Texas Property and Casualty Practice Questions
Willie's widgets is covered by a policy that includes a franchise deductible of $50,000 and a policy limit of $400,000. A fire rips through willie's warehouse, and he sustains $342,000 in damage, how much of the claim will willie's widgets be responsible for paying
$0
Leland has two insurance policies covering his home. Indemnify insurance carries $120,000 limit of liability on the home, while binders keepers Inc. carries a limit of $80,000. Fire brakes out in leland's kitchen and causes $40,000 in damage. Remember, when there are two or more policies covering the same risk, the "other insurance clause" determines the method used to calculate each company's share of the claim. Leland's policy states that the pro rata share method will be used. Which of the following is the correct amount that will be paid by indemnify insurance
$24,000
The declarations page of an insurance policy contains
1. The name and address of the insured and the duration of the policy
Which of the following is a statement that is guaranteed to be the truth throughout the duration of the policy
A Warranty
A document that temporarily obligates an insurance company to provide coverage while the issuance of a policy is pending is known as
A binder
In order to lawfully write insurance business in a state, an insurance company must hold
A certificate of Authority
Which of the following sentences best describes the term "fiduciary"
A person who is entrusted with the assets of others
Which of the following best demonstrates a morale hazard
A recent purchases of auto insurance drives less carefully, knowing that the insurer will cover any losses that occur
Which of these statements best describes the law of agency
A relationship in which someone is authorized by contract to represent another party
Which of the following statements best describes a "representation" made in an insurance application
A representation is a statement made by the applicant that he believes to be true when made, but which might prove to be false
Which of the following types of insurance companies is known as a "nonparticipating company" because they do not pay their policy holders as dividend
A stock insurance company
An "admitted Insurer" in any given state could include all the following except
A surplus lines insurer
The authority the general public believes an insurance professional possesses based on their action is known as
Apparent Authority
The provision in an insurance contract that outlines the process of bringing a contract dispute before and objective third party for resolution is known as
Aribitration
Which of the following is a general summary of a policy
Certificate of Insurance
Which of the following is general summary of a policy
Certificate of Insurance
Chris is insured through binders keepers insurance company and his policy period ends in 12 months. However, Chris has decided that he wants to cancel his policy in order to purchase another one from a company that advertises with cuter commercials on television. Chis calls his agent to cancel the policy and is informed that the unearned premium on the cancelled policy will be returned to him by the mail in a couple weeks. When Chris receives the check, he is surprised to find that it's made out for less than the amount of unearned premium he should have received. What is the most likely reason for this
Chris' policy had a provision stating that UEP must be returned on a short-rate basis
An applicant fails to disclose known facts when completing an application for insurance. This act is known as
Concealment
Where in the insurance contract can an insured find the terms used throughout the policy and an explanation as to what they mean in the context of the policy
Definitions
Binders keepers inc. is selling their insurance products via telephone calls. Which of the following insurance marketing and distribution systems is being utilized by binders keepers
Direct Response System
Indemnify insurance Inc. was formed under the laws of California but is an admitted insurer in Oregon. When indemnify insurance is accused of violating the Oregon insurance code, they will be treated as a(n) ________ by the Oregon division of financial regulation
Foreign Insurer
Any corporation organized with a representative form of government operated solely for the mutual benefit of its members is known as a
Fraternal Benefit Society
An agent, insured, or claimant has intentionally deceived an insurer for financial gain. Such an act is known as
Fraud
When can an insured assign his or her insurance policy over to another party
Only with the written consent of the insurer
An "other insurance" clause is included in insurance policies to deal with the problem of
Overinsurance
When a person purchases several insurance policies to provide more coverage on a risk than the value of the possible loss, it is known as
Overinsurance
A mutual insurance company is
Owned its policyholder
A slipper floor is an example of
Physical Hazard
Risk retention and purchasing groups are used to provide which of the following types of coverage
Products Liability Insurance
Private, unincorporated mutual insurers that consist of associations that agree to equally share risks among its members are known as
Reciprocal Exchanges
What type of insurance is usually provided or subsidized by the state or federal government because it is not ordinarily available from private insurers from private insurers
Residual Market Insurance
An element of a valid contract must involve an offer and an acceptance. Sebastian completes an application for auto insurance and submits it to Indemnify Insurance Company. Who made the offer?
Sebastian's agent with the indemnify Insurance Company
Which of the following is NOT a responsibility of the insurance commissioner in any given state
Setting Insurance Rates
Which of the following best demonstrates the meaning of "contract of adhesion"
Since the insurance company formulates the policy language, the courts usually will resolve any ambiguities in the insured's favor
A risk where both profit and loss are possible is known as
Speculative
A 100-year flood is an example of which of the following types of risk
Static Risk
After paying the claim submitted by an insured, an insurance company may have the right to pursue legal action against the negligent party that caused the insured's loss. This is known as
Subrogation
Gena purchased a policy to cover her home. Recently, she has been conducting business from the home and has hired several employees. She also has several clients per day coming to the home for business purposes. When Gena's insurer finds out about the additional exposures she has introduced into her home, they decide to act. Which of the following actions is Gena's Insurer most likely to take
Suspend her policy until she moves the business out of her home
All the following statements are true regarding state Guaranty Associations Except
The fund assists insurers in gaining new insurance business by allowing them to advertise their membership in the Guaranty Association
Adverse selection occurs when
The insurer experiences negative financial results due to unforeseen catastrophes
Which of the following parts of the insurance contract contains the "contractual agreement" between the insurance company and the insured
The insuring agreement
All of the following are characteristics of an insurable risk, except
The loss must be catastrophic
Which of the following statement is NOT true concerning of the Law of Large Numbers
The size of the sample group is not relevant to the accuracy of the result
The purpose of licensing surplus lines brokers in a given state is
To allow them to place business with non-admitted insurers
Which of the following terms is used to describe a contract where the insurance company is the only party that is legally bound to perform its part of the agreement
Unilateral
Regulations of the insurance industry in the united states is primarily left to
the state governments
Which of the following is NOT a hazard
A fire in a waste basket
A warranty in insurance is best described as which of the following
A guarantee that the statements made by the applicant are completely true and untrue statements can void the coverage
Any intentional misinformation provided by an applicant for an insurance policy that would have kept the insurance company from issuing the policy had that information been know is
A material Misrepresentation
Vanessa states on an application for personal automobile insurance, that she has had no car accidents within the past three years. She later remembers an accident and corrects this statement to include that occurred two years ago. Vanessa's original statement can be described as
A representation
Indemnify insurance has been using a specific ISO homeowner form for several years in all states where they are an admitted insurer. Indemnify insurance has recently been admitted to an additional state, but the laws of that state contradict a few of the provisions in the ISO forms. How is this situation likely to be handled
A statutory form will be drawn up and attached to each homeowner's policy indemnify insurance writes in the state
An incorporated insurance company with its capital divided into shares and owned by its shareholders is known as
A stock Company
Which of the following people is committing "hard fraud"
Ally wants her insurer to buy her a new truck, so she pushes her current truck off a cliff and flies an auto accident claim
Subrogation may follow which of the following events
An insured collect from her insurance company for damages caused by the third party
Estoppel is best exemplified by which of the following
An insurer is prohibited from denying a claim because it's appointed producer advised the insured the claim covered
In most states, which of the following most accurately describes an "admitted insurer"
An insurer that can transact insurance in the state under a certificate of authority
Risk is best defined as
An uncertainty of loss
To obtain an insurance agent, producer, or adjuster license, and applicant must be
At least 18 years of age
An insurance must comply with the "Principle A of Indemnity". Jarron's friend Nick accidentally destroys Jarron's laptop computer. Nick pays Jarron for the damage, but Jarron also submits a claim to his insurance company for the laptop. The claim will be
Denied because Jarron has already been paid for the damage
The conditions section of an insurance policy sets forth the
Duties of the insured and the insurance company
Which of the following would be an example of a moral hazard
Embezzlement
A written modification of an insurance policy is known as
Endorsement form
If an insurance company covered an excluded claim it may have to continue paying other such claims because of
Estoppel
Ally's insurance agency has contracted with indemnify insurance to sell only those insurance products offered by indemnify. Ally's is utilizing which of the following types of insurance marketing and distribution system
Exclusive Agency Systems
The law recognizes two types of waivers. They are
Express/Implied
An intentional act designed to deceive and induce another party to part with something of value is known as
Fraud
A church has had the woodwork in the building refinished and new stain and varnish has been applied. The workers placed the rags and brushes that were used to apply the varnish in a small closet and closed the door, creating the possibility of spontaneous combustion. Which of the following terms best describes this condition
Hazard
All of the following statements are true regarding the chief administrative officer of a state insurance department, except
He/She sets insurance rates within the state
Helena has not paid her insurance premium for a significant amount of time. Which of the following is likely to happen in this scenario
Her policy will be cancelled
The attempt to restore an insured to his or her financial condition before a loss occurred is best described as
Indemnification
Standard and Poor's A.M. Best Moody's example of
Independent Rating Services
It has been reported to the insurance department in a given state that callie, a licensee in that state, has violated an insurance law. The Commissioner/Director/Superintendent will hold a hearing to determine the nature of Callie's behavior. After the hearing, the Commissioner is convinced that Callie is engaged in behavior that violates insurance law. Which of the following is the next step that will be taken by the department
Issuing a cease and desist order
In order for a contract to be binding in a court of law, it must be designed for
Legal Purposes
Milton agrees to steal and wreck Albert's car for $4,000, so that albert can collect $8,000 under his auto insurance policy. Which of the elements of a valid contract are missing in this agreement
Legal Purposes
An insured has fabricated a claim so that it would appear to be legitimate. This would be as
Moral Hazard
Which of the following is not a common risk management technique
Multiply the risk by engaging in the hazardous activities
The principle of Indemnity is illustrated by which of the following
Restores an insured to the same condition enjoyed before a loss
Horatio is a business owner who is part of a business owners' group that is buying old commercial buildings in their small city and refurbishing them. Horatio has bought a beautiful historical building made mostly of wood. He knows that he should install a sprinkler system right away to prevent a fire. What risk management strategy is Horatio using
Risk Reduction
Meg has been in very good health in the past 3 years. She has been exercising, her blood pressure is at a perfect level and her cholesterol is the envy of all her friends. Because Meg is feeling so healthy, she decides to cancel her health insurance policy. This is an example of which of the following risk management methods
Risk Retention
Insurance companies often outsource a significant percentage of their duties to third party administrators. All of the following statements about TPAs are true, EXCEPT
TPAs assume the risk on the policies they handle
An insurance binder is best described as
Temporary Short-term evidence of coverage
Which of the following policy provisions is designed to prevent the violation of the principle of indemnity
The "Other Insurance" Provision
The doctrine that states an insured's policy should provide the coverage that an average prudent person would expect is
The "reasonable expectations" doctrine
In which part of an insurance contract would you expect to find a description of the duties and obligations of the insured
The Conditions
Which of the following organizations creates and maintains model law that establish standards for how insurance is offered and delivered in the United States
The NAIC
Which of the following is the PRIMARY source of information used by insurance companies during the underwriting process
The application for insurance
An insurance contract is considered to be an aleatory contract. All of the following are characteristics of an aleatory contracts, except
The contract allows the insured to receive a return in claims payments that is nearly equal to the amount paid in premium
An agent with a surplus/excess lines license, will place insurance business with an unauthorized insurer when
The coverage cannot be obtained from insurers authorized within the state
Which of the following insurance meeting or distribution systems includes agents that are hired as actual employees of the insurance company
The direct writer system
Which of the following is a true statement regarding the "law of large numbers"
The law of large numbers states that as the number of insured units increases the ability to predict losses increases
The time period after the policy inception and before the policy expiration is known as
The policy Period
Which of the following is most likely to be uninsurable
The purchaser of a new home wants to protect herself from a possible drop in housing prices
Max lives in a large apartment complex where there is no guard station or gate. Several hundred people live in the complex so its very easy to determine the schedules of the neighbors living around him. One morning Max leaves for work at 6:30am as he usually does, but he forgets to lock the front door. Later that morning someone comes into the apartment and steals Max's computer. What was the peril in this situation
The theft of his computer
What is the main purpose of government regulation of the insurance industry
To protect the insurance consuming public
Which of the following best describes the purpose of the "insuring agreement" contained in an insurance policy
To the insurer's promise to pay in case of a loss
Under the A.M. best insurance company rating system, a rating of "E" means that the company is
Under State Supervision
All the following statements are true regarding public law 15 (The McCarren-Ferguson Act), except
Under the Law, the federal government retains the right to approve insurance forms
The giving up of a known right is called
Waiver
Which of the following must accurately describe reinsurance
When an insurance company buys insurance for some of the risks for which it has issued coverage
Which of the following is true regarding pure and speculative risks
With pure risk there is only the possiblity of loss
