Exam Fx 2

What documentation grants express authority to an agent?

Agent's contract with the principal.

Under the additional living expenses coverage, if a civil authority prohibits the insured from using the dwelling because of direct damage to a neighboring location from a peril covered in the insured's policy, loss would be covered for up to

2 weeks

Which of the following would NOT be classified as personal property for insurance purposes?

A house. Personal property is property that is moveable; real property is nonmoveable

Which of the following defenses attests that if a person recognizes and understands that there is a danger involved in an activities and voluntarily chooses to encounter it, he or she may be barred from seeking recovery for injuries due to negligence?

Assumption of risk.

In property and casualty insurance, insurance interest must exist

At the time of loss

A policy that insures all property at multiple locations for a single amount is referred to as

Blanket. Blanket coverage provides one limit of insurance for multiple locations or classes of property with the entire limit of insurance available to respond to any loss. No single item is assigned a specific amount of insurance. However, different amounts of insurance may be shown for buildings in general and contents in general

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

Cancellation

An insurance contract requires that both the insured and the insurer meet certain conditions in order for the contract to be enforceable. What contract characteristic does this describe?

Conditional

Which of the following statements is true concerning the special form dwelling policy?

Coverage A is for all-risk perils, and Coverage C is for the broad form perils.

Which of the following property coverages would provide protection to contents damaged by fire?

Coverage C - Personal Property

Which of the following dwelling coverage forms would pay replacement cost for the dwelling?

DP-2 and DP-3

The part of the policy that shows the amount of insurance, premium, and policy term is the

Declarations

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

Declarations

In property and casualty insurance, what is the term for the amount of a loss that the insured must cover out of pocket, and the insurer will only pay for the additional amount of the loss above this limit?

Deductible

What is the purpose of the coinsurance clause found in property insurance policies?

Encourage the insured to insure the property closer to its full value.

Which of the following is defined as the cost to replace damaged property with less expensive and more modern construction or equipment?

Functional replacement cost is the cost to replace damaged property with less expensive and more modern construction or equipment.

All of the following are factors in the determination of actual cash value EXCEPT

Insurance premium paid

Which of the following additional perils is covered under both the basic form and broad form dwelling policies?

Internal explosion

An insured who has coverage for his personal property has his TV stolen from the shop of the repairman. The owner of the repair shop filed a claim under the insureds policy, but it paid nothing to the owner of the store. Which provision does the policy have?

No benefit to bailed clause

Where is the policy period stated?

On the declarations page of the policy

A situation I'm which a person can only lose or have no change represents

Pure risk.

Which method of loss valuation is contrary to the basic concept of indemnity?

Replacement cost

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

The application given to a prospective insured. Consideration is something of value that is transferred between the two parties to form a legal contract.

All the following statements concerning coinsurance are true EXCEPT

The coinsurance formula also will be applied to total losses

All of the following are characteristics of the dwelling policy EXCEPT

The dwelling must be owner-occupied. Only limited service type business exposures allowed.

Which of the following best expresses the purpose of a stated value contract?

To pre-establish the amount of coverage available for property items that are difficult to value

An insurance company receives an application with some information missing and issues the policy anyway. What is that called?

Waiver. In insurance policies, a waiver is giving up ones known right or privilege.

All of the following would be eligible for coverage under the dwelling policy EXCEPT

a house that has 5 families living in it

Which of the following is the statutory defense?

comparative negligence. Many states, by statute, require that damages be apportioned based upon the degree of negligence of each party in an accident.

A beauty parlor burns to the ground. What type of loss is this to the owner?

direct

Under the dwelling policy, Coverage C - Personal Property is

limited to covering a servants property while at the insureds location

Negligence is defined as

the failure of an individual to provide care that a reasonable person would ordinarily use in a similar circumstance

All of the following are perils covered under the broad form dwelling policy EXCEPT

theft

Liability imposed on one party as a result of the actions of another person is known as

vicarious liability

If a livability policy had split limits of 50/100/30, what is the maximum amount that would be payable in the event of injury to a single person?

