red light at an intersection, totaling his car. After his insurer paid for the total loss of his car, his insurance company brings suit against the negligent party to recover the amount paid for the loss. This is known as

subrogation Reason - Subrogation is the transfer to the insurance company of the insured's right of recovery against others. The subrogation provision may also be called transfer of right of recovery against others to us. Insurance companies have a legal right to sue a third party that has caused an insurance loss to the insured.

The amount of money that the insurance company makes by providing insurance for designated period is called

the earned premium Reason - When an insured pays premiums for months in advance, the insurer has to "earn" that premium each month in return for coverage provided.

The person that is listed on the declarations page when there are multiple people insured in a policy, and may have higher level duties or rights in the policy, is known as

the first-named insured Reason - The named insured is the person, business, or other entity named in the declarations to which the policy is issued. The first-named insured is the person listed first on the declarations page when there is more than one named insured. The policy may assign a higher level of duties or rights to the first-named insured.

A promise to pay and perils covered is described in

the insuring agreement Reason - The insuring agreement describes the covered perils or risks assumed by the insurer and makes reference to the contractual agreement between the insurer and insured.

All of the following statements about cancellation and nonrenewal of an insurance policy are true EXCEPT

the named insured can only cancel the policy on the renewal or expiration date Reason - Insurance policies have a beginning date and an ending date, also known as an inception date and an expiration date. An insurance policy can be stopped by the insured before the expiration date, which is known as cancellation.

Randall has an insurance policy that states that his policy began at 10:00 AM EST on January 17th of the current year and ends at 12:01 AM EST on January 17th of the following year. These details are known as

the policy period Reason - The policy period is the duration of the policy. It is the date and time, including where and in what time zone, coverage begins and ends. Six months, 1 year, or even 3 years are common policy periods.

The provision that states where a loss must occur for it to be covered is known as

the policy territory provision Reason - The policy territory provision states that a loss will not be covered unless it occurs within the policy territory. The territory typically includes the US, Canada, Puerto Rico and other U.S. territories and possessions. Mexico is usually excluded.