Property and Casualty

J owns a home protected by a property insurance policy. A severe windstorm creates an opening in the roof that exposes the upstairs guest suite in J's home and causes rain damage to the carpet. In order to collect claim payments from the carrier for the damaged roof and carpet, J is required to: A Tarp the roof to protect the the roof and the guest suite from further damage B Repair the roof within 60 days of the loss and before notifying the carrier of the loss C Notify the homeowners association of the incident D Do nothing until the carrier can conduct an inspection

A Do anything to prevent further damage

A contract prepared by one party and submitted to the other party on a take-it-or-leave-it basis, without negotiations, is called a(n): A Contract of adhesion B Conditional contract C Aleatory contract D Personal contract

A contract of adhesion is one that is prepared by one party and presented to the other party on a take-it-or-leave-it basis. Any ambiguities in this contract will be legally interpreted in favor of the party that did not write the contract.

Physical Hazard

A physical condition that increases the probability of loss, including the use, condition, or occupancy of property. Physical hazards may often be seen, heard, felt, tasted, or smelled. Examples: Flammable material stored near a furnace or an icy sidewalk

All of the following statements regarding the structure of a property policy are correct, except: A Additional Coverages are added to the policy for an additional premium B The Insuring Agreement describes the perils that are covered under the policy C The Declarations page lists other parties that have an insurable interest in the property D The insured's duties and obligations are listed in the Conditions section

Additional Coverages are automatically included without an additional premium. The Declarations page lists the named insured and other parties with insurable interest in the property, such as a mortgagee.

Under the Duties in the Event of Loss condition, if a fire burns the home and property of an insured, what must the insured provide? A An inventory of the damaged property B An official policy report C Proof that they called the fire department D Receipt for the fire extinguisher in the garage

An inventory of the damaged property

If the public or a third party is falsely led to believe that an agent is able to perform a certain duty, this is known as the producer's: A Implied authority B Apparent authority C Express authority D Assumed authority

Apparent - producer acts in a way that exceeds their express authority and the principal does nothing to suggest that the producer is not able to act in that way

Which of the following is used to resolve differences between the insured and the insurer when the parties disagree on whether or not a liability claim is payable? A Arbitration B Liberalization C Subrogation D Appraisal

Arbitration As provided by the Arbitration condition, the process of arbitration is used when the insurer and insured disagree about whether or not a claim is payable

Each of the following is a typical property insurance policy exclusion, except: A Neglect B Fire C Flood D Ordinance or Law

B Fire Fire is a basic peril covered under property policies. Ordinance or law, flood, and neglect are common exclusions.

The rules and procedures to be followed by the insured and the insurer are found in which section of an insurance policy? A Definitions B Conditions C Declarations D Insuring Agreement

Conditions

The Declarations page of a property insurance policy includes all of the following information, except: A Any applicable deductible B Premium amount C Policy period D Covered perils

Covered perils The Declarations page contains the who, what, where, when, and how much of the policy.

The Law of Large Numbers provides that: A Small certain losses are substituted for large uncertain losses B As the number of insured units increases, losses decrease C If funds are insufficient to pay claims, the insured is assessed additional premium D As the number of insured units increases, predictability of losses improves

D As the number of insured units increases, predictability of losses improves

The authority of a producer to perform duties that are directly stated in their agency contract is said to be: A Apparent powers B Implied powers C Assumed powers D Express powers

Express powers- The powers granted to the producer that are explicitly, directly stated in the agency contract make up the agent's express authority

When an insurance company files rates for approval and implements the rates immediately after filing, what rating approval method is being used? A File and use B Mandatory C Open competition D Prior approval Sorry!

File and use- File and use rates must be filed with the state insurance department, but the insurance company can use the new rates immediately once they are filed, even before obtaining approval.

