Review Questions Part One
The insured purchased a car for $40,000 and added $5,000 in insured modifications. Four years later it was worth $24,000 when it was totaled in a crash. According to the principle of indemnity, how much should the insured receive from the insurance proceeds?
$24,000
Dionne has insured her $100,000 commercial building for $40,000 despite a coinsurance requirement of 80%. when she sustains a $10,000 covered loss, how much will the company pay?
$5,000
Ned purchases his business insurance on a calendar year basis. Even though his $10,000 premium is pre-paid through December 31, he decides to cancel on July 1, because he is selling his business. If he is due a pro rata refund, what should he receive?
$5,000
Dave's building has a replacement cost value of $100,000. He insures the building for $70,000 using the standard deductible. the building sustains a covered loss valued at $8,000 ACV and at $12,000 replacement cost. How much does Dave's company pay?
$7,500
Mandy insures a commercial building worth $500,000 for $300,000 even though there is a coinsurance requirement of 80%. If she sustains a $100,000 loss, how much will she be paid?
$75,000
John owns a collectors set of Three Stooges mugs. Each of the three mugs depicts one of the stooges and is worth $1,000. The set of three is worth $10,000. If the Curley mug is destroyed by a covered peril, the Pair and Set Clause would dictate what settlement amount to John, disregarding the deductible?
$8,000
trey has insured his $100,000 commercial building for $90,000 in order to meet the coinsurance requirement of 80%. when he sustains a total loss by a covered peril, how much will the company pay?
$90,000
broad perils
(BIGAFFECT) Buglary, Ice, Glass, accidental release of water, freezing pipes, falling objects, Electrical current, collapse, Tearing asunder
Basic Perils
(FLEW RVVVSSS) Fire, Lightning, Explosion, Windstorm/Hail, Riot or Civil Commotion, Vandalism, Volcanic Action, Vehicles/Aircraft, Smoke, Sprinkler Leakage, Sinkhole Collapse
Under the fair credit reporting act, a licensee must give notice to the consumer no later than how many days after a report is requested?
3 days
Under the national flood insurance program, coverage becomes effective on which calendar day after the application is completed and the premium is paid?
30th
coinsurance requires the insured to carry minimum amount of insurance. the coinsurance requirement is normally what percentage of the replacement cost?
80%
Non-concurrency
A situation under which at least 2 policies cover an insured's property against damage or destruction, but since the limits of coverage, kinds of property, and perils covered are not the same under all policies, the insured may not be full covered in the event of a loss. (Example: A building is covered for a total of $500,000. Company A provides $250,000 of the total and provides theft coverage, Company B provides $250,000 of the total and does not cover theft, and the building sustains a $100,000 theft loss. Company A would pay $50,000 of the loss, and Company B would pay nothing.)
Who may bring a civil action in the appropriate United States district court against any person engaging in conduct constituting an offense under Section 1033?
Attorney general
Smith insures his commercial building with Company A for $100,000 under a Basic Cause of Loss form and with Company B for $200,000 under a Broad Cause of Loss form. His building sustains a $30,000 loss due to the weight of ice and snow. How is Smith's loss covered?
Company A pays $0 and Company B pays $30,000
indirect loss
Loss that is a result or consequence of a direct loss
insurance policies are aleatory contracts because one party....
MAY benefit far more than the other.
valued policy
Provides for payment of the full policy amount in the event of a total loss without regard to actual value or depreciation
Who regulates investigative consumer reports?