$50,000 The first limit shown is the most the policy will pay for bodily injury to any one person.

The property condition that precludes the insured from simply turning over damaged property to the insurer and claiming a total loss is called

Abandonment. Until the insurer has determined that the loss is total, the insured must protect the property from further loss.

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 The additional coverage portion of a policy provides an additional amount of coverage for specific loss expense, at no additional premium.

Insurance policies are not drawn up through negotiations, and an insured has little to say about its provisions. What contract characteristics does this describe?

Adhesion. A contract of adhesion is prepared by only the insurer; the insured's only option is to accept or reject the policy as it is written.

I'm which of the following types of property valuation will the policy pay the full value as specified on the policy schedule, regardless of the insured property's appreciation or depreciation?

Agreed Value. Agreed value is the property policy with a provision agreed upon by the insurer and insured as to the amount of insurance that represents a fair valuation for the property at the time the insurance is written. Once a loss occurs, the policy pays the agreed value as specified on the policy schedule.

An insured pays a $100 premium every month for his insurance coverage, yet the insurer promises to pay $10,000 for a covered loss. What characteristic of an insurance contract does this describe?

Aleatory In an aleatory contract, unequal amounts are exchanged between payments and benefits. In this instance, the insured receives a large benefit for a small price.

I'm insurance, an offer is usually made when

An applicant submits an application to the insurer.

The proposed insured makes the premium payment on a new business insurance policy. If the insured should die, the insurer will pay the death benefit to the beneficiary if the policy is approved. This is an example of what kind of contract?

Conditional. A conditional contract requires both the insured and policyowner to meet certain conditions before the contract can be executed, unlike other types of policies.

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. The binding force in any contract is consideration. Consideration on the part of the insured is the payment of premiums and health representative made in the application. Consideration on the part of the insurer is the promos to pay in the event of loss.

Which term includes damage where the insured peril was the proximate cause of loss?

Direct loss. Is direct, physical damage to buildings and/or personal property. Direct loss also includes other damage where the insured peril was the proximate cause of loss.

An insured has four separate but identical policies written by different insurers to cover her $100,000 building. Each policy is written for $100,000, and each has the pro rata liability other insurance clause. In the event of a total loss to the building, what would each insurer pay?

Each policy will pay $25,000 of the loss. Each policy will pay its pro rata share of the loss, but not more than the amount of loss in total.

Which of the following would modify the original insurance contract by either adding or removing coverage?

Endorsements. Endorsements change the policy's original terms, conditions, or coverages. Endorsements can add or delete coverage, or merely correct items such as the insurers name, address, etc.

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

Exclusions.

All of the following are found in the declarations section of a policy EXCEPT the

Exclusions. Declarations state who is insured, where the property is located, when the policy begins and ends, how much insurance and how much premium.

Compared with other drivers in his age group, a driver has had more minor accidents and traffic violations. Which of the following eating types would most accurately reflect the drivers true insurance risk?

Experience. The insureds own past loss experience enters into the determination of the final premium.

Which of the following is a unit of measurement an underwriter uses when determining the premium rates for insurance?

Exposure Exposure is a unit of measurement used to determine rates charged for insurance coverage.

The authority granted to an agent through the agents contract is referred to as

Express authority. Express powers are written into the contract between the insurer and the agent.

Surplus lines insurance usually involves insurance for which type of individuals?

High risk individuals.

When doing business in this state, an insurance company that is formed under the laws of another state is known as which type of insurer?

Foreign

Which of the following entities is not an insurer but an organization formed to provide insurance benefits for members of an affiliated lodge or religious organization?

Fraternal Benefit Society

A property insurance policy that insures a commercial building on a replacement cost basis includes the ordinance or law coverage endorsement. This endorsement will cover all of the following expenses EXCEPT

Ordinance with which the insured was required to comply prior to the loss.

What is the major difference between a stock company and a mutual company?

Ownership Mutual companies are owned by policyholders, while stock companies are owned by stockholders.

Pertaining to insurance, which of the following is an example of a producers fiduciary responsibility?

Promptly forwarding premium to the insurance company.

