Practice exam

While making a right hand turn from the right lane, Ben is sideswiped by Roxanne, totally the car he bought new 12 years ago for $15,000. Roxanne is judged to be at fault. She has an auto policy with limits of 50/100/25 and a $500 deductible on her collision coverage. Assuming Ben's car depreciates at a rate of $1,100 a year, how much will Roxanne have to pay out of pocket when Ben files a claim against her insurer for the damages?

$0

Kevin has a homeowners policy with replacement cost valuation and a coverage limit of $90,000 for his personal property. Three years ago, Kevin purchased a sofa and loveseat for $1,000 and $500 respectively. Both pieces of furniture depreciate at $100 per year. A house fire damaged many of Kevin's belongings, including the sofa and loveseat, which now cost $1200 and $700 to purchase today. Ignoring any deductibles, how much will Kevin's insurer give him for th damaged sofa and loveseat?

$1,900

Clara plays the harp in an orchestra. Her harp cost $12,000 and she had if for 5 years before it was stolen from her locker at a symphony hall. She recently found out a new harp will. Cost $15,000 assuming her harp depreciated at $1,000 a year, how much will an actual cash value policy indemnify Clara

$10,000-ACV pays at current market value minus depreciation

James is walking down the street when Andrea, an uninsured motorist, strikes him with her car. James suffers $12,000 in injuries from the accident. He has personal injury protection of $10,000 from his own automobile insurance policy. Which immediately pays him the full amount. By accepting $10,000 from his own insurance company, James has waived the right to sue Andrea for more than ________ for personal injury.

$2,000

Jane's has a $150,000 homeowners policy with a 3% percentage deductible. One night, an oven fire destroys her kitchen, causing $50,000 in damage. How much of the damage falls under Jane's responsibilities

$4,500

To meet the 80% level of co-insurance required by his lender, Tom discovers he must insure his home for at least $320,000. What is the value of Tom's home?

$400,000

Jesse's home is worth $199,00 and he has a homeowners policy with a $150,000 limit. After burglars broke in, stole several items of his personal property and broke his glass potion door, Jesse is left with a total of $5,300 in damages. Assuming the insurer decides to invoke the standard coinsurance penalty approximately how much can Jesse hope to receive in indemnification?

$4992

During a storm, lightning strikes a tree in Harry's yard and starts a fire that spreads to his shed where he keeps all his equipment for his landscaping business. In addition to the shed, Harry has to purchase all new equipment to stay in business. The cost to replace the equipment would be considered:

A direct loss

Sure Trust Insurance was founded and operates in Texas. In Texas, Sure Trust is considered

A domestic insurer

Which of the following is a hazard?

A driver's tendency to text and drive.

An insurance company may consider each of the following a risk EXCEPT:

A flood zone

Which of the following would be considered an insurable risk?

A football stadium

Each of the following would classify as an insurable risk except

A marriage

An insurance company might consider any of the following a risk, EXCEPT:

A night crime neighborhood

What is a reserve?

A pool of collected premiums that the insureer sets aside to pay claims

The fee paid by the insured in exchange for an insurance policy is called

A premium

Which of the following would be considered an insurable risk?

A squadron of police cars

Which of the following is most likely a third party claim?

A woman files an insurance claim when she is injured by an employee at a local bar.

Which of the following statements regarding actual cash value is FALSE?

Actual cash value is always most beneficial to a policyholder

Ada m is shopping for a car in a local automobile dealership. While visiting the showroom, he trips over a rug that has folded over and breaks his arm in the fall. Which of the following is true?

Adam may file a third party claim with the dealership's insurance company.