The Fair Credit Reporting Act
what document provides interim insurance coverage?
a binder
an indirect loss is known as
a consequential loss
a house is on fire and ignites the neighbor's house. Damage to the neighbor's house would be considered..
a direct loss
material fact
a fact that caused the insurer to decline the risk or rate it differently
special damages
a form of compensatory damages for tangible expenses such as medical bills, property damage, and loss of earnings
what forms the basis of a loss under an insurance policy?
a loss
insurers can generally cancel a policy for any reason if it is
a new policy and within 60 days of issuance, a material misrepresentation by the insured, or a substantial change in the risk or for non-payment of premium
assume that oily rags start a fire in a storage building. the oily rags are
a physical hazard
short rate refund
a refund with a penatly
what is a binder?
a temporary insuring agreement to provide insurance coverage until the formal written policy is issued
who receives benefits paid by liability policies?
a third party
casualty is what type of contract?
a third-party contract (you, your company and the unknown injured third party)
property is a what type of contract?
a two-party contract (you and your insurance company)
what is an applicant's statement that the property to be insured has an operable sprinkler system that is never turned off considered to be?
a warranty
all of the following are true regarding torts EXCEPT: a. a tort is always unintentional b. another term for tort is negligence c. torts involve private relationships d. a tort is a civil wrong that violates the rights of another
a. a tort is always unintentional
which method of property valuation would include depreciation as a variable? a. actual cash value b. replacement cost c. functional replacement cost d. agreed value
a. actual cash value
which does NOT create legal obligation to pay? a. assumption of risk b. pre-trial settlement c. judgment of a court d. jury decision
a. assumption of risk
which is NOT a basic peril? a. collapse b. vandalism c. smoke d. explosion
a. collapse
regarding misrepresentation on an application for insurance, which statement is TRUE? a. if it material, the insurance company may contest the policy b. if it is intentional, it is a felony c. it is the same as a concealment d. after two years, it cannot be used to void coverage
a. if it is material, the insurance company may contest the polciy
all the following are considered special damages EXCEPT: a. mental anguish b. medical expenses c. cost to repair damaged property d. lost wages
a. mental anguish
in an insurance contract, consideration may be any of the following EXCEPT: a. money is paid as a claim b. conditional promises c. statements on the application d. the initial premium
a. money paid as a claim
which of the following explains market value in determining loss valuation? a. property is evaluated for the price a willing buyer would pay b. assessment of the accumulated cash value is considered before the loss c. depreciation gets deducted from the replacement cost for the property at the time of loss d. reimbursement is assessed from the repair costs less the actual value of the item after the loss
a. property is evaluated for the price a willing buyer would pay
which of the following is TRUE for stated value? a. the insured chooses the value of property b. a realtor chooses the value of property c. an adjuster chooses the value of the property d. the insurer chooses the value of property
a. the insured chooses the value of property
a car full of partygoers is hit by a train, how is this event best described?
accident
which valuation method uses the concept of depreciation?
actual cash value
which of the following describes an insurer that meets the insurance department's standards and is authorized to do business in the state?
admitted
how is a company chartered in New York doing business in California described?
admitted, foreign
which method of valuation is best for property that is practically impossible to replace such as art or antiques?
agreed value
which valuation method is used by the insurer and the insured to specify value of a particular property before the policy is issued?
agreed value
Mr. Robert Johnson paid premiums for property insurnce on his hardware store for 40 years without a claim. Bob Jr. bought the store from his Dad last month, paid his first property insurance premium, had a fire and collected $783,000. The inequality of values exchanged in the two contracts is why insurance policies are said to ve which kind of contracts?
aleatory
for which kind of contracts do both parties realize that one party may derive greater value form the contract than the other?
aleatory
means "chance." There is a chance of loss or no loss on any insurance policy.
aleatory
some insureds pay insurance premiums and never have a covered loss, while others may have a catastrophic event that pays much more than a lifetime of premiums. As a result, insurance contracts are considered to be..
aleatory
theft
an act of stealing (burglary, robbery, shoplifting even pickpocketing)
a participating company headquartered in Guam authorized to do business in your state would be described as which company?
an admitted, foreign mutuual company
which term refers to continuous or repeated exposure to conditions that may result in bodily injury or property damage which is neither expected nor intended?
an occurrence
what does an application for insurance contractually represent for the insured?
an offer
which type of authority holds that a producer may have whatever authority a reasonable person would assume the producer has?
apparent
the public assumes a producing agent has what kind of authority?