What is reinsurance?

An agreement between a ceding insurer and assuming insurer. The originating company that produces insurance on itself in another insurer is called the ceding insurer. The other insurer is called assuming insurer.

On a participating insurance policy issued by a mutual insurance company, dividends paid to policyholders are

Not taxable since the IRS treats them as a return of a portion of the premium paid

A deli owner has a businessowners liability policy. When a customer slipped and hurt herself at the deli, the liability policy paid for medical expenses. The customer, however, is now suing the business owner because she claims there was no caution sign warning her that the floor was wet. What is the insurer obligated to do?

Pay to defend the policyowner in the lawsuit because liability coverage contains a duty-to-defend provision. In addition to pay all sums that the insured becomes legally obligated to pay, liability coverage includes a promise to defend the insured in any lawsuit involving the type of liability insured under the coverage.

Because an agent is using stationery with the logo of an insurance company, applicants for insurance assume that the agent is authorized to transact on behalf of that insurer. What type of agent authority does this describe?

Apparent. Apparent authority is the appearance or the assumption of authority based on the actions, words, or deeds of the principal or because of circumstances the principal created.

An insurance producer who by contract is bound to write insurance for only one company is classified as a/an

Captive agent. Agent has agreed, by contract to produce insurance business only for the insurer they are contracted with.

Within how many years of a loss may an insured bring a lawsuit against an insurer, according to the dwelling policy?

2 years If an insured wants to bring a suit against an insurer, the insured must comply with all policy conditions and start action against the insurer within 2 years of the loss.

If an insured is in the process of moving to a new location, his personal property coverage under the dwelling policy will apply on a pro rata basis at both locations for

30 days (personal property being moved to a new location can be covered for up to 30 days without notice to the insurer.)

What is the maximum number of roomers or boarders for properties insured under the dwelling policy?

5 Dwelling policies may insure a property that allows up to 5 roomers or boarders

Under the conditions of the dwelling policy, within how many days does an insurer have to pay for a loss once a proof of loss form has been received and an agreement with the insured as the amount payable has been reached?

60 days

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

Definitions

What insurance policy provision defines how the policy will respond if there is more than one insurance policy written on the same risk?

Other insurance. A provision in an insurance policy that defines how the policy will respond if there is other valid insurance written on the same risk.

Under the dwelling policy which of the following clauses applied if an insured has lost one of two matching silver candlesticks?

Pair or set

A contractor who builds homes has never made a claim on his business insurance policy. His agent discovers that his policy is written on a schedule rating. If the contractor changes to an experience rating policy, which is most likely?

Premiums would go down.

The policy that pays first in the event of a covered loss is known as the

Primary policy is the policy that pays first in the event of a covered loss or in a layered program of insurance, the policy that covers the first layer of loss.

The termination of an insurance contract with the premium charge being adjusted in proportion to the exact time the protection has been in force is considered a

Pro Rata Cancellation

In property insurance, actual cash value is defined as which of the following?

Replacement cost at the time of the loss, less depreciation. A loss valuation method used in many property forms is determined by todays replacement cost minus depreciation for age and obsolescence.

At the time of loss insured against in a property and casualty policy, the insurers claim settlement options include all of the following EXCEPT

Replacing the property with other property of a lesser kind or quality

Payment for medical expenses, loss of wages, funeral expenses, or the cost to repair or replace damaged property are known as what type of compensatory damages?

Special. Tangible damages that can be specifically measured in dollar amounts are specific damages.

An insured's 9-year-old son threw a ball, accidentally breaking a neighbor's plate glass window. The insured was found legally liable for the cost of replacing the window. This is an example of

Vicarious liability. Under vicarious liability, an insured may be held responsible for the acts of other family members or independent contractors engaged by the insured to perform work.

An insured owns a large dog. The first day he has to leave the dog home alone to go to work, the insured comes back to find his $400 couch torn apart, his $100 coffee table chewed up, his $50 window curtain shredded, and a $200 window pane shattered where his dog jumped through. The insured has personal property coverage under a special form dwelling policy. How much of this loss will the policy cover?

