Property and Casualty Principles Review Test

D - $30,000

A building is valued at $50,000. The owner has $40,000 of insurance to meet the requirement of an 80% coinsurance clause. The building suffers a $30,000 loss. The insurance company will pay A - $50,000 B - $24,000 C - $40,000 D - $30,000

C - A Lloyd's association

A group of private individuals voluntarily agree to write insurance for a variety of risks. This type of company is known as A - a reciprocal company B - a stock company C - A Lloyd's association D - a mutual company

B - both property and liability coverage

A homeowners policy provides A - property, liability, and auto coverage B - both property and liability coverage C - liability coverage only D - property coverage only

A - a standard policy

A type of policy issued by several different companies, but with identical wording, is called A - a standard policy B - a mutual policy C - a stock policy D - a reciprocal policy

A - a reciprocal company

All members of a club to which you belong agree to insure each other, sharing all of the losses or profits. This would be known as A - a reciprocal company B - a mutual company C - a Lloyd's association D - a stock company

C - Insurance has nothing to do with risk

All of the following are reasons that insurance is not like gambling EXCEPT A - insurance covers only pure risks B - there is no financial gain in insurance, even if insureds receive more on a claim than they paid in premiums - benefits simply restore insureds to the approximate financial condition they were in before the loss C - Insurance has nothing to do with risk D - insurance operates by the principle of indemnity, but gambling doesn't

B - liability for damage due to another's property

All of the following are types of property loss EXCEPT A - loss of income due to the loss of the property B - liability for damage due to another's property C - additional expenses caused by the loss of the property D - loss to the property itself

D - a written document containing information about the insured for use by the company

An application for insurance is A - a form that outlines the insuring agreements B - a binder that guarentees the coverage requested C - a release to the company for application of claim payment D - a written document containing information about the insured for use by the company

A - the claim department

An insurance company employee who inspects losses and determines the amount to be paid for a loss would work in A - the claim department B - the legal department C - the underwriting department D - the auditing department

C - the actuarial department

An insurance company employee who uses statistics to develop insurance rates would work in A - the accounting department B - the investment department C - the actuarial department D - the claims department

A - crime

Any of the following types of coverage can be provided under a commercial property coverage part EXCEPT A - crime B - business income and extra expense C - builders risk D - building and personal property

B - Danny has no insurable interest in the United Nations building

Danny decides that he would like to get a piece of the action by buying part of an insurance policy covering the United Nations building in New York. He figures that if the building burns, he would collect some money. Of course, this is an impossible plan because A - the principle of subrogation prevents the payment of money to those not directly involved with the loss B - Danny has no insurable interest in the United Nations building C - insurance is primarily based on the theory of substituting certainty for uncertainty D - the United Nations building is 1 of the world's truly fireproof buildings.

B - feature clear language and larger type

Easy-to-read insurance policies A - use highly technical language B - feature clear language and larger type C - are rare D - are being replaced in most states by more legalistic documents

D - accidental in nature

George wants insurance to indemnify himself for the gradual wearing out of the roof on his house. Which answer choice below best completes the reason that such a loss would be difficult to insure? A - a risk to a sufficient number of people B - calculable C - catastrophic D - accidental in nature

D - an exclusive producer

Grant, a producer, represents only the Direct City Insurance Company. He, therefore, could be referred to as A - a broker B - a general producer C - a nonexclusive producer D - an exclusive producer

C - the insuring agreement

Here is a sample part of an insurance policy: "In consideration of payment of premium the company will indemnify the insured for all losses as a result of fire, windstorm, or theft." This portion would be part of A - the exclusions B - the conditions C - the insuring agreement D - the declaration

D - the exclusions

Here is a sample part of an insurance policy: "this policy does not apply to any property damage incurred as a result of nuclear attack or the result of an explosion of any nuclear powered device." This portion would be part of A - the declarations B - the conditions C - the insuring agreement D - the exclusions

A - void the policy

If an insured obtains coverage by an international misrepresentation or concealment of a material fact, the insurance company could A - void the policy B - suspend the policy C - subrogate the policy D - waive the policy