apparent authority
strict liability
applies to the Manfacturing of products. There is an implied warranty that the product is safe. If a product causes injury and can be shown to be defective, liability is imposed regardless of negligence
vicarious liability
applies when one person can be held responsible for the actions of another. It is based on the relationship between the two parties such as a parent and a child or an employer and an employee
moral hazard
arises from an individual's character and include dishonest tendencies that increase the probability of a loss
the national football league is being sued by a number of former players for head injuries. What is one defense available to the NFL?
assumption of risk
to be paid a claim under a Property and Casualty contract, when must insurable interest exist?
at the time of loss
which method of handling risk represents an insured's attempt to refrain from risk?
avoidance
which method of risk management is used when a person chooses NOT to drive because of the risk of having an automobile accident?
avoidance
punitive damages
awarded to punish wrongdoing and prevent the defendant from committing similar behavior
which is NOT necessary to establish negligence? a. duty b. admission of guilt c. proximate cause d. damages
b admission of guilt
All of the following are examples of direct loss EXCEPT: a. a fire destroys your personal property in your rental apartment b. after a car crash you have to rent a replacement vehicle c. a truck throws a stone and cracks your windshield d. a thief takes your computer from your locker
b. after a car crash you have to rent a replacement vehicle
punitive damages are intended to do all of the following EXCEPT: a. discourage others from doing wrong b. compensate for actual financial losses c. make an example of bad behavior d. discipline the insured
b. compensate for actual financial losses
a binder can expire on all of the following EXCEPT the a. day following notification of binder cancellation. b. date of application c. day the binder expires. d. day policy goes into effect
b. date of application
in insurance, which is NOT an example of risk? a. fire damage b. decline in stock value c. drought d. injury to a customer
b. decline of stock value
which is an example of a peril? a. icy roads b. hail c. faulty wiring d. fog
b. hail
all of the following activities are subject to strict liability EXCEPT: a. chemical processing b. in home child care c. staging fireworks displays d. manufacturing ladders
b. in home child care
which of the following gives a mortgagee rights at the time of loss? a. money to lend for restoration b. insurable interest in the property c. may pay the premium for insured d. may file a proof of loss for insured
b. insurable interest in the property
which of the following presents a basis for holding an insured responsible due to vicarious liability? a. repair person causes a fire fixing the insured's furnace b. insured's child injures a friend in a sports accident c. neighbors lawn mower throws a rock damaging insured's car d. store employee damages insured's vehicle while loading cargo
b. insured's child injures a friend in a sports accident
all of the following demonstrate insurable interest EXCEPT: a. adding collision coverage on auto due to a new loan b. insuring an engagement ring given to fiancée c. deciding to insure an inherited firearm collection d. purchasing fire insurance on a newly acquired cottage
b. insuring an engagement ring given to fiancée
Which of the following methods are losses settled on an actual cash value (ACV) basis? a. replacement cost b. less depreciation c. repair cost d. market value
b. less depreciation
when comparing Property coverages to liability coverages, which statement is TRUE? a. they are both two party contracts b. property is a third party contract, and liability is a two party contract c. property is a two party contract, and liability is a third party contract d. they are both third party contracts
b. property is a two party contract, and liability is a third party contract
all of the following are a producer's responsibility to the insured EXEPT: a. analyzing coverage needs b. settling and paying claims c. serving the best interest of the insured d. forwarding premiums to the insurer on a timely basis
b. settling and paying claims
calculable loss
based on the statistical expectation of loss and is used to determine the amount of premium charged