$0

The broad theft coverage endorsement on the dwelling form specifies all of the following limitations EXCEPT

$1,000 on silverware (The limit on silverware is $2,500)

What is a foreign insurer?

An insurer with a home office in another state. A domestic insurer's home office is in this state, a foreign insurer's is in another state, and an alien insurer's is in another country.

Which of the following describes contributory negligence?

Any degree of negligence by the injured party may bar recovery

If an insurer makes a change to broaden coverage in a dwelling while it is in effect, changes will apply

Automatically.

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 insurance company b. Assuming coinsurance is not an issue, when $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. Each policy pays its pro rata share of the loss based upon each policy's share of the total amount of coverage.

All of the following are exclusion that apply in all three types of Dwelling policies EXCEPT

Fire or lightening

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

First named insured

Replacement cost is defined as

Full replacement of property at its current cost, new and without reduction for depreciation.

Duties of the insurer found in property policy conditions include all of the following EXCEPT

Notify the insured in the event of financial difficulty The insurance department monitors the financial conditions of insurers. The insurers report to the state, not to policyholders

All the following are considered parts of the policy structure EXCEPT

Provisions. Provisions is a broad term used to refer to the sections or clauses of an insurance policy that communicate the policy's benefits, conditions, etc. The essential parts of the policy are declarations, insuring clause, conditions and exclusions.

Which of the following is the most common way to transfer risk?

Purchase insurance The most effective way to handle risk is to transfer it so that the loss is borne by another party. Insurance is the most common method of transferring risk from an individual or group to an insurance company.

In a dwelling policy, which of the following other structures would be covered?

Rented to a neighbor for use as a private garage. Under coverage B other structures may not be rented to anyone except a tenant of the main dwelling.

When the amount of insurance written in a property policy is not subject to any coinsurance provision and that amount is paid in the event of a covered loss, the coverage is said to be written as

Stated Amount *In stated amount coverage, the value of the insured property is determined at the time the policy is written. In the event of a loss, that amount is paid without regard to any coinsurance provision. (However, if the loss is less than total, the insurer has salvage rights with the insured having first right of refusal of the salvage.)

A property insurance policy that is not subject to any coinsurance requirements but has a set amount of insurance scheduled for the property would use what loss valuation method?

Stated Amount: A stated amount is an amount of insurance scheduled in a property policy which is not subject to any coinsurance requirements in the event of a covered loss.

Under a dwelling policy, which of the following is NOT a factor in determining a loss?

The amount negotiated by the insured

When a parent is required to pay for damages caused by his or her children, this is an example of

Vicarious liability. When one party is held liable for act of another party, it is called vicarious liability. Employers are responsible for employees acting within the scope of their employment. Parents sometimes are held responsible for acts of their children.

An insured wants to transfer his personal insurance policy to a friend. Under what conditions would this be possible?

The insured will need a written consent of the insurer. (A personal insurance contract is written between an insurance company and an individual, and the company has a right to decide with whom it will and will not do business. An insured can transfer an insurance contract to another person, but he or she must first obtain the written consent of the insurer.)

What is material misrepresentation?

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

Which of the following is another term for an authorized insurer?

Admitted. Insurers who meet the states financial requirements and are approved to transact business in the state are considered authorized or admitted into the state as legal insurer.

Which of the following best describes the concept that the insured pays a small amount of premium for a large amount of risk on the part of the insurance company?

Aleatory. Small amount of premium for a large risk

The risk management technique that is used to prevent a specific loss by not exposing oneself to that activity is called

Avoidance.

The part of the policy that sets forth the rules of conduct, duties, and obligation of the parties is called the

Conditions. The conditions is the part of an insurance policy that sets forth the obligation led and duties of the insurer and the insured.

Representations are written or oral statements made by the applicant that are

Considered true to the best of the applicant's knowledge. Representations are statements made by an applicant that they believed to be true

An insurance company sells an insurance policy over the phone in response to a tv ad. Which of the following best describes this act?