When a property insurance policy states that damaged property will be replaced with other property that performs the same function with similar efficiency but is not identical to the damaged property, the policy is written on which of the following bases? A Functional replacement cost B Stated value C Actual cash value D Guaranteed replacement cost

Functional replacement cost

Which type of producer authority is not spelled out in the contract, but is necessary for carrying out the producer's duties? A Implied B Assumed C Admitted D Express

Implied Implied authority is not specifically listed in the contract,

Which section lists the perils insured against by a property insurance policy? A Declarations B Insuring Agreement C Definitions D Additional Coverages

Insuring agreement The Insuring Agreement is the company's commitment to protect the insured and includes a description of the perils insured against. The Declarations page contains the insured's specific information, like their name, address, and the limit of insurance that applies to their policy

A peril is defined as which of the following?

It is the specific cause of loss

Which condition states that a suit may not be filed by the insured against the insurer if the insured has not complied with policy terms? A Loss Payment B Ordinance or Law C Legal Action Against Us D Claim Settlement

Legal Action Against Us

Which of the following documents informs an insurer that a loss has occurred? A Occurrence notice B Certificate of insurance C Proof of loss D Notice of loss

Notice of loss

Rates that cannot be used until the Department or Division of Insurance approves them are referred to as: A Prior approval rates B Use and file rates C Open competition rates D File and use rates

Prior approval- In prior approval states, rates cannot be used until the Department or Division of Insurance authorities approve them, or until a specific time has passed after the filing without being disapproved.

The shifting of risk of loss to another party is known as which of the following? A Risk transfer B Risk avoidance C Risk assumption D Risk reduction

Risk transfer

Endorsements may be added to an insurance policy to do any of the following, except: A Specify the policy's annual premium B Add coverages not included in the policy C Increase policy limits D Amend a standardized policy to comply with state law

Specify the policy's annual premium

The transfer of the right of recovery from the insured to the insurance company is called: A Subrogation B Hold harmless C Assignment D Indemnity

Subrogation allows the insurer to take legal action against the negligent third party

Which of the following is not true about an insurance policy? A An insurance policy that pays before all other coverage is called primary coverage B The Insuring Agreement includes the name of the insured C An application is a document that provides information for underwriting purposes D A deductible is a specified amount of loss that is retained by the insured

The Insuring Agreement contains the insurer's promises to the insured. The insured's name is found in the Declarations.

The predictability of loss improves when the number of similar units increase because of which principle? A The Golden Rule of Underwriting B Accumulated Experience C The Law of Averages D The Law of Large Numbers

The Law of Large Numbers -The Law of Large Numbers is an underlying principle of insurance, stating that the greater the number of units of exposure, the greater the accuracy in predicting a loss.

A Liberalization Clause serves which of the following purposes? A The insurer has the right to recover from any party causing a loss B The insured is given permission to bring suit against the insurer C Broadened coverage with no premium increase applies automatically to all policies D At each annual renewal, the policy limit automatically increases in value

The Liberalization Clause states that if the insurer broadens coverage with no increase in premium, the coverage applies to existing policies automatically.

Short-rate cancellation occurs when: A An insurer cancels the policy mid-term B The policy is nonrenewed C A policy is flat cancelled D The insured cancels the policy mid-term

The insured cancels the policy mid-term When the insured cancels a policy before the expiration date, a short-rate cancellation is issued, and the insurer retains a portion of the unearned premium to cover costs.

An insured needs to submit a claim after a property loss, and their insurer requires them to submit a notice of loss. All of the following statements about the notice of loss are true, except: A The notice of loss must be submitted promptly B The notice of loss contains an inventory of damaged property C The notice of loss contains details about the circumstances of the loss D The notice of loss is a written notice that a loss occurred

The notice of loss contains an inventory of damaged property basic details needed

Generally, liability policies include all of the following in its coverage territory, except: A Canada B Guam C Mexico D Puerto Rico

The policy territory is usually limited to the United States, its territories and possessions, Puerto Rico, and Canada. This is a common coverage territory, even though some policies may offer worldwide coverage, or may expand the territory by endorsement

L and an insurer have entered into a legal insurance contract. Though L pays a set premium to the insurer, neither L nor the insurer knows if L will receive any claim payments in return, as the parties cannot predict whether or not a loss will occur during the policy period. This unequal exchange of value contngent on uncertain events best describes which type of contract? A Unilateral contract B Contract of adhesion C Conditional contract D Aleatory contract

The unequal exchange of value contingent on the uncertainty of an event describes an aleatory contract. A contract of adhesion is one where one party drafts the contract without negotiations with the other party.