property coverage that does not require a specific limit of insurance for each item to be insured is called
blanket
all of the following establish a defense against negligence EXCEPT: a. contributory negligence b. the last clear change doctrine c. a denial of the validity of the claim in a court of law d. expiration of the statue of limitations
c. a denial of the validity of the claim in a court of law
car #1 hits car#2 which in turn hits car #3. the loss to car #3 is all of the following EXCEPT: a. an occurrence b. an accident c. an indirect loss d. a direct loss
c. an indirect loss
which of the following is an example of cost valuation? a. fair market value of item at time of loss b. actual cash value of item at time of loss c. cost new without depreciation at the time of loss d. cost of functional value of item at time of loss
c. cost new without depreciation at the time of loss
which of the following does a binder of coverage guarantee? a. a policy will be issued b. the application need not be completed c. coverage is in place immediately d. previous losses will be covered
c. coverage is in place immediately
underwriters are permitted to use all of the following when underwriting an application for insurance EXCEPT: a. credit reports b. inspection services c. disability d. claim history
c. disability
All the following are more likely to be insured by state or federal government programs EXCEPT: a. war risk insurance b. flood insurance c. employers' liability insurance d. unemployment insurance
c. employers liability insurance
which is NOT required to establish negligence? a. duty b. breach of duty c. intentional act d. damages
c. intentional act
which of the following describes market value? a. it represents cost to repair b. it is the same as value agreed to c. it is what property can be sold for d. it is what property is listed for by realtor
c. it is what property can be sold for
which is NOT legal defense to negligence? a. comparative fault b. assumption of risk c. lack of motive d. statute of limitations
c. lack of motive
all of the following are found on a declarations page EXCEPT: a. limits of insurance b. address of insured c. policy exclusions d. costs for coverage
c. policy exclusions
all of the following activities would warrant absolute liability EXCEPT: a. hazardous operations b. dangerous materials c. risky transportation d. dangerous animals
c. risky transportation
one of the criteria to determine an insurable risk is
calculable loss
absolute liability
can be imposed when an activity is deemed to be especially hazardous. It imposes a high degree of care and does not require negligence on the part of the party performing the activity
producers can or cannot bind coverage on a flood policy?
cannot
peril
cause of loss
which document would a lender ask an insured for as evidence that a policy has been written?
certificate of insurance
how is risk best defined?
chance of loss
which is NOT part of the consideration offered by either of the parties to an insurance contract? a. premium b. commissions c. promises d. statements on the application
commissions
If a covered loss occurs, the insured must provide proof of loss, and the insurer must respond within a specified time period following the loss. This is because insurance contracts are which type of contract?
conditional
where are the Rules of Conduct which govern the actions of the parties to an insurance contract found?
conditions
if someone's automobile is stolen, what is the cost of a rental vehicle considered to be?
consequential loss
another word for payment
consideration
what part of a legal contract refers to an exchange of value?
consideration
elements of a contract
consideration, legal purpose, offer, acceptance, competent parties
when one party of a contract has greater power over the other party in drafting the contract, what type of contract is it?
contract of adhesion
which characteristic of an insurance contract states that when a loss occurs the insured should be restored to the financial condition he was in before the loss?
contract of indemnity
Any ambiguities in a P&C policy will be resolved in favor of the policyowner because the policy is a
contracts of adhesion
since the insurance company is the only party that controls the policy language, any ambiguities are resolved in favor of the policy owner. This principle makes insurance policies...
contracts of adhesion
defense against negligence includes....