Direct response marketing. A direct response marketing system effectively bypasses the insurance agent. Business is conducted over the phone, through the mail, or online.

Which statement regarding insurance risks is NOT correct?

Insured cannot be randomly selected. Granting insurance must not be mandatory, selecting insureds randomly will help the insurer to have a fair proportion of good risk to poor risks. All other statements are true.

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

Insureds. The insureds are persons covered under a policy, whether named or not.

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

Insuring agreement.

Which of the following is NOT a characteristic of an insurance risk?

Loss must be catastrophic. To be characterized as pure risk, the loss must be due to chance, definite, measurable, and predictable, but not catastrophic.

What effect does the Terrorism Risk Insurance Act of 2002 have on the war and military action exclusion with regard to property and casualty insurance?

Nullifies the exclusion of certified acts of terrorism as covered by the act

What type of insurance policy insures against all risk of loss that are not specifically excluded by the policy?

Open peril policy. Cover everything except what they say don't. Named peril policies cover only perils named in them.

Following a career change, an insured is no longer required to perform many physical activities, so he has implemented a program where he walks and jogs for 45 minutes each morning. The insured has also eliminated most fatty foods from his diet. Which method of dealing with risk does this scenario describe?

Reduction. The insureds change in lifestyle and habits would likely reduce the chances of health problems.

At the time of the loss insured against in a property and casualty policy, the insurer's claim settlement options include all of the following EXCEPT

Replacing the property with other property of a lesser kind or quality.

The legal process that gives the insurer, after payment of a loss, the right to seek recovery from a third party that was responsible for the loss is known as

Subrogation. A provision found in most insurance policies that gives the insurer, after payment of a loss caused by a third party, the insured's rights to recovery against that third party. The insurer's rights are only to the extent of the loss payment.

The process an insurer uses to evaluate applications and determine if a policy should be issued and on what terms, conditions, and rate is known as

Underwriting

Which of the following are the authorities that an agent can hold?

Express and implied. The powers and authorities that an agent holds are express and implied. Apparent authority is the appearance of, or the assumption of, authority based on the actions, words, or deeds of the principal or because of circumstances the principal created.

The policy conditions define

How parties to the contract must act following a loss. Conditions is an essential part of a policy structure. Conditions define what each party to the policy is required to do contractually in the event of a loss.

Which authority is NOT stated in an agent's contract but is required for the agent to conduct business?

Implied (Implied authority is not written in the agent's contract but is required in order for the agent to conduct business. Implied authority exists because not every single detail of an agent's authority can be written in a contract.)

Which of the following coverages in dwelling and homeowners policies is for indirect loss?

Loss of use. Coverage applies only after direct loss cause by a covered peril has occurred.

Using an air-cooled engine, a proposed insured has developed a new, experimental aircraft. If the inventor applies for liability insurance, what rating type will the insurer most likely use?

Judgment. Because there are few similar aircraft, it is not possible to rate the Rick based upon history or experience. For those reasons, a judgement rating is most likely used.

An insured owns a building that is valued at $400,000. To comply with the 80% coinsurance provision of his insurance policy, how much should he insure the property for?

80% of the property's ACV or more. The coinsurance clause states that, in consideration of a reduced rate, the insured agrees to maintain a certain minimum amount of insurance on the insured property. Market value is affected by location. Insurance is designed to pay, in the event of a covered loss, replacement cost minus depreciation.

An insured's roof cost $4,000 when installed 5 years ago. It has been damaged by hail and must be replaced. The new roof will cost $6,000 at todays prices. If the roof has been depreciating at $200 per year and the insureds policy is written on the actual cash value, how must will the policy pay toward the insureds new roof.

$5000. ACV is calculated as replacement cost less depreciation.

Which of the following would provide coverage for loss of income when an insured rental dwelling is rendered uninhabitable because of a covered loss?

Coverage D Coverage D provides fair rental value coverage when insured rental dwellings suffer a loss covered by Coverage A, B, or C.

An insured's house is damaged by a fire and is uninhabitable. As a result, the insured has to rent an apartment until repairs are made. A dwelling insurance policy will pay for the expense of renting the apartment. Which type of broad or special form coverage does the insured have?