Which of the following is not a function of insurance? A To transfer risk from the insured to the insurer B To exchange a small certain expense for a large uncertain loss C To act as an investment vehicle for the insured D To protect against uncertainty and reduce anxiety

To act as an investment vehicle for the insured

Selecting acceptable risks is the primary responsibility of the: A Producer B Actuary C Adjuster D Underwriter

Underwriter

Which of the following constitutes the acceptance of an offer? A When the agent assures the applicant they will be covered B When the insurer makes a counteroffer C When an insurer issues a binder D When the applicant completes the application

When an insurer issues a binder

Two insurance policies cover the same loss. To pay the claim, each insurer pays a portion of the loss equal to the ratio of insurance written by each insurer compared to the total amount of applicable coverage. This best describes: A Primary coverage B Excess insurance C Pro rata liability D Contribution by equal shares

When the Other Insurance condition specifies that insurers are liable on a pro rata basis, it means that each insurer pays a proportionate amount of the loss, equal to the ratio of insurance the insurer provides compared to the total amount of applicable coverage provided by all insurers. In other words, each insurer only pays its share of the loss, and the insured does not collect more than the actual extent of the loss.

The standard policy structure for insurance policies includes all of the following sections, except: A Insuring Agreement B Exclusions C Conditions D Duties

duties The duties of the insured and the insurer are found in the policy Conditions

All of the following are characteristics of mutual insurers, except: A Surplus premiums may be returned as dividends B Stockholders have ownership of the company C Mutual insurers provide insurance to members D Policyholders elect the board of directors

B Stockholders have ownership of the company- Mutual insurers are owned by policyholders, or members,

The duties and obligations of the insured are found under what part of the insurance policy? A Declarations B Additional Coverages C Insuring Agreement D Conditions

Conditions Rights, such as the insured's terms for cancellation, or the duties, such as the insured's duties in the event of a claim,

Moral Hazard

Dishonest tendencies that increase the probability of a loss, including certain characteristics and behaviors of people. Moral hazards are most closely related to some form of lying, cheating, or stealing. Moral hazards are intentional, so these losses are not covered. Examples: An insured burns down their own house or fakes an injury to collect the insurance payout.

A named insured on a property insurance policy may transfer their rights and duties under the policy, even without the insurer's permission, to which of the following people? A No insured may assign the policy to another person B Only their legal representative upon the death of the named insured C Only someone who is considered an insured on the policy D No one, because only the first named insured may assign the policy to another

Only their legal representative upon the death of the named insured

Wet leaves on a sidewalk are considered a: A Moral hazard B Physical hazard C Morale hazard D Natural hazard

Physical hazard

An insurance policy that responds to a loss first is a: A Nonconcurrent policy B Primary policy C Concurrent policy D Excess policy

Primary policy

A state that requires the Commissioner of Insurance to determine that a company's rates are appropriate before the rates are made effective uses which type of rating approval method? A Mandatory B File and use C Open competition D Prior approval

Prior approval- Prior approval requires that the rates cannot be used until the Commissioner approves the rate, or until a set time period has expired after the filing.

After a loss, the insured must provide a notice of loss to the insurer. The notice must be submitted: A Promptly B During the policy period C Immediately D Within 60 days

Promptly- The notice of loss, which informs the insurer that a loss occurred, must be provided to the insurer promptly. Insurers will commonly ask for the formal proof of loss to be provided within 60 days after the loss. Though the exact terms depend on the policy and the insurer, insurance policies typically require the loss itself to occur within the policy period and allow the notice of loss to be submitted after the policy period.