contributory negligence, comparative negligence, assumption of risk, intervening cause, statues of limitations, and clear chance
which is NOT necessary to form a legal contract? a. offer b. counter-offer c. acceptance d. consideration
counter-offer
which of the following hazards is an example of a physical hazard? a. backing into the garage door because you want insurance to pay for a new one b. leaving the keys in the car and doors unlocked c. leaving the shed unlocked at night because contents are insured d. burning debris near he building on a calm sunny day
d. burning debris near the building on a calm sunny day
all of the following are methods of limiting liability EXCEPT: a. split limit b. combined single limit c. per person limit d. collective limit
d. collective limit
all of the following are used to establish negligence EXCEPT: a. proximate cause b. legal duty owed c. breach of legal duty d. cost of damages
d. cost of damages
which of the following is an example of a financial loss caused by a home being damaged in a windstorm? a. inconsequential loss b. indirect loss c. excluded loss d. direct loss
d. direct loss
all of the following are examples of insurable interest EXCEPT: a. insuring business property you own b. insuring your home c. insuring expensive jewelry d. insuring your friend's automobile
d. insuring your friend's automobile
all of the following are examples of an insured's negligence EXCEPT: a. not barricading a freshly dug hole b. loaning a ladder with broken treads c. permitting a helper to use an extension cord with bare wires d. intentional destruction of property of another
d. intentional destruction of property of another
which statement about a binder is FALSE? a. it may be verbal b. it serves as an interim insurance agreement c. it may be written d. it assures that a policy will be issued
d. it assures that a policy will be issued
which of the following describes why the insuring agreement is the heart of an insurance policy ? a. it states the ground rules for the policy b. it describes the losses for which the insured is not covered c. it lists the amount of coverage provided d. it describes property covered and perils insured
d. it describes property covered and perils insured
which best describes a representation in an insurance application? a. it can be accepted as the absolute truth b. it is a promise made by the insured that certain conditions will continue to exist throughout the policy term c. it explains the promises of the insurance company d. it is a statement made by the insured that certain conditions exist at the time of application
d. it is a statement made by the insured that certain conditions exist at the time of application
all of the following operations fall under the liability rules for strict liability EXCEPT: a. chainsaw manufacturers b. fireworks producers c. ladder manufacturers d. livestock ranchers
d. livestock ranchers
all of the following types of construction are subject to functional replacement cost basis EXCEPT: a. antique b. ornate c. custom d. modern
d. modern
all of the following are used by the courts to establish negligence EXCEPT: a. legal duty owed b. breech of legal duty owed c. proximate cause d. policy exclusions
d. policy exclusions
deductibles serve all of the following purposes EXCEPT to a. eliminate small claims b. reduce the price of the coverage c. control overuse of the policy d. serve as an incentive to insure to value
d. serve as an incentive to insure value
all of the following are considered to be incompetent to enter into a contract EXCEPT a. someone who is under the influence of alcohol b. an insane person c. a minor d. someone who is incarcerated
d. someone who is incarcerated
concerning the cancellation of a commercial lines policy, which statement is TRUE?: a. the insured ma cancel for any reason without notice b. the insurance company may cancel for any reason without notice c. the named insured may cancel for any reason without notice d. the insurance may cancel for specified reasons with proper notice
d. the insurance company may cancel for specified reasons with proper notice
which situation is an example of vicarious liability? a. the insured injures a friend in a hunting accident b. the insured loans a defective ladder to neighbor that results in an injury c. the insured damages a neighbors building while trying to enter d. the insured's employee causes injury while on the job
d. the insured's employee causes injury while on the job
the limits of liability are found in which part of a casualty policy?
declarations
the six limits of liability on a commercial general liability policy are listed where?
declarations page
in an insurance policy, where are the terms and phrases clearly describing the extent of coverage located?
definitions
insurance advisory organizations
develop loss cost information by using either class or individual rating methodologies to analyze and categorize insureds
a fire spreads from Joe's house to Mike's house to Pat's house. The fire at Pat's house is what kind of loss?
direct loss
when the courts resolve any ambiguity in policy wording in favor of the insured, it is because of the
doctrine of reasonable expectations
regarding insurance contracts, which doctrine states that each party has a responsibility to the other?
doctrine of utmost good faith
what is a required element to legally establish negligence?
duty
Four elements of negligence
duty owed, breach of the duty, proximate cause, and resulting damages
to establish negligence, there must be....
duty, breach of duty, proximate cause and damages
which of the following is attached to and used to modify or change the original policy in some way?
endorsement
what are written changes to property and casualty policies called?
endorsements
which part of an insurance contract describes a loss for which the insured will not be indemnified?
exclusions
insurable interest
exists when someone can suffer a financial or economic hardship in the event of a loss
which event is more likely to be covered under a Property and Casualty policy?
expensive loss
being subject to a loss is called
exposure
what is another word for risk?
exposure
what type of authority is in writing and allows a producer to act on behalf of the insurer?
express
in a commercial line policy, the individuals allowed to alter coverage, settle claims, and pay premiums are known as the
first named insureds
compensatory damages are award
for actual loss suffered
which insurer operates within the United States, but outside of the state in which it is incorporated?