Coverage E - additional living expense

Under which of the following conditions can broad theft coverage be added to a dwelling policy?

If the insured is owner-occupant of the dwelling Broad theft coverage can be added as an endorsement to a dwelling policy if the insured is owner-occupant of the dwelling

Rates that are established based on the similarities of the risk with other risks are known as

Manual rates or class rates

The abandonment provision in property insurance policies states that

The insured may not relinquish ownership of damaged property to claim a total loss, but must protect damaged property from further loss.

In which of the following situations would off-premises coverage in a broad theft endorsement of the insured dwelling policy apply?

The insureds camera is stolen from his suitcase while he is on vacation

If more than one person has an insurance interest in the property covered under a dwelling policy

The insurer will be liable for only the insureds interest in the damaged property

A mortgage company is named as loss payee on the insureds homeowners policy, under the standard mortgage clause. If the insured suffers a loss due to a fire, which of the following is true?

The loss is payable to the insured and the mortgagee

An insured has an actual cash value of $200,00 and he has insured the property for $120,000 with an 80% coinsurance clause. A $40,000 loss occurs. How much will the policy pay?

$30,000. The insured only carried 75% of the amount of insurance he agreed to carry (120,000 of the agreed 160,000) so the insurer will pay only 75% of the loss, or $30,000.

Which of the following describes the transfer of a legal right or interest in an insurance policy?

Assignment. Is the transfer of legal right or interest in an insurance policy. In property and casualty insurance, assignment s of policies are usually valid only with the prior written consent of the insurer.

An insurance company is domiciled in Montana and transactions in Wyoming. Which term best describes the insurers classification in Wyoming?

Foreign. A foreign is domiciled in one state and transacts insurance in another.

Which of the following statements is an accurate comparison between private and government insurers?

Private insurers may be authorized to transact insurance by state insurance departments.

The policy provision found in property insurance policies that prevents the insured from collecting twice for the same loss is called

Subrogation. (When the insureds accept loss payment from the insurance company, they must transfer their rights to recovery to the insurer. This prevents the insured from collecting twice for the same loss, and allows the insurer to indemnify the insurance company.)

An insured is driving her car through a residential area when she loses control and crashes into a neighbor's front porch. The neighbor, who was sitting on the porch, is injured. The insured's liability policy has a limit of $500,000. This amount applies to the total of damages for any bodily injury and property damage resulting from one accident. Which type of limit of liability does the insured have?

Combined single. Combined single is a single dollar limit of liability applying to the total of damages for bodily injury and property damage combined resulting from one accident or occurrence.

A producer who fails to segregate premium monies from his own personal funds is guilty of

Commingling. It is illegal for insurance producers to commingle premiums collected from the applicants with their own personal funds.

The requirement that agents not commingle insurance monies with their own funds is known as

Fiduciary responsibility. Money collected with respect to an insurance transaction must be held in a position of trust by the agent or broker.

For the reported losses of an insured group to become more likely to equal the statistical probability of loss for that particular class, the insured group must become

Larger-According to the law of numbers, the larger a group becomes, the easier it is to predict losses. Insurers use this law in order to predict certain types of losses and set appropriate premiums.

Under contributory negligence, when an individual is found to have contributed to his or her own loss in any way, another party

May not be held liable. Is a common law defense that denies recovery to an injured party who contributed to the loss by failing to meet standards required for self-protection.

When the insured's car was totaled in a recent accident, the ownership of the car was transferred to the insurer. The insurer then sold off the wrecked car to recover some of the loss it paid to the insured. What is the term for this action?

Salvage. Clause in insurance policies allows the insurer to sell damaged property as salvage to recover part of the paid loss.

In insurance terms, what are components?

The factors that determine rates. Including loss reserves, loss adjusting expenses, operating expenses and profits.

After issuing a policy, an insurance company discovers that the policyholder concealed information on the application. The insurance company wants to cancel the policy and give back the money the policyholder has paid. This is an example of

Recession. Is when a company wants to cancel a policy and returns funds paid.

