Insurance

Which insurance company department determines the probability of loss and sets the premium rates?

Actuarial

What is the name for an insurer authorized to write insurance policies in a particular state?

Admitted

A warranty is defined as which of the following? A A false statement in the application B Intentional misrepresentation on the application C What a reasonable and prudent buyer can expect D Statement in the application that is guaranteed to be true

D Statement in the application that is guaranteed to be true

Which of the following individuals represents the insurance company when selling an insurance policy?

Producer

Insurance is designed to provide protection against which of the following?

Pure risk

12 / 15 Where can you find insurance coverage after being rejected by voluntary market insurers? A Lloyd's of London B Residual market C Reinsurance D Risk Retention insurance

Residual market

Where can you find insurance coverage after being rejected by voluntary market insurers?

Residual market

Self-insurance is an example of which of the following types of risk management?

Retaining the risk

A stock company is owned by stockholders or shareholders. Directors and officers direct the company operations and are elected by stockholders. Stockholders receive taxable corporate dividends as a return of profit when declared by the Directors. Dividends are not guaranteed Traditionally, stock insurers issue Non-Participating policies

Stock Insurance Company

When an insurance policy is not clear, the court will usually interpret in favor of the insured because of which characteristic?

The policy is a contract of adhesion

All of the following are producer responsibilities owed to the insured or applicant during an insurance transaction, except:

The producer represents the insured's interests

Each of the following must be included in an insurable risk, except: A Accidental losses B Large group with different risks C Excluded catastrophic perils D Calculable chance of loss Nice try! An insurable risk must also include a large number of groups with the same perils, affordable premiums, and the loss must be measurable.

B Large group with different risks.

An applicant inaccurately representing information on the application is guilty of:

A Misrepresentation

A person who takes possession of another person's property in order to repair it is called? A Assignee B Bailor C Bailee D Subrogee

C Bailee

All of the following are characteristics of a Mutual Insurance Company, except: A Policyholders elect the Board of Directors B They provide insurance to members C Stockholders have ownership D Profits are returned as dividends

C Stockholders have ownership

Dishonest tendencies that increase the probability of loss is which of the following types of hazard? A Morale B Legal C Moral

C. Moral

Which principle of insurance restores the insured to the same economic condition that existed before the loss?

Indemnity

The Principle of Indemnity helps avoid which of the following?

Overpayment of a claim

An insured should not profit from an insurance transaction. This describes which of the following principles.

The principle of indemnity

Risk is defined as

Uncertainty or chance of loss

All of the following statements are TRUE about the Broad Theft Coverage endorsement, EXCEPT: A It does not apply to the DP-1 B Theft and attempted theft are covered C Resulting damage caused by malicious mischief and vandalism is covered D Both on- and off-premises coverage is available Good Job! The Theft Coverage endorsement can be added to any form, including the basic DP-1.

A

Theft is specifically defined as: A Any act of stealing B The loss of property when the cause is unknown C Threatening bodily harm to a bailee D Malicious vandalism

A Any act of stealing

Which of the following has the broadest coverage under the insurance policy? A Named Insured B Insured C Additional Insured D First Named Insured Good Job! The Named Insured receives the broadest coverage of all persons or organizations protected by a policy.

A Named Insured

K owns several buildings at different locations with each one insured on a separate policy. Which of the following methods of writing insurance does this describe? A Specific Limit B Scheduled C Blanket D Agreed Value Nice try! Since each property is covered under a separate policy, each with a unique coverage limit, each property is written on a specific limit basis. A loss to any one property would not affect the policies covering the other properties.

A Specific Limit B

Which of the following is attached to the policy to alter or add to the policy provisions? A

An endorsement is a written amendment to the policy that also broadens or restricts the policy provisions and takes precedence over the original policy language.

The following are all found on the Declarations Page, except: A Amount of the deductible B The exclusions C Location of the insured property D Expiration date of the policy Excellent! The Declarations Page contains the information necessary to tailor the policy to the individual and property insured. The exclusions, common to all policies, are found in the Exclusions section of the policy and coverage forms.

B

The location of the insured risk can be found in which part of an insurance policy? A The Definitions B The Declarations C The Conditions D The Insuring Agreement The function of the Declarations is to apply the common policy to a specific insured and property. The risk location, therefore, is found in the Declarations.

B

Which policy provision omits certain risks from coverage? A Declarations B Exclusions C Additional coverages D Conditions Excellent! Exclusions are stated perils that are not covered under a policy.

B

X's neighbor shoots off fireworks on July 4th and puts the shells in X's trash can, causing a fire and damaging X's garage. X's company pays the loss and contacts the neighbor for reimbursement. This is an example of: A Reimbursement B Subrogation C Appraisal D Loss Settlement Sorry! Subrogation rights apply when negligent third party is the cause of a loss. Since the insurance company has paid the loss, it is granted the insured's right to recover payment from the third party.

B

If the insured does not agree with the insurer's decision regarding a claim, what process helps decide the outcome? A Consequential hearing B Arbitration C Insurance company conference D Inspection

B Arbitration

Which of the following is attached to the policy to alter or add to the policy provisions? A Binder B Endorsement C Definitions D Excess Insurance

B Endorsement

Each of the following is an element of a legal contract, except: A Consideration B Indemnity C Legal Purpose D Agreement

B Indemnity

Each of the following is a direct loss, except: A Broken pipe water damage B Loss of income C Cracked windshield D Fire damage

B Loss of income

Which clause broadens coverage of an existing policy with no increase in premium? A Assignment B Loss payable C Liberalization D Subrogation Good Job! The Liberalization clause specifies that the broadening of coverage will apply to existing policies without the need for an endorsement.