foreign
which word describes an insurer incorporated outside of the state in which it is doing business?
foreign
which principle holds that the insurer relies on the truthfulness of the applicant and in return promises and has the ability to pay claims?
good faith
accident
happened at a known place and time
plugging too many electrical cords into a single outlet can be best described as a
hazard
what increase the loss potential of an unforeseen event that causes injury to an insured or damage to property?
hazard
while Fred is shopping, store security guard, Barney, thinks he is shoplifting. Barney tackles Fred, breaking his arms and cell phone. Fred cannot return to work for two weeks. Which of Fred's losses are considered general damages?
humiliation
what authority is NOT written and allows a producer to conduct the business of the insurer?
implied
which term means the attempt to restore an insured to the financial position he enjoyed before loss?
indemnification
when an insurance company promises to "make you whole" following a loss, they are promising to do what to you?
indemnify
when an individual with a pre-existing condition is in an automobile accident and the insurance covers rehabilitation only to the level of the condition prior to the accident, this is because of what principle?
indemnity
which characteristics of an insurance contract express the principle the policy holder is returned to the approximate financial condition as before the loss?
indemnity
certificate of insurance
indicates a policy is in place and provides certain limits
a morale hazard is considered
indifference to loss
which of the following defines a loss which is consequential and comes as a result of an original loss?
indirect loss
personal injury
injury to a person's good name or positive mental state. Never bodily injury
in developing rates to determine premiums, insurers use loss cost information from which one of the following sources?
insurance advisory organizations
within the policy, where is the insurance company's promise to pay benefits found?
insurance agreement
the purpose of coinsurance is to motivate the insured to do what?
insure to value
determining adequate indemnification after a loss is a principle duty of the....
insured
an insured is involved in an automobile accident. the adjuster declares the insured's car to be a total loss and authorizes payment to the insured for the actual cash value of the care. The salvage belongs to....
insurer
what is NOT necessary to establish negligence?
intent
negligence is any of the following EXCEPT: a. failure to do what a responsible person would do in the same or similar circumstances b. failure to not do what a reasonable person would not do in the same or similar circumstances c. neglect d. intentional
intentional
morale hazard
involve the attitude of an insured, such as carelessness, that increases the probability of a loss
warranty
is a guarantee
misrepresentation may void an insurance policy only under which of the following circumstances?
it involves a material fact
a wheel falls off a commercial aircraft and through the roof of a home. what best describes the event?
it is both an accident and an occurrence
the fact that losses are predictable within big groups of similar risks is known as the
law of large numbers
a contract that is against public policy is NOT enforceable according to which contract characteristic?
legal purpose
which term means a legal obligation for injury caused by the failure to perform a duty?
liability
the policy exclusions
list the perils, property, people, hazards, or losses that are not covered by the policy
in a pure risk situation you can only....
lose
with property and casualty insurance, insurable interest is the extent of your financial interest at the time of
loss
what policy condition states the terms under which covered property losses are settled?
loss settlement
while Fred was shopping, store Secuity guard Barney thinks he is shoplifting. Barney tackles Fred, breaking both his arm and cell phone. Fred cannot return two work for two weeks. Which of Fred's losses are considered an indirect loss?
lost income
P&C companies tend to exclude losses that are any of the following EXCEPT: a. catastrophic b. covered elsewhere c. predictable d. manageable
manageable
what is the difference between misrepresentation and fraud?
misrepresentation is a representation that is actually false, but fraud is an intentional act designed to deceive
a person who intentionally defrauds an insurer to gain from a claim is an example of which type of hazard?
moral hazard
a person with a history of insurance fraud could be classified as which type of hazard?
moral hazard
leaving your car door unlocked and the keys in the ignition while parked in a high crime area is an example of which kind of hazard?
morale
a client refuses to lock the doors and windows to his home. What kind of hazard is he?
morale hazard
which type of hazard is an example of a person who increases the chance of loss through carelessness or by irresponsible actions?
