Chapter 2 - Policy Provisions and Contract Law Quiz

Termination of an in-force insurance policy prior to the expiration date shown in the policy is known as

cancellation

An applicant knowingly fails to communicate information that would help an underwriter make a sound decision regarding coverage. This is an example of

concealment

What terms best describes the act of withholding material information that would be crucial to an underwriting decision?

concealment

Because an insurance policy is a legal contract, it must conform to the state laws governing contracts which require all of the following EXCEPT

conditions

An insurer neglects to pay a legitimate claim that is covered under the terms of the policy. Which of the following insurance principles has the insurer violated?

consideration

Which of the following is a mandatory part of an insurance policy that varies with each individual policy?

declarations

The part of the policy that clarifies terms in the policy is the

definitions

The section of a policy that details what perils are not insured against and what persons are not insured is known as the

exclusions

Which of the following would be named on the declarations page of a property or liability policy?

first names insured

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

insureds

All of the following are conditions commonly found in the insurance policy EXCEPT

insuring agreement

The part of the contract that describes the covered perils and the nature of the coverage of the contractual agreement between the insurer and the insured is called the

insuring agreement

Untrue statements of the application unintentionally made by the insureds that, if discovered, would alter the underwriting decision of the insurance company, are called

material misrepresentations

The other Insurance provision that limits the liability of the insurer to a portion of the loss no greater than the amount the insurer bears to all the insurance covering the property is called

pro rata liability

A sworn written statement that must be furnished by the insured to the insurer before any loss under a policy can be paid is called

proof of loss

Before an insurer will pay any loss under a policy, what is usually required from the insured?

proof of loss

What type of information would be found in a policy's insuring agreement?

renewal dates

Which of the following would qualify as a competent party in an insurance contract?

the applicant has a prior felony conviction

Which of the following would NOT be considered a source of insurability information by an insurer?

the applicant's marital status

Which of the following protects consumers against the circulation of inaccurate or obsolete, personal or financial information?

the fair credit reporting act

In terms of parties to a contract, which of the following does NOT describe a competent party

the person must have at least completed secondary education

Which of the following is a statement that is guaranteed to be true, and if untrue, may breach an insurance contract?

warranty

Which part of an insurance policy covers claims-related expenses, reasonable expenses incurred by an insured to protect damaged property from further loss, or defense expenses?

additional coverage

Which of the following clause is established the procedure for determining the amount of a loss when the insurer and the insured cannot agree on the value of property or amount of loss?

appraisal clause

The ABC Corporation has $100,000 of coverage on its building through insurance Company A, and $50,000 of identical coverage on the same building through Company B. Assuming coinsurance is not an issue, when a $24,000 loss occurs and the pro rata method is used, how much will each insurer pay?

Company A will pay $16,000; Company B will pay $8,000

An insurance contract must contain all of the following to be considered legally binding EXCEPT

beneficiary's consent

What is a material misrepresentation?

A statement by the applicant that, upon discovery, would affect the underwriting decision of the insurance company

The declarations page of the homeowners policy provides all of the following information EXCEPT

a statement that earthquake is not covered

For a contract to be enforced by law, the purpose of the contract must be

Legal and not against public policy

Which of the following is NOT a consideration in a policy?

The application given to a prospective insured

Which of the following is NOT an essential element of an insurance contract?

counteroffer