Which of the following best defines the principle of indemnity

After a loss, the insured should be restored to his approximate financial condition before the loss

Driving home after a 14 hour shift, Sam falls asleep at the wheel and plows into Sandra's home, causing extensive damage to the East wall and roof. As a result, Sandra and her family must move into a hotel until the repairs are completed. The cost of staying in a hotel is:

An indirect loss

An occurrence is defined as:

An unexpected event that causes loss

A reciprocal insurer is:

An unincorporated organization of subscribers that operates through an attorney-in-fact to provide insurance benefits for its members

Arlene's house suffered structural damage in an earthquake last year, but her policy does not cover earthquake damage, so Arlene never got it fixed. When a tornado rips through her neighborhood it causes some roof damage totaling $2,000,and Arlene sees an opportunity in the situation. She files a claim for the roof damage but also claims that tornado caused the structural damage to her house that was actually caused by the earthquake last year. Which of the following statements is true?

Arlene has just committed soft fraud

An oral or written statement providing temporary insurance coverage until an insurance policy can issued is called a:

Binder

When sally applies for an auto policy her agent issues her a ______ so that she can benefit from insurance protection while he underwrites the policy.

Binder

Bobby just purchased an insurance policy for his home from XYZ insurance. Which of the following would be a reason this policy may not be legally binding?

Bobby has been diagnosed with schizophrenia

Sam suffers $6000 in injuries when Nicole runs a red light and crashes her uninsured care into Sam's. Sam's own insurance company, ABC insurance, immediately pays him $5,000 for his injuries. Sam then ponders weather to file a $6,000 lawsuit against Nicole. Why can't Sam sue Nicole for the full amount of his injuries?

By accepting payment from ABC Insurance Sam surrogates a portion of his rights against Nicole to ABC Insurance

All of the following pieces of information can be found in the conditions section of an insurance policy EXCEPT:

Causes of loss that is not covered

In which section of an insurance policy might you find the following statement "damage to insured property must be reported within 15 days of the damaging occurrence

Conditions

Which of the following situations does not involve an insurable risk?

Dale just bought 30 shares of a hot new startup company

If an adjuster needs to find clarification about what actually constitutes a collision,, in which section of an insurance policy would she find that information

Definitions

In which section of the insurance policy might you find the following statement? We us, and our refers to ABC Insurance company

Definitions

Which of the following statements about the principle of estoppel is TRUE?

Estoppel protects the insured party from an insurer who intinally approves coverage, but then later denies coverage after the insured pays for the repairs.

Which section of an insurance policy is designed to OMIT certain risks from coverage

Exclusions

A captive insurance company:

Exists solely to provider insurance for its parent company

All of the following are typical exclusions in an insurance policy, EXCEPT:

Explosion

Flora is driving in the rain when she skids off the road and slams into cam's billboard totaling her car and causing $2,000 in damage to the billboard. Flora has an auto policy with ABC insurance and both Cam and Flora submit claims against this policy for their damages. Which of the following is true?

Flora will file a first party claim for the damage to her car and Cam will file a third-party claim for the damage to his billboard.

An insurer that adheres to the laws of the state but is located out of that state is called a(an) ______ insurer

Foreign

Which of the following refers to being restored to the financial condition you were in before a loss

Indemnification

As Jonathan was driving through an intersection, another driver ran a red light and crashed into the side of Jonathan's car, which caused significant physical damage to both vehicles. Jonathan must now rent a car while his is being repaired. The rental car expense would be considered a:

Indirect loss.

Which of the following statements about a moral hazard is false?

It is the result of an unconscious behavior

Which of the following is not a requirement for a legally binding contract

It must be a notarized document

Which of the following statements is true about an insurance policy?

It relies on the utmost good faith of both the insured and the insurer.

When record breaking rainfall causes severe flooding in Janie's home town, Janie's rental property suffers extensive damage. Which of the following is an indirect loss?

Janie loses a month of rental income when her tenant must move out while repairs are made to the home.

Which of the following is an example of a moral hazard?

Ken lights a candle, sets it right next to the window draperies and leaves the house to go to work.

Which of the following situations does not involve an instance of "pure risk"

Loss of money invested in the stock market

Which of the following statements about insurable interest is FALSE?

Maintaining property value allows your neighbor to have an insurable interest in your house.