Endorsements may be added to an insurance policy to do any of the following, except: A Increase policy limits B Specify the policy's annual premium C Amend a standardized policy to comply with state law D Add coverages not included in the policy

The annual policy premium is specified on the Declarations page, not by endorsement

A certificate of insurance includes which of the following pieces of information? A The effective date, names of the insurer and named insured, and the limits of liability B The name of the insurer, the amount and type of insurance, and the perils insured against C The effective date, the premium, and the limits of liability D The expiration date, the premium, and limits of liability

The effective date, names of the insurer and named insured, and the limits of liability

The Assignment condition of an insurance policy states that: A The naming of parties other than the insured on loss payment checks is prohibited B The insured must give prompt notice to the insurer upon loss C The insured may not transfer ownership of the policy without the insurer's written permission D No requirements may be placed upon the insured without legal action

The insured may not transfer ownership of the policy without the insurer's written permission

While driving, G is hit by a drunk motorist, resulting in physical damage to G's car. G has a Personal Auto policy with ABC Insurance Company, and the policy pays G for the damage. The motorist is also legally obligated to compensate G for the physical damage because the motorist caused the accident. Under the Subrogation condition of G's policy, G must: A Waive their right to recover from the liable motorist because the insurer already paid for the loss B Return the claim payment to the insurer because the liable motorist must pay for the loss C Choose whether to accept the claim payment from the insurer or the payment from the liable motorist D Transfer their right of recovery to the insurer, who will recover the amounts paid by the liable motorist

Transfer their right of recovery to the insurer, who will recover the amounts paid by the liable motorist

Which of the following is least likely to be a factor when determining the eligibility of a person for property insurance? A Whether the premium will be paid in full or billed to the insured B The nature of the risk, such as the type of building and the number of families living in the building C The claims history showing when prior claims occurred and how much was paid to settle the claim D Existence of any hazards, such as nearby environmental risks

Whether the premium will be paid in full or billed to the insured

M purchases an insurance policy by paying the policy premium. If a loss does not occur during the policy period, M may have paid the premium without getting anything of value in return. If a loss does occur, however, M may receive a claim payment that far exceeds the premium amount. This unequal exchange indicates that the insurance contract is a(n): A Aleatory contract B Unilateral contract C Conditional contract D Contract of adhesion

aleatory contract When a contract based on an uncertain event includes an understanding that there will be an unequal exchange of consideration

What is the name for a type of policy that does not pay benefits until the limits of the primary policy has been exhausted? A Surplus lines policy B Liberalization policy C Common law policy D Excess policy

excess

Which of the following powers describes the authority stated in an agent's agency contract? A Express B Apparent C Assumed D Implied

expressed

A sworn, formal statement made by the insured that provides the necessary details for the insurer to determine its liability under a policy is called a: A Certificate of insurance B Proof of loss C Certificate of authority D Notice of loss

proof of loss is a formal statement submitted by the insured with more detailed information of the loss that allows the insurer to determine its liability under a policy. This is submitted after the insured submits a notice of loss.

An underwriter will consider each of the following factors when evaluating a risk, except: A Hazards B Claim history C Nature of the risk D Rates

rates- The underwriter protects the insurer against adverse selection by evaluating the factors likely to contribute to a loss

The Gramm-Leach-Bliley Act was responsible for which of the following? A Establishment of privacy protection for consumers B Enforcement of insurance fraud regulation C Deregulation of the trucking industry D Regulation of investment companies

A Establishment of privacy protection for consumers

Which of the following has the broadest coverage under the insurance policy? A Named insured B Insured C First named insured D Additional insured

A Named insured he named insured, who is anyone specifically named on the policy, receives the broadest coverage