C - Collision

In general, damage caused to the insured's vehicle by impact with another vehicle or object is paid under which of the following specific personal auto policy coverages? A - comprehensive B - supplementary payments C - Collision D - Specified perils

A - negligence

In order to be held legally liable for damages, an individual must generally be guilty of A - negligence B - indemnification C - a crime D - insurance fraud

A - protect the lender's financial interest in the car in the event it is damaged or destroyed

In order to get a loan to buy a car, John had to obtain insurance on the car. The purpose of the insurance requirement is to A - protect the lender's financial interest in the car in the event it is damaged or destroyed B - create an additional source of revenue for the lender C - include the insurance company as a cosigner on the loan in case John defaults on his payments D - prove to the lender that John has a sense of responsibility toward his obligations

A - joint insurable interest

Jared and Miranda Ashram purchased a $150,000 house. They paid $30,000 as a down payment and borrowed the remaining $120,000. In regard to the insurance on the Ashrams' home, this is an example of A - joint insurable interest B - compounded equity C - subrogation D - indemnification

A - $56,250

John's home is valued at $125,000. He has it insured under a policy with an 80% coinsurance requirement. If John carries $75,000 of coverage and suffers a $75,000 loss, how much will he collect? A - $56,250 B - $125,000 C - $75,000 D - $0

B - individuals or families

Personal lines refers to insurance written for A - security risks B - individuals or families C - Businesses D - invasion of privacy risks

C - a minimum premium

Suppose Geraldine purchases a special insurance policy to protect her valuable fur coat. The producer says that the premium was calculated as $80, but the company must charge at least $100. This is an example of A - An earned premium B - an unearned premium C - a minimum premium D - subrogation

A - recover payments from Company B due to the right of subrogation

Suppose Kyle is insured by Company A. He suffers a loss due to the negligence of Kim, insured by Company B. Company A pays Kyle for his loss. Company A may now A - recover payments from Company B due to the right of subrogation B - sue Company B under the loss payee clause C - Assign the policy to Company B under the concurrency clause D - exclude Company B from future business in that state under the apportionment clause

C - any 2 of the 3 parties (2 appraisers and 1 umpire) agree to an amount

Suppose an insured feels that a loss settlement offered by his insurance company is inadequate. He initiates appraisal action. He appraiser and the company's appraiser cannot agree on an amount, so an umpire is called in. The final determination of the amount the insured will be reimbursed occurs when A - the insurer and 1 appraiser agree to an amount B - the insured and 1 appraiser agree to an amount C - any 2 of the 3 parties (2 appraisers and 1 umpire) agree to an amount D - both appraisers and the umpire agree to an amount

A - 2 months of earned premium involved

Suppose the Cheyenne Insurance Company issues a policy to Allen on January 15. Allen decides that after March 15 of the same year, he no longer requires the coverage and wishes to cancel the policy. There will be approximately A - 2 months of earned premium involved B - 10 months of earned premium involved C - 2 months of unearned premium involved D - 12 months of earned premium involved

B - an admitted insurer

The Stormy Mutual Insurance Company of Omaha, Nebraska, is license to sell insurance in Illinois, Indiana, and Iowa. In these 3 states it is: A - A domestic insurer B - an admitted insurer C - an alien insurer D - a nonadmitted insurer

B - a wide variety of coverages, 1 of the most important of which is liability insurance

The casualty line of insurance includes A - protection against the risk of financial loss due to premature death or outliving one's financial resources B - a wide variety of coverages, 1 of the most important of which is liability insurance C - liability insurance only D - protection against loss to property only

A - peril

The cause of a loss is a A - peril B - condition C - risk D - hazard

D - premium

The consideration given by the insured in an insurance contract is the A - insurance policy B - claims reimbursement C - underwriting decision D - premium

B - the loss control department

The department within an insurance company most interested in loss prevention and assisting insureds with their safety programs would be A - the legal department B - the loss control department C - the marketing department D - the underwriting department