morale hazard
what type of insurer is owned by its policyholders?
mutual companies
in which of the following types of insurance organizations are profits returned to the insureds in the form of dividends?
mutuals
in a personal lines policy, the individuals allowed to alter coverage, settle claims, and pay the premium are known as the.....
named insureds
absolute liability can be imposed by law and exist in the absence of
negligence
which of the following is not authorized to transact insurance in a state?
non-admitted insurer
smith insurances his commercial building with Company A for $100,000 under a basic cause of loss form and with Company B for $200,000 under a broad cause of loss form. His building sustains a $30,000 loss due to the weight of ice and snow. What is this situation known as?
non-concurrency
an insurer's right to cancel a policy is often limited by state law but is generally permitted under which of the following conditions?
non-payment of premium
A producer may bind coverage on a flood policy after receiving which of the following? a. the application b. the application and payment c. the application, payment and NFIP acceptance d. none of the above
none of the above
general damages
noneconomic damages
which provision applies when the policy term ends and either the insured or the insurer wants to discontinue coverage?
nonrenewal
how would damage be attributable to dry rot be classified?
occurrence
what is the term for a proposal made by one of the potential parties to a contract?
offer
under the national flood insurance program deductibles are applied..
once for building and again for the contents
adhesion
one author
unilateral
one promiser
what is the principle of indemnity designed to prevent?
overpayment of a claim
what is another way of describing the structure of a mutual insurance company?
participating
with regard to property insurance, consideration is the....
payment of premium by the insured in return for the promise to pay covered claims
the most a policy will pay for all losses arising out of any one occurrence, regardless of other policy limits is called the..
per occurence limit
how is defamation of character best described?
personal injury
physical hazards
physical conditions that increase the chance of a loss
direct loss
physical losses to property by perils that result in damage.
what term applies to a policy that pays first when two policies cover the same property?
primary
proximate cause
primary or immediate cause of loss from an unbroken chain of events
under the Laws of Agency, the Producer is an agent, and the insurance company is the
principal
Policy A is written covering a building with a $500,000 limit. Policy B is written covering the same building with a $100,000 limit. A $9,000 covered loss occurs. Company A will pay $3,000 of the loss; Company B will pay $6,000 of the loss. This is an example of which principle of indemnity?
pro rata
if a company cancels a policy mid-term, how will the refund be made?
pro rata basis
a Company has liability insurance from two policies written for different amounts. If the company sustains a covered loss, how will the loss be paid?
pro rata benefits equal to the proportion
all of the following are elements of a valid contract EXCEPT: a. consideration b. provisions c. legal purpose d. competent parties
provisions
Which factor establishes negligence by connecting a person's negligent actions to the damage caused?
proximate cause
what types of damages does a court award to punish a wrongdoer?
punitive
insurance addresses what kind of risk?
pure risk
insurance deals with which kind of risk
pure risk
only chance for loss (customer injury, drought, fire)
pure risk
which type of insurer is an unincorporated group of people agreeing to insure each other's losses under a contract?
reciprocal
what is it called when an insurance company transfer part of the risk and part of the premium to another insurance company?
reinsurance
what type of insurance do insurers use to transfer risk among themselves?
reinsurance
If Fred gets a new roof when his 10-year-old roof is destroyed by hail, the loss was settled on what basis?
replacement cost
actual cash value (ACV)
replacement cost minus depreciation
the policy conditions as well as state laws permit the insurer to cancel or rescind a policy when any of the following exist EXCEPT: a. misrepresentation b. representations c. fraud d. concealment
representations
which of the following is the type of insurance the government may step in to provide that is NOT ordinarily available from private insurers?
residual market
federal crop insurance is a type of insurance sometimes called....
residual market insurance
choosing a substantial deductible is a method of
retaining risk
which method of risk management is used when an insured elects to self insure?
retention
what is the chance or uncertainty of loss?
risk
what involves a group of people agreeing to pay a portion of any loss sustained by a member of the group
risk sharing
which characterizes a policy requiring a deductible for a loss?