Clark is filling out an application for an insurance policy. The application asks for his birth date, and Clark writes 1/24/67. His actual birthday is 1/24/63 but he likes to appear younger so he uses a different date. This would be called:

Misrepresentation

John owes a lot more on his car than it is worth. He figures he would be better off if he burned the car and collected an insurance settlement. He has someone set fire to his garage to destroy the care. johns behavior would be considered a:

Moral hazard

Lewis owns a computer store, and he spends many hours a day on the sales floor demonstrating his products to customers. He often gets very animated when showing the electronics and although he does not intend for anything bad to happen he doesn't worry too much about handling them carefully, since he knows that his insurance policy will cover any damages this behavior would be called a:

Morale hazard

Lucy has insurance on an expensive necklace she likes to wear to work every day. After work she takes it off and leaves it in her car's cup holder so she can put it back on in the morning on her way to work. Lucy's behavior would be considered a:

Morale hazard

Insurance policies are unilateral contracts. This means:

Only one party has an obligation to perform

Indemnification may include all of the following except

Payment for pain an suffering

An insurance adjuster will do all the following regarding a claim EXCEPT:

Protect the insurer from the claim

Rachel is filing out an application for a homeowners policy. She is truthfully answering the questions regarding her home's location, size, age, etc. which of the following is true statement?

Rachel is providing representations.

The factual statements of the insured upon which an insurance policy is based are called:

Representations

When an insurer issues an insurance policy the actual item, person, or organization that is being insured is called the

Risk

Which of the following is an example of a hazard?

Sandra's home is in an area of Los Angeles that is often hit by earthquakes.

A "hazard" is defined as:

Something that increases the chance of loss

Sally throws a cigarette butt into Neal's dumpster, starting a fire on Neal's property that costs him $10,000. Neal files a claim with his insurer. The insurer pays Neil and then demands $10,000 from Sally to pay for the loss she caused. What gives the insurer the right to collect payment from Sally?

Subrogation

What is a binder?

Temporary coverage for an insurance applicant until the policy is issued.

Which of following would you find the in the conditions sections of an insurance policy?

The insured's duty after a loss

Jasson''s auto policy states that the insurer may cancel coverage if a premium is more that 30 days late. However, Jason's is currently more that 30 days late, and has been so five times in the last year and his insurer has done nothing a bout it. When Jason gets into an accident and files a Liam, which of the following is most likely to happen?

The insurer will pay the claim because the implied waiver they have made by not canceling Jason's policy the previous times he was late with his payments

In an insurance policy, the summary of what the insurer will do in the event of a covered loss is called:

The insuring agreement

Which of the following is found in the declarations page of the insurance policy

The name of the insured party

A Power surge sparks a small electrical fire in an office building. The electrical fire triggers the automatic sprinklers system. The water from the sprinklers soak the carpets and short-out all the computers, causing thousands of dollars in damage. What is the proximate cause of the loss?

The power surge

Steve has just purchased a wedding ring for his new bride. If something were to happen to the ring he'd be out a lot of money, so he purchases an insurance policy. He is able to do this because

The ring is a pure risk

Adam has a treacherous drive to work every day. Not only does he have to drive down the pothole-strewn access road to the highway, but he also must traverse several icy bridges on the way to work. Why does the insurance company call these hazards "physical hazards"?

The roads present a physical condition that increases the chance of a loss.

Purpose of Indemnity

To prevent the insured from profiting from a loss To reduce moral hazard

In a ___________, only one party is legally obligated to perform.

Unilateral contract

Which of the following is NOT a characteristic of insurance contracts?

Universal

An insurance contract is an agreement between two parties where each side promises to be truthful factual, and honest about their respective positions. Therefore, an insurance contract is said to be a contract of:

Utmost good faith

In order to qualify for an insurance policy, Lydia's fine jewels must agree to have a security guard on the premises 24/7 this is called a:

Warranty

Jane's shed burns to the ground during a tornado, when the high winds break a wall of the shed, knocking over a lantern inside. What is the proximate course of the loss?

Wind