D - improving service

The extra effort insurers have made to respond effectively to catastrophes is an example of promoting better understanding of insurance through A - seeking publicity B - stricter regulatory compliance C - extensive advertising D - improving service

C - the legal department

The insurance company department that is concerned with interpreting state insurance law and making sure company policy forms and practices are in compliance would be A - the actuarial department B - the marketing department C - the legal department D - the policy administration department

B - Contributes to the nation's economic well-being

The insurance industry employs millions of people and pays billions in tax revenue to the federal and statement government. These are 2 examples of how the insurance industry A - helps prevent losses B - Contributes to the nation's economic well-being C - Provides financial security for insureds D - Restores economic stability after catastrophic losses

D - the underwriter

The person having the final authority concerning the acceptance or rejection of a risk is called A - the producer B - the adjuster C - the actuary D - the underwriter

B - The insured should be restored financially to approximately the same position she was in prior to the loss.

The principle of indemnity is expressed in which of the following sentences? A - A loss must be large enough to create a financial burden for the insured in order for it to be insurable B - The insured should be restored financially to approximately the same position she was in prior to the loss. C - The insured should always receive less then the cost of a loss so he does not profit from the loss. D - An insured should always receive payment equal to the limits set forth in the policy.

C - life insurance

The type of insurance designed to handle the risk of financial loss due to premature death or outliving one's financial resources is A - casualty insurance B - health and disability insurance C - life insurance D - property insurance

D - misrepresentation

To make a sale, a producer assures a prospect that a policy will cover a type of loss that the policy excludes. This is an example of A - Adequate disclosure B - a disreputable, but not illegal, sales practice C - an unfair claim settlement practice D - misrepresentation

B - Physical

What type of hazard is normally represented by a factory that handles hazardous chemicals? A - Moral B - Physical C - Morale D - Perilous

C - the peace of mind of having coverage - being able to exchange the uncertainty of burdensome financial loss for a smaller, known cost

What value do insureds receive for purchasing insurance if they never have a claim? A - Nothing B - a larger share in the profits of the company that insureds who have filed claims C - the peace of mind of having coverage - being able to exchange the uncertainty of burdensome financial loss for a smaller, known cost D - A return of all their premiums at the end of the policy period

A - physical damage

Which coverage in the personal auto policy reimburses the insured for damage to the insured's own car? A - physical damage B - liability C - medical payments D - mechanical breakdown

D - combined ratio

Which of the following is NOT a method used by insurers to determine the amount of indemnification for a loss? A - Actual cash value B - Market value C - Replacement cost D - combined ratio

B - merit rating

Which of the following methods involves the determination of premiums using a discount based on past experience? A - manual rating B - merit rating C - Reinsurance rating D - judgement rating

A - the insured only

Which party in an insurance contract may cancel a policy by notifying the other party in writing or surrendering the policy to the other party? A - the insured only B - both the insured and the insurance company C - neither the insured nor the insurance company D - The insurance company only

A - a deposit premium and then provides periodic reports to the insurer so the premium can be adjusted

With a reporting policy, the insured pays A - a deposit premium and then provides periodic reports to the insurer so the premium can be adjusted B - no premium until the end of the policy period C - A set premium for each policy period D - no premium

C - covers an employer for benefits the employer must pay under state law to employees injured on the job

Workers compensation insurance A - provides retirement benefits for employees B - provides disability benefits for employees injured off the job C - covers an employer for benefits the employer must pay under state law to employees injured on the job D - covers an employer's loss of income when workers go on strike

A - pay the insurer for the insurance policy

You ask an insurance producer, "How much is the premium for this policy?" You are interested in knowing how much you would A - pay the insurer for the insurance policy B - have to pay in additional charges to obtain an excluded coverage C - Receive as a refund if you decide to cancel the policy if you no longer require the coverage D - collect for any loss you might sustain

D - automatically own and control a portion of the company

You see an advertisement urging you to buy insurance from a producer representing Stearman Mutual Insurance Company. If you purchase your insurance from this company, you would A - agree to insure everyone else in the company B - be able to purchase stock from the company C - not be able to vote for the management of the company D - automatically own and control a portion of the company