risk sharing
what type of insurance is used when a business sets aside reserve funds to cover losses in advance?
self-insurance
coinsurance
serves as incentive for the inured to insure in an amount reasonably close to the true value of the property
which method of handling risk involves two or more individuals agreeing to pay a portion of any loss incurred by any member of the group?
sharing
Ned purchases his business insurance on a calendar ear basis. Even though his $10,000 premium is pre-paid through December 31, he decides to cancel on July 1, because he is selling his business. If he is due a short rate refund, what should he receive?
somewhat less than $5,000
open perils coverage is also called
special peril coverage
declarations page
specific details about the policy including the insureds name, location of the property, the limits of coverage provided, and the premium
betting on a horse to win the fifth race at a track is what kind of risk?
speculative risk
chance for gain or loss (value of the company stock)
speculative risk
when a business has a specialized risk that no authorized insurer will cover, the coverage may be obtained from
surplus line carriers
purchasing insurance that is unavailable in your state from a non-admitted company would be what kind of transaction?
surplus lines
how is an insurance binder best described?
temporary short term evidence of coverage
Who created the national flood insurance program?
the United States Congress
warranty
the absolute truth today, tomorrow, forever'; absolute truth
Stephen's house is hit by lightning and catches fire. Soon, the fire spreads to the Anderson's house next door. Though fire fighters save the Anderson's house, they do significant damage with their axes and fire hoses. The Andersons must live in a motel for 60 days while their house is renovated. Which of the Anderson's losses is an indirect loss?
the additional cost of living in a motel
risk
the chance or uncertainty of loss
what is defined by the policy conditions section of a property and casualty policy?
the duties of the insured
negligence
the failure to perform
a woman slips on icy steps and breaks her leg. what is the peril in this situation?
the fall
John has two identical policies covering his warehouse; one in the amount of $100,000 and the other in the amount of $200,000. If he suffers a $30,000 loss due to fire, how will the two companies pay the claim disregarding any deductibles?
the first pays $10,000 and the other $20,000
personal insurance contract
the insurance contract is designed to transfer risk from the insured to the insurer
stated value policy
the insured chooses the limit of insurance for the property however, at the time of loss, the insurer will pay the lesser of the amount stated on the declarations page or actual cash value
the law of large numbers states
the larger the group, the more accurately losses can be predicted
liability
the obligation created by that negligence
market value
the price a willing buyer would pay to a willing seller for the property prior to loss
which of the following best describes the policy conditions? a. the responsibilities and obligations of insured and insurer b. who is insured, location of risk, and what is insured c. the meaning of terms used in the policy d. the losses for which the insured is not covered
the responsibilities of insurance and insurer
representation
the truth as i know it today, truth to the best of your knowledge
If a man enters a building through an unlocked window and takes insured property, how is the loss best described?
theft
compensatory damages
they are reimbursed to the injured part for actual loss sustained; actual expenses
what is the purpose of coinsurance?
to serve as an incentive to insure to value
there can be no coinsurance penalty on which kind of loss?
total
Purchasing boatowners insurance is an example of which method of handling risk?
transfer
which method of risk management is used when a person purchases insurance?
transfer
what best describes the purpose of insurance?
transfer of risk
aleatory
unequal exchange of values
if an insured stops paying premiums, the insurer can cancel coverage, but the insurer cannot take the insured to court for breaking the contract. This is because contracts are what type of contracts?
unilateral
of the two parties to an insurance contract, only the insurance company makes a legally enforceable promise. For this reason, insurance policies are considered to be what?
unilateral contracts
the property valuation method paying the full policy amount listed on the declarations page in the event of a total loss, regardless of the actual cash value is called
valued policy
if an employer is found negligent for a customer's bodily injury caused by an employee acting within the normal course of his employment, the employer's liability can best be described as
vicarious liability
statements which must be absolutely true in every respect are
warranties
which of the following are defined as part of the policy and can void the policy if they are breached, whether the breach was intentional or unintentional?
warranties