C

The _______ is the most the policy will pay for the sum of all the losses occurring within a policy period. A Excess B Contribution C Aggregate D Combined Excellent! Under an aggregate limit, the payment for an accident during a policy period reduces the amount of insurance available for all future accidents that occur for the remainder of the policy period.

D

Which provision specifies that no coverage applies if the loss benefits a person who has care, custody, or control of the insured's property? A Appraisal B Assignment C Claim Settlement D No Benefit to Bailee Excellent! The No Benefit To Bailee provision specifies that no coverage applies if loss payment benefits a bailee.

D

Which of the following calculations equals a company's loss ratio? A Paid losses + paid expenses ÷ total earned premium B All losses + expenses C Losses + total operating expenses ÷ total written premium D Paid losses + loss reserves ÷ total earned premium

D Paid losses + loss reserves ÷ total earned premium

Determining acceptable risks is the primary responsibility of the:

D Underwriter

Which of the following is an insurance company that is organized under the laws of a different state within the United States? A Domestic B Authorized C Foreign D

D Foreign

A Liberalization Clause serves which of the following purposes? A The insured is given permission to bring suit against the insurer B The insurer has the right to recover from any party causing a loss C At each annual renewal, the policy limit automatically increases in value D Broadened coverage applies automatically to all policies without a premium charge

D If the insurer broadens coverage with no increase in premium, the coverage applies to existing policies automatically.

Which of the following BEST describes a scheduled limit of insurance on a property policy? A Insures multiple items of property on a single policy B Insures a single item of property on a single policy for a specific limit C Insures multiple items of property on multiple policies D Insures a single item of property at a blanket limit Sorry! Scheduled coverage insures several items on a policy, like a house for a certain amount and personal property for a different amount.

Insures multiple items of property on a single policy

f an insurance company wants to transfer all or part of the risk it has accepted, it would buy which of the following types of insurance?

Reinsurance

What calculation is used to determine the actual cash value (ACV) of a loss? A Replacement cost - depreciation = ACV B Market value - depreciation = ACV C Market value - original purchase price = ACV D Replacement cost - market value = ACV

Replacement cost - depreciation = ACV

_____________ is the method of loss valuation that values damaged property at the cost to replace with property of like kind and quality, at current prices, and without deduction for depreciation. A Market value B Actual cash value C Replacement value D Functional replacement cost

Replacement value

To self-insure means to assume the financial risk one's self. This is generally an option only for large companies who may even reinsure for risks above certain maximum limits.

Self-Insurer

An applicant makes a statement on the insurance application, which becomes part of the contract, that she has an alarm system which qualifies her for a premium discount. This statement is considered a:

Warranty

An attached carport is covered under which of the following coverages? A Coverage C B Coverage A C Coverage D D Coverage B CORRECT! Coverage A - Dwelling includes structures attached to the dwelling, such as a carport, attached garage, breezeway, or deck.

b

Which of the following is not true of coinsurance? A It encourages the insured to maintain insurance to value B It applies in the event of total loss C The higher the coinsurance percentage purchased, the lower the rate the insured pays D It is a common policy provision The coinsurance penalty reduces the amount paid in a partial loss as total losses are paid based on the coverage limit on the policy.

b

When both parties to a contract must perform certain duties in order to make the contract enforceable, this is known as a(n):

conditional contract

The owner of an antique store leaves valuable breakable items on display while heavy construction is taking place, believing that any pieces that fall and break will be covered by insurance. This demonstrates which hazard?

morale hazard

A mutual company is owned by policyholders (who may be referred to as members). A Board of Trustees or Directors directs the company operations and is elected by policyholders. Policyholders receive non-taxable dividends as a return of unused premium when declared by the directors. Dividends are not guaranteed Mutual insurers typically issue Participating policies

Mutual Insurance Company

Which type of insurance provides coverage when insurance is not available from an admitted carrier?

Surplus

Which of the following types of authority does the public assume an agent has when quoting insurance? A Implied B Authorized C Express D Apparent

A. Implied

Each of the following is a factor used by an underwriter, except: A Claims history B Marital status C Outside factors D Hazards

B Marital status

Statements in the application that are guaranteed true, but later found to be false at the time of application, may result in which of the following?

B Voidance of the contract

Risk Management Risk - A condition where the chance, likelihood, probability or potential for a loss exists; Uncertainty concerning a lossManagement - The determination of what types of protection are required to meet an insured's needs using:A survey of the insured's operations, health, assets and exposures that could give rise to losses.Assessment of potential loss frequency and severity.Physical inspections, applications or medical exams used for underwriting help manage a risk.Types of RiskSpeculative Risk - Situations where there is a chance or possibility for loss, no loss or gain (i.e., gambling)Pure Risk - Situations where there is no chance for gain, only loss. Only pure risks can be insured (For instance, the possibility of damage to property caused by a fire or other natural disaster; or the possibility of financial loss as a result of premature death) Loss - Reduction, decrease, or disappearance of value. The basis of a claim for damages under the terms of an insurance policy. Peril - The cause of a loss. Hazard - A specific condition that increases the probability, likliehood, or severity of a loss from a peril. notes

Insurance is designed to only protect pure risk.

A false statement in the application for insurance is ___________.

Misrepresentation

A ______________ insurance company is owned by its policyholders.

Mutual