An insured owns several buildings, each at a different location and insured on a separate policy. What type of coverage does the insured have?

Specific insurance provides a specific amount of coverage for each property. A blanket insurance policy provides coverage for more than one property with a single limit of coverage.

Events in which a person has both the chance of winning or losing are classified as

Speculative risk.

What will happen if a house covered by a standard mortgage clause is a total loss?

The insurer pays the mortgagee according to the mortgagee's interest in the property. The standard mortgage clause ensures that benefits will go to the insured and the mortgagee as their interest appears in the event of a loss to real property.

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

Insuring agreement. The insuring agreement is the part of the policy structure that describes the insured perils and the method of indemnification.

According to the standard mortgage clause, who has the right to bring a suit in their own name to recover damages, pay policy premiums, and submit a proof of loss?

Mortgagee. The standard mortgage clause, a basis provision.

If an insurer meets the state's financial requirements and is approved to transact business in the state, it is considered what type of insurer?

Authorized or admitted

A person who is not named as an insured on the declarations page of a policy but is protected by the policy is known as the

Additional insured.

Not all losses are insurable, and there are certain requirements that must be met before a risk is a proper subject for insurance. These requirements include all of the following EXCEPT

The loss may be intentional

In insurance policies, the insured is not legally bound to any particular action in the insurance contract, but the insurer is legally obligated to pay losses covered by the policy. What contract element does this describe

Unilateral. In a unilateral contract, the insured is not legally bound to do anything. The insurer, however, must pay losses covered by the policy.

A building is insured, but no one has lived or worked in it for 10 years. The building is completely empty of any furniture or personal belongings. From an insurance standpoint, the building is considered

Vacant. An insured structure in which no people have been living or working and no content la have been stored for the period of time required as stated in the policy (usually 60 days) constitutes vacancy.

The pro rata liability clause is designed to protect the principle of

Indemnity. If more than one policy is in force on the same property at the same time covering the same perils, this is concurrent coverage. The intent of insurance is that after a loss, the insured is restored to the condition he or she was in before the loss (indemnified). Each policy pays a percentage of a loss directly related to the amount of insurance it provides compared to the total amount of coverage.

An insured has a liability policy that sets the amount for all claims that arise from a single incident at $50,000. Which type of limit of liability does this insureds policy have?

Per occurrence. Sets the amount for all claims that arise from a single incident at a certain number.

The cause of loss insured against in an insurance policy are known as

Perils. Perils are the causes of loss insured against in an insurance policy.

All of the following are examples of risk retention EXCEPT

Premiums. Retention is a planned assumption of risk, or acceptance of responsibility for the loss by an insured through the use of deductibles l, copayments, or self-insurance

What is the term for the entity that an agent represents regarding contractual agreements with third parties?

Principal - an agent represents princiapl, acting on behalf of contractual agreements with third parties

Which of the following is NOT one of the four primary elements considered in establishing negligence?

Proof of carelessness. It must be shown that the defendant has a legal duty to act or not to act and he or she must have used a standard of care that breached that legal duty. Actual injury or damage must have been suffered by the party seeking recovery.

The risk of loss may be classified as

Pure risk and speculative risk. Pure risk involves the probability or possibility of loss with no chance for gain. Pure risk are generally insurance. Speculative risk involves uncertainty as to whether the final outcome will be gain or loss. Speculative risk are generally uninsurable.

Which of the following insurance options would be considered a risk-sharing arrangement?

Reciprocal. When insurance is obtained through a reciprocal insurer, the insureds are sharing the risk of the loss with other subscribers of the reciprocal.

Adverse selection is a concept best described as

Risks with higher probability of loss seeking insurance more often than other risks. Adverse selection means that there are more risk with higher probability of loss seeking to purchase and maintain insurance than the risk who present lower probability. Underwriters must guard against this.

A homeowner sells his house to a friend. The friend wants to keep the homeowner's current policy in effect. Under the assignment provision, which of the following is most likely?

The homeowner will need to get written consent from the insurer before the policy can be reassigned.