Basics of Insurance

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An insured purchased new furniture for $ 6,000. At the time of a fire loss, it had depreciated $2,000. At current rates, the same furniture will cost $7,000 to replace. the actual cash value of the destroyed furniture is:

$5,000

How many days does an insurance company have to give unearned premium back to an agent?

10 days

How many days does an agent have t o return unearned premium to an insured?

15 days

Insurance contracts are between how many parties

2

HOw many days does an insurer have to return unearnd premium to an insured?

25 days

A peril is defined as:

A cause of loss

Which insurance company is owned and formed for the benefit of its members

A mutual insurer

A fiduciary must hold funds and property, in a position of trust. They must also

Act in a prudent fashion

A person that solicits, negotiates and effect contracts on behalf of an insurer is a:

Agent (producer)

An insured loss reserved for a claim is:

An estimate of the amount that the insurer will pay

What is Hazard?

Anything that increases the chances of loss

A risk management technique that a loss exposure and reduces the chance of loss to zero is

Avoidance

In order for negligence to exist which of the following must be present?

Breach of the duty to act Occurrence of injury or damage Duty of act

A person that sells insurance for only one company is

Captive agent

The process whereby an insured suffers a loss and is paid to return him to his prior financial condition is:

Ceding

An illegal practice which occurs when an agent mixes personal funds with the insured's or insurer's funds

Commingling

Failure to disclose material facts is:

Concealment

A term that refers to a situation in which two or more perlis cause a loss

Concurrent causation

What department is set up in order to regulate insurance rates?

DOI

Where is a policy personalized to say who is covered, what is covered, limit of insurance and policy period?

Declarations

In an insurance contract, D.I.C.E refers to:

Declarations, Insuring clause, Conditions, and Exclusions

A reduction in the value of property that results immediately from damage to the property is known as:

Direct Loss

Provision that deny coverage for certain perlis

Exclusions

The insuring agreement contains all of the following except

Exclusions

Grouping people by similar characteristics is:

Fair discrimination

A speculative risk, like a pure risk is insurable

False

Compensatory damages in a hearing will generally determine the amount of punitive damages

False

An insurer cancels a policy an returns the entire premium. this is:

Flat cancellation

An insurer organized in a state outside of the state of California can be referred to as what kind of insurer

Foreign

Misrepresentation, deceit or trickery can be defined as:

Fraud

Because insurance is a contract of adhesion, ambiguous language in a contract will show which party at fault

Insurance company

Assignment/ transfer cannot be made without written consent from

Insurer

A monoline policy

Is a policy that is written to cover property only

Insurance has a number of characteristics. Witch of the following is not one of them

It involves a catastrophic exposure

The insured should be compensated for his loss, returning him to the condition that existed prior to the loss. this is the principle of indemnity. which of the following is correct?

It is a basic principle of insurance

Which of the following is a true statement about the insurance?

It is a method of transferring the risk

Which of the following is not a benefit of insurance?

It reduces the risk exposure

The total amount an insurance company is liable to pay out is:

Limit of insurance

A pure risk involves a chance of

Loss

To qualify as an insurable risk

Losses must be definable losses must be accidental losses must be enough to cause hardship to the insured

An incorporated insurer owned by its policy holders and formed for their benefit is called

Mutual insurer

Which of the following is an example of loss retention?

Not purchasing collision insurance on your auto

An event that result in a loss to an insured at a definite time and place or due to repeated exposure can be defined as

Occurrence

Insurers may purchase reinsurance for a variety of reasons. Which of the following is NOT a goos example of the use of reinsurance? Insurer purchases reinsurance:

Only on the below average business submitted to them, keeping the good business to them.

Which of the following must be on ALL insurance policies?

Parties of the contract Insurable interest Term of the policy

To what does insurable interest mean?

Peril

If an individual or a family suffers a loss due to death or disability of a member, what type of loss is it?

Personal Loss

A house located next to a dynamite plants is considered what kind of hazard

Physical

The method in which the insurance companies receive approval from the DOI before using certain rates

Prior approval

When the insured cancels a policy and only retain the earned premium, this is:

Pro-rata cancellation

Insureds must comply with certain provisions when submitting a claim these include:

Prompt notice of loss or damage Submitting claims Notifying the police if theft is involved

Which of the following is an example of reducing risk probability

Putting a fence around the pool

What effect does increasing a deductible have on a policy?

Reduces the premium payment

A way for insurers to avoid having to pay for large or catastrophic losses

Reinsurance

Insurance companies transfer part of a particularly large risk through what process

Reinsurance

The amount to replace property with like property of the same quality and construction is the

Replacement cost

What is the actual cash value

Replacement cost - depreciation

When suffering a covered loss an insured individual should do which of the following

Send a list of items damaged statin the quantity and receipts of purchase. Submit to an interview with the insured's representative without any other person present Notify the police if there is a theft loss

When an insurance policy is cancelled by the insured, and the company retains premium for the protection provided plus expenses, cancellation is said to be on a:

Short rate basis

The insurer's right to recovers its claim payment to an insured from a negligent 3rd party is know as:

Subrogation

To what does lapse refer?

Termination due to non-payment

An insured suffers a loss caused by a third party. How will the insured's insurance company handle the claim?

The insurer will pay the insured for a covered loss and seek reimbursement from the party at fault with the cooperation of the insured

Which of the following statement is true regarding compensatory damages?

There is usually no direct correlation between the amount of general and special damages awarded to the victim.

What is unoccupied?

There may be furniture but no people in a building

Liability losses are referred to as

Third party losses

If it is proven that another person negligence contribute to an injury, ehant gives the injured party the right to seek compensation?

Tort of law

The main purpose of insurance is to:

Transfer the risk

A consequential loss in not directly caused by a peril but assumed as a result of a direct loss

True

A deductible is the portion of a loss retained by the insured before the insurer will cover a claim

True

Coinsurance refers to the amount of insurance an insured must carry in order to be fully insured

True

Complete the definition. A risk is

Uncertainty of loss

The system in which the insurers determine who to insure and what rates to charge is known as:

Underwriting

What is the process called whereby insurers decide which customers to insure and what coverage to offer?

Underwriting

Aleatory in nature refers to:

Unequal exchange by two parties

Which of the following is not a method for risk management?

Variance

Through what kind of liability can a person be held responsible for the actions of others. i.e. negligent acts of a child or employee

Vicarious

If an insured voluntary relinquishes his rights, this is an example of:

Waiver

A policy may not be transferred to another without:

Written consent of the